As filed with the Securities and Exchange Commission on November 26, 1996
                                                    Registration No.

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM S-1
                             REGISTRATION STATEMENT
                        Under The Securities Act of 1933
                            ARTRA GROUP INCORPORATED
             (Exact name of registrant as specified in its charter)
<TABLE>
<S>                                                   <C>                                         <C>       
        Pennsylvania                                  2671                                        25-1095978
(State or other jurisdiction        (Primary Standard Industrial Classification        (I.R.S Employer Identification No.)
of incorporation or organization)                   Code Number)
</TABLE>
                              --------------------
                               500 Central Avenue
                           Northfield, Illinois 60093
                                 (847) 441-6650
    (Address, including zip code, and telephone number, including area code,
                  of registrant's principal executive offices)
                              --------------------
                                Lawrence D. Levin
                               500 Central Avenue
                           Northfield, Illinois 60093
                                 (847) 441-6650
                            (Name, address, including
                                  zip code, and
                                telephone number,
                              including area code,
                              of agent for service)
                                 With copies to:

           Lawrence R. Samuels                       Philip E. Ruben
             Ross & Hardies                    Kwiatt Silverman & Ruben Ltd.
               Suite 2500                           500 Central Avenue
        150 North Michigan Avenue                 Northfield, IL  60093  
            Chicago, IL 60601                        (847) 441-7676
             (312) 558-1000                               
                              ---------------------
        Approximate date of commencement of proposed sale to the public:
From time to time after the  effective  date of this  Registration  Statement as
determined by market conditions and other factors.

If any of the  securities  being  registered on this form are to be offered on a
delayed or continuous  basis  pursuant to Rule 415 under the  Securities  Act of
1933,   check  the   following   box.  X   
                                      ---  

                        CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
======================================================================================================================= 
                                                      Proposed  Maximum      Proposed  Maximum  
  Title of Each Class of             Amount to           Offering Price           Aggregate             Amount of 
Securities to be Registered       be Registered(1)       Per Share(1)          Offering Price(1)     Registration Fee
----------------------------------------------------------------------------------------------------------------------- 

<S>                                  <C>                  <C>                     <C>                 <C>          
Common  Stock, $.01 par value        4,629,972            $6.19                   $28,659,257         $8,685.00
======================================================================================================================= 
<FN>
     (1) Solely  for the  purpose  of  calculating  the  registration  fee,  the
offering  price per share,  the aggregate  offering  price and the amount of the
registration  fee have been  computed in  accordance  with Rule 457(c) under the
Securities Act of 1933, as amended.  Accordingly,  the price per share of Common
Stock has been  calculated to be equal to the average of the high and low prices
for a share of  Common  Stock as  reported  by the New York  Stock  Exchange  on
November 25, 1996,  which is a specified date within five business days prior to
the original date of filing of this Registration Statement.
</FN>
</TABLE>
<PAGE>
The Registrant hereby amends this  Registration  Statement on such date or dates
as may be necessary to delay its effective date until the Registrant  shall file
a further amendment which specifically  states that this Registration  Statement
shall  thereafter  become  effective  in  accordance  with  Section  8(a) of the
Securities  Act of 1933,  or  until  the  Registration  Statement  shall  become
effective on such date as the Commission,  acting pursuant to said Section 8(a),
may determine.

Page  1  of  _____  sequentially   numbered  pages.  Exhibit  Index  appears  on
sequentially numbered page ______.
<PAGE>



                              CROSS REFERENCE SHEET

<TABLE>
<CAPTION>
Form S-1
Item No.               Registration Item and Heading                          Location in Prospectus
--------               -----------------------------                          ----------------------
<C>                                                                     <S>
1.        Forepart of the Registration Statement and Outside Front
              Cover Page of Prospectus...............................   Forepart; Outside Front Cover Page

2.        Inside Front and Outside Back Cover Pages of Prospectus....   Inside Front and Outside Back Cover Pages

3.        Summary Information, Risk Factors and Ratio of Earnings to
              Fixed Charges                                             Prospectus Summary; Risk Factors

4.                                                                      Outside Front Cover Page; Prospectus Summary; Plan of
          Use of Proceeds............................................      Distribution

5.        Determination of Offering Price............................   Not applicable

6.        Dilution...................................................   Not applicable

7.        Selling Security Holders...................................   Selling Shareholders

8.        Plan of Distribution.......................................   Outside Front Cover Page; Plan of Distribution

9.        Description of Securities to be Registered.................   Description of the Company's Securities

10.       Interests of Named Experts and Counsel.....................   Not applicable

11.       Information with Respect to the Company:

11.(a)    Description of Business....................................   Business and Properties; Index to Financial Statements

11.(b)    Description of Property....................................   Business and Properties

11.(c)    Legal Proceedings..........................................   Legal Proceedings; Business and Properties

11.(d)    Market Price of and Dividends on the Registrant's Common
              Equity and
              Related Shareholder Matters............................   Market Price of the Company's Common Stock

11.(e)    Financial Statements.......................................   Index to Financial Statements

11.(f)    Selected Financial Data....................................   Prospectus Summary

11.(g)    Supplementary Financial Information........................   Prospectus Summary

11.(h)
          Management's Discussion and Analysis of                       Management's Discussion and Analysis of Financial
              Financial Condition and Results of Operations..........      Condition and Results of Operations

11.(i)    Disagreements with Accountants on Accounting and Financial
              Disclosure.............................................   Not applicable

11.(j)    Directors and Executive Officers...........................   Management

11.(k)    Executive Compensation.....................................   Executive Compensation

11.(l)    Security Ownership of Certain Beneficial
              Owners and Management..................................   Principal Shareholders

11.(m)    Certain Relationships and Related
              Transactions...........................................   Transactions with Management and Others

12.
          Disclosure of Commission Position on Indemnification for
              Securities Act                                            Indemnification of
              Liabilities............................................      Officers and Directors

</TABLE>
<PAGE>


                 SUBJECT TO COMPLETION DATED NOVEMBER 26, 1996
PROSPECTUS

Information   contained  herein  is  subject  to  completion  or  amendment.   A
registration  statement  relating  to these  securities  has been filed with the
Securities  and Exchange  Commission.  These  securities may not be sold nor may
offers  be  accepted  prior  to the  time  the  registration  statement  becomes
effective.  This  prospectus  shall  not  constitute  an  offer  to  sell or the
solicitation of an offer to buy nor shall there by any sale of these  securities
in any State in which such offer,  solicitation  or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.

                                4,629,972 Shares
                            ARTRA GROUP INCORPORATED
                                  COMMON STOCK

       THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. See "Risk Factors."


         ARTRA GROUP Incorporated,  a Pennsylvania corporation (the "Company" or
"ARTRA"),  is  engaged,  through  its  subsidiary,   in  manufacturing  flexible
packaging products principally for the food industry.  It also has a significant
minority  interest  (1,813,036  shares or  approximately  19% of the outstanding
stock as of September 26, 1996) in the common stock of COMFORCE  Corporation,  a
public  company whose stock is listed on The American  Stock  Exchange under the
symbol "CFS."

         All of the 4,629,972 shares of common stock of the Company (the "Common
Stock")  offered  hereby are being  offered for sale from time to time by or for
the account of certain  existing  security  holders of the Company (the "Selling
Shareholders").  See "Selling  Shareholders."  The Common Stock is listed on the
New York and Pacific  Stock  Exchanges.  The Common  Stock may be offered by the
Selling  Shareholders  from  time to time in  transactions  on the New  York and
Pacific Stock Exchanges,  in negotiated  transactions,  or a combination of such
methods  of sale,  at  fixed  prices  that  may be  changed,  at  market  prices
prevailing  at the time of sale,  at prices  related to such  prevailing  market
prices or at  negotiated  prices.  The  Selling  Shareholders  may  effect  such
transactions by the sale of the Common Stock to or through  broker-dealers,  and
such  broker-dealers  may  receive   compensation  in  the  form  of  discounts,
concessions or commissions from the Selling  Shareholders  and/or the purchasers
of the  Common  Stock for whom such  broker-dealers  may act as agent or to whom
they  may  sell  as  principal,  or both  (which  compensation  to a  particular
broker-dealer might be in excess of customary commissions).

         In certain  cases the Selling  Shareholders,  brokers  executing  sales
orders  on  their  behalf  and  dealers   purchasing  shares  from  the  Selling
Shareholders  for resale,  may be deemed to be  "underwriters,"  as that term is
defined  in  Section  2(11) of the  Securities  Act of  1933,  as  amended  (the
"Securities  Act"),  and any commissions  received by them and any profit on the
resale of Common Stock purchased by them may be deemed underwriting  commissions
or discounts under the Securities Act.

         The Company will not receive any proceeds from sales of shares to which
this Prospectus relates.  However, insofar as the holders of options or warrants
to purchase  shares of the Common Stock are expected to exercise  their warrants
or options in order to sell the underlying shares (which are registered hereby),
the Company will  receive the amount of the  exercise  prices of any warrants or
options so  exercised.  See "Risk  Factors - Dilution and  Depression  of Market
Price from  Issuance of  Additional  Common  Stock." As of the date hereof,  the
aggregate  amount of the exercise  prices of all shares  issuable by the Company
upon the exercise of options or warrants  outstanding  as of the date hereof and
subject to registration  hereby is $13,098,000.  The Company cannot predict when
or if it will receive proceeds from the exercise of warrants or options,  or the
amount of any such  proceeds.  None of the  holders of options or  warrants  can
reasonably be expected to exercise  their options or warrants  unless the market
price on the New York and  Pacific  Stock  Exchanges  of the Common  Stock is in
excess of the exercise price therefor.  The Company intends to use the proceeds,
if any,  received  from the  exercise of warrants or options to retire or reduce
indebtedness,  to pay expenses of the offering and for working capital purposes.
See "Plan of Distribution."

         The  Company's  Common  Stock is traded  and quoted on the New York and
Pacific Stock  Exchanges  under the symbol "ATA." On November 25, 1996, the last
sale price of Common  Stock,  as  reported  on the New York Stock  Exchange  was
$6.50 per share.

         The Company will bear all expenses (other than  underwriting  discounts
and selling  commissions,  and fees and expenses of counsel or other advisors to
the Selling  Stockholders)  in connection with the registration of the shares of
Common  Stock  being  offered  hereby,   which  expenses  are  estimated  to  be
approximately $225,000. See "Selling Shareholders" elsewhere in this Prospectus.

THESE  SECURITIES  HAVE NOT BEEN APPROVED OR  DISAPPROVED  BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE  SECURITIES  COMMISSION  PASSED UPON THE  ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>

                             ADDITIONAL INFORMATION


         The Company has filed with the Securities and Exchange  Commission (the
"Commission"),  Washington, D.C., a Registration Statement on Form S-1 under the
Securities  Act and the  rules  and  regulations  promulgated  thereunder,  with
respect to the Common Stock offered hereby.  This Prospectus,  which constitutes
part of the Registration Statement,  omits certain information contained in said
Registration  Statement and the exhibits and schedules thereto,  as permitted by
the rules and  regulations  of the  Commission.  For  further  information  with
respect to the Company and the Common Stock offered hereby, reference is made to
the  Registration  Statement,  including  the  exhibits  thereto  and  financial
statements,  notes, and schedules filed as part thereof,  which may be inspected
and copied at the public  reference  facilities  of the  Commission  referred to
below.  Statements  herein  concerning  the  contents  of any  contract or other
document are not necessarily complete, and in each instance reference is made to
the full text of such contract or other document filed with the Commission as an
exhibit to the Registration Statement,  or otherwise,  each such statement being
qualified and amplified in all respects by such reference.

         The  Company  is  subject  to  the  informational  requirements  of the
Securities Exchange Act of 1934 (the "Exchange Act") and in accordance therewith
files reports,  proxy  statements  and other  information  with the  Commission.
Certain  information as of specified  dates  concerning  directors and officers,
their remuneration, options granted to them, the principal holders of securities
of the Company,  and any material  interest of such persons in transactions with
the Company,  is  disclosed in proxy  statements  distributed  to the  Company's
shareholders and filed with the Commission.  Such reports,  proxy statements and
other information filed by the Company, and The Registration  Statement of which
this Prospectus forms a part, the exhibits and schedules  thereto and amendments
thereof,  may be  inspected  at the  Commission's  public  reference  facilities
maintained at 450 Fifth Street,  N.W., Room 1024,  Judiciary Plaza,  Washington,
D.C. 20549, and at the following SEC Regional Offices: Seven World Trade Center,
13th Floor,  New York,  New York  10048;  and Suite  1400,  Northwestern  Atrium
Center,  500 West  Madison  Street,  Chicago,  Illinois  60661.  Copies  of such
material can be obtained from the Public  Reference  Section of the  Commission,
Room 204,  Judiciary Plaza, 450 Fifth Street,  N.W.,  Washington,  D.C. 20549 at
prescribed  rates.  The  Common  Stock of the  Company is listed on the New York
Stock Exchange and the Pacific Stock Exchange,  and such reports, proxy material
and other  information  are also  available for inspection at the New York Stock
Exchange,  20 Broad  Street,  New York,  New York 10005,  and the Pacific  Stock
Exchange, 301 Pine Street, San Francisco, California 94104.



















                                      -2-
<PAGE>

                               PROSPECTUS SUMMARY


         The following is a summary of certain of the  information  contained in
this  Prospectus  and  is  qualified  in  its  entirety  by  the  more  detailed
information and financial  statements  appearing  elsewhere herein.  Prospective
investors should carefully  consider the information set forth under the caption
"Risk Factors."

The Company

         ARTRA,   through  its  subsidiary,   Bagcraft  Corporation  of  America
("Bagcraft"),  currently  operates in one industry  segment as a manufacturer of
packaging products  principally serving the food industry.  All of the shares of
Bagcraft  are  owned by BCA  Holdings,  Inc.  ("BCA"),  which is a wholly  owned
subsidiary of ARTRA. BCA has no assets other than the shares of Bagcraft.  ARTRA
is a public  company,  whose stock is listed on the New York and  Pacific  Stock
Exchanges under the symbol ATA.

         ARTRA,  through its wholly-owned  subsidiary,  Fill-Mor  Holding,  Inc.
("Fill-Mor"),  also owns a significant minority interest in COMFORCE Corporation
("COMFORCE"),  consisting  of  1,813,036  shares  or  approximately  19%  of the
outstanding common stock of COMFORCE as of September 26, 1996. COMFORCE provides
telecommunications and computer technical staffing services worldwide to Fortune
500  companies  and  maintains  an  extensive   global   database  of  technical
specialists, with an emphasis on wireless communications capabilities.  COMFORCE
is a public company,  whose stock is listed on The American Stock Exchange under
the symbol  "CFS." On November 25, 1996,  the last  reported  sale price for the
Common Stock of COMFORCE was $12.00 per share. Fill-Mor has no assets other than
the COMFORCE shares.


The Offering

         ARTRA is required  under  certain  agreements  it has entered into with
shareholders  and warrant holders to register the shares of Common Stock held by
such  shareholders  or  issuable  upon the  exercise  of  warrants  held by such
warrantholders.

         Existing  security  holders of the Company are offering up to 4,629,972
shares of Common  Stock held by them,  or issuable to them upon the  exercise of
options or warrants held by them.

Common Stock Offered by the Selling Shareholders ............  4,629,972 shares*
Common Stock Outstanding as of September 26, 1996............  7,694,872 shares
Common Stock Issuable Under Options as of September 26, 1996.    932,350 shares
Common Stock Issuable Under Warrants as of September 26, 1996  1,584,514 shares
Total (including Options and Warrants)....................... 10,211,736 shares

-----------------
*Includes Common Stock issuable under options and warrants. Neither the warrants
or options are being  registered.  The Company is  registering  shares of common
stock issuable upon exercise of the options and warrants,  shares  issuable upon
conversion  of certain  notes,  and shares  issued in payment of ARTRA notes and
other obligations.

         See "Selling Shareholders" and "Plan of Distribution."

Proceeds From Exercise of Warrants or Options

         The Company will not receive any  proceeds  from the sale of the Common
Stock offered  hereby by the Selling  Shareholders.  However,  if the holders of
options or warrants to purchase  shares of Common Stock  exercise their warrants
or options in order to sell the underlying  shares, the Company will receive the
amount of the exercise  prices of any warrants or options so exercised.  Neither
the warrants or options are being registered. The Company

                                      - 3 -
<PAGE>

is  registering  shares of common stock  issuable upon exercise of the warrants,
shares issuable upon  conversion of certain notes,  and shares issued in payment
of ARTRA notes and  obligations.  The Company  cannot predict when or if it will
receive proceeds from the exercise of warrants or options,  or the amount of any
such proceeds.  The Company intends to use the proceeds,  if any,  received from
the  exercise of warrants  or options to retire or reduce  indebtedness,  to pay
certain expenses of the offering and for working capital.

Risk Factors

         Prospective  investors  should  carefully  review the risk  factors and
other  information set forth herein,  including under the heading "Risk Factors"
which  discusses,  among other  things,  significant  risks  associated  with an
investment in the Company.

Selected Financial Data

         Following is a consolidated  summary of selected  financial data of the
Company for the nine month  periods  ended  September 26, 1996 and September 28,
1995 and each of the five fiscal  years in the period  ended  December 28, 1995.
The  information  for the year ended December 29, 1994 has been  reclassified to
reflect the operations of Arcar Graphics, Inc. as discontinued  operations.  The
sale of Arcar  (acquired  effective  April 9, 1994) was completed on October 26,
1995.  Certain  selected  financial  data each of the four  fiscal  years in the
period  ended   December  29,  1994  has  been   reclassified   to  reflect  the
discontinuance  of the Company's  fashion  costume  jewelry  business  effective
September 30, 1995 conducted by its former  majority-owned  subsidiary  COMFORCE
(formerly  known as The Lori  Corporation  ("Lori")).  In October  1995,  due to
additional  issuances  of  COMFORCE  common  stock,  the  Company's  interest in
COMFORCE was reduced to  approximately  25% and the  investment  in COMFORCE was
accounted for under the equity  method during the fourth  quarter of 1995. As of
September 26, 1996, the Company owned 1,813,036  shares, or approximately 19% of
COMFORCE.  See Notes 2 and 5 to the Company's condensed  consolidated  financial
statements for the nine months ended September 26, 1996 for a further discussion
of the Company's investment in COMFORCE and its results of operations.


                                      - 4 -

<PAGE>
<TABLE>
<CAPTION>
                                         Nine Months Ended                         Fiscal Year Ended (E)
                                        --------------------      ----------------------------------------------------------- 
                                        Sept 26,     Sept 28,
                                          1996        1995          1995         1994         1993         1992         1991
                                         ------      ------        ------       ------       ------       ------       ------
                                                                (in thousands except per share data)
   <S>                                  <C>         <C>          <C>          <C>          <C>          <C>          <C>

   Net sales                            $ 90,162    $ 90,703     $ 121,879    $ 111,837    $ 113,584    $ 121,084    $ 123,906
   Earnings (loss) from               
     continuing operations (A)             3,523     (12,543)      (16,943)     (13,529)      (8,327)      (4,118)     (11,191)
   Earnings (loss) from
     discontinued operations (B)             --       (9,156)           10      (15,906)        (216)     (33,854)      (1,970)
   Extraordinary credits (C)               9,424       9,113        14,030        8,965       22,057          --           --
   Net earnings (loss)                    12,947     (12,586)       (2,903)     (20,470)      13,514      (37,972)     (13,161)

   Earnings (loss) per share:
     Continuing operations                   .32       (1.96)        (2.69)       (2.56)       (1.84)       (1.16)       (2.87)
     Discontinued operations                 --        (1.36)          --         (2.74)        (.04)       (7.74)        (.49)
     Extraordinary credits                  1.23        1.35          2.06         1.57         4.49          --           --
     Net earnings (loss)                    1.55       (1.97)         (.63)       (3.73)        2.61        (8.90)       (3.36)

   Total assets (D)                       86,131      79,161        77,949       93,429       92,774       98,731      126,277
   Long-term debt                         34,541      11,086        34,113       19,673       29,264       13,802       57,296
   Debt subsequently discharged              --          --            --         9,750          --           --           --
   Liabilities subject
      to compromise                          --          --            --           --           --        41,500          --
   Cash dividends                            --          --            --           --           --           --           --

</TABLE>









                                      - 5 -
<PAGE>




(A)  Earnings from continuing operations for the nine months ended September 26,
     1996 includes  realized gains of $4,823,000  from  dispositions of COMFORCE
     common  common stock and a gain of $838,000  from an exchange of redeemable
     preferred stock of its subsidiary Bagcraft.

(B)  The loss from  discontinued  operations for the nine months ended September
     26,  1996,  and the year  ended  December  28,  1995  includes  a charge to
     operations of  $6,430,000  to write-off  the  remaining  goodwill of Lori's
     fashion costume jewelry operations effective June 29, 1995, and a provision
     of $1,000,000  for loss on disposal of the Lori's fashion  costume  jewelry
     operations.  Earnings  from  discontinued  operations  for the  year  ended
     December 28, 1995 includes a gain on sale of Bagcraft's Arcar subsidiary of
     $8,483,000.  The loss  from  discontinued  operations  for the  year  ended
     December  31,  1994  includes  a  charge  to   operations  of   $10,800,000
     representing  a  write-off  of  New  Dimensions  goodwill.  The  loss  from
     discontinued  operations  for the year ended  December  31,  1992  includes
     charges to operations of $8,664,000  representing an impairment of goodwill
     at December 31, 1992 and  $8,500,000  representing  increased  reserves for
     markdowns allowances and inventory valuation.

(C)  The 1996,  1995 and 1994  extraordinary  credits  represent  gains from net
     discharge of bank indebtedness.  The 1993 extraordinary credit represents a
     gain from a net  discharge of  indebtedness  due to the  reorganization  of
     Lori's New Dimensions subsidiary.

(D)  As partial consideration for a debt settlement agreement, in December, 1994
     Lori's  bank  lender  received  all of the  assets  of the  New  Dimensions
     subsidiary.

(E)  Effective in 1993, the Company  adopted a 52/53 week fiscal year ending the
     last Thursday of December.















                                      - 6 -

<PAGE>



                                  RISK FACTORS





      THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS INVOLVE A HIGH
  DEGREE OF RISK. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER, AMONG OTHER
THINGS, THE FOLLOWING RISK FACTORS INHERENT IN AND AFFECTING THE BUSINESS OF THE
     COMPANY AND THIS OFFERING, TOGETHER WITH THE OTHER INFORMATION IN THIS
               PROSPECTUS, BEFORE MAKING AN INVESTMENT DECISION.



         Continuing Losses



         The Company has experienced  losses from continuing  operations in each
year  since  1990.   Losses  from  continuing   operations  of  $16,943,000  and
$13,529,000 were experienced in 1995 and 1994, respectively.



         Indebtedness



         As of  September  26,  1996,  the  Company had  outstanding  short-term
indebtedness of  approximately  $15,500,000,  of which  $3,300,000 was past due.
Bagcraft,  the  Company's  operating  subsidiary,   is  also  obligated  to  pay
substantial  amounts in the near future under the terms of its debt obligations.
At September 26, 1996, Bagcraft had $14,800,000 in term loans outstanding,  with
$600,000 due in 1996,  $200,000  payable monthly through August 31, 1997 and the
balance due on  September  30,  1997.  Bagcraft's  Revolving  Credit Loan had an
outstanding  balance of $12,311,000 due on September 30, 1997. Bagcraft also had
approximately  $802,000  in 1997,  on loans  from  the City of  Baxter  Springs,
Kansas, the aggregate  principal amount of which was $10,684,000 as of September
26,  1996.  See  Note  8  to  the  Company's  condensed  consolidated  financial
statements for the nine months ended September 26, 1996

         ARTRA has  outstanding  an  aggregate of  $3,000,000  in loans from The
Research Center of Kabbalah ("RCK").  All of these loans are currently past due,
but RCK has made no demand for payment of past due amounts.  During  1993,  RCK,
which held  approximately 8% of ARTRA's  outstanding Common Stock (including the
stock  issuable  upon the exercise of warrants) as of September  26, 1996,  made
certain  short-term loans to the Company of which  $2,000,000,  with interest at
10%, was  outstanding  at December 31, 1993.  As  additional  compensation,  RCK
received  warrants to purchase an aggregate  of 86,250  ARTRA  common  shares at
prices  ranging  from $6.00 to $7.00 per share  based  upon the market  price of
ARTRA's  common  stock at the date of issuance.  The warrants  expire five years
from the date of issuance.  In January 1994,  RCK made an additional  $1,000,000
short-term loan to the Company,  also with interest at 10%. The proceeds of this
loan were  used to pay down  various  ARTRA  short-term  loans  and  other  debt
obligations.  In December,  1995, RCK received 126,222 shares of ARTRA common in
payment of past due  interest  through  October 31,  1995.  In August,  1996 RCK
received a cash payment of approximately $240,000 representing past due interest
through June, 1996. Payment on the loans was due March 31, 1994.

         In July 1996,  ARTRA  completed a private  placement of 12%  promissory
notes due April 15, 1997 in the principal  amount of  $7,575,000.  The notes are
collateralized by ARTRA's interest in all of the common stock of BCA (the parent
company of Bagcraft).  As additional  consideration,  the  noteholders  received
warrants to purchase

                                      - 7 -

<PAGE>



an aggregate of 378,750  ARTRA common  shares at a price of $6.00 per share.  In
addition,  warrants to purchase an  additional  39,000  shares were issued to an
unrelated  party as a commission in connection  with the offering.  The warrants
became  exercisable August 15, 1996 and expire April 15, 1999. The proceeds from
this private placement were used to pay down various ARTRA debt obligations.

         On August  15,  1996,  ARTRA  and its 100%  owned  Fill-Mor  subsidiary
entered into a $2,500,000 term loan agreement with Manufacturers Bank. The loan,
payable  by  Fill-Mor  in 90 days  from the date of the  loan  agreement,  bears
interest,  payable monthly, at the bank's reference rate. Fill-Mor has an option
to extend the loan for an additional 90 days. In November  1996,  the option was
exercised and the loan was extended to February 11, 1997.  The loan,  guaranteed
by ARTRA, is  collateralized  by 800,000 shares of COMFORCE common stock. In the
event of a default, the bank has the right to sell all of its right and interest
in the loan to an  unaffiliated  individual for an aggregate  price equal to the
outstanding principal balance of the loan plus accrued interest. The proceeds of
the loan were used for working capital.

         In May,  1996,  ARTRA  borrowed  $100,000  from Mr.  Celano,  a private
investor,  evidenced by an unsecured  short-term  note,  due August 7, 1996, and
renewed to January 6, 1997,  bearing  interest at 10%. At the  Company's  annual
meeting of  shareholders,  held August 29, 1996,  Mr.  Celano was elected to the
Company's board of directors. The $100,000 loan is currently outstanding.

         In August,  1996,  ARTRA borrowed  $500,000 from Mr. Conant,  a private
investor,  evidenced by an  short-term  note,  due  December  23, 1996,  bearing
interest at 10%. The loan is collateralized by 125,000 shares of COMFORCE common
stock owned by the Company's Fill-Mor subsidiary. As additional compensation for
the loan, the lender  received a warrant,  expiring in 2001, to purchase  25,000
ARTRA  common  shares at a price of $5.00 per  share.  At the  Company's  annual
meeting of  shareholders,  held August 29, 1996,  Mr.  Conant was elected to the
Company's board of directors. The $500,000 loan is currently outstanding.

         In October 1996 the Company and its Fill-Mor  subsidiary entered into a
margin loan agreement with a financial institution which provided for borrowings
of $600,000,  with interest  approximating the prime rate.  Borrowings under the
loan agreement are  collateralized  by 125,000  shares of COMFORCE  common stock
owned by the Company's Fill-Mor subsidiary.

         ARTRA also has outstanding  short-term  borrowings from other unrelated
parties aggregating approximately $1,850,000, of which $300,000 is past due. The
remaining  amounts  come due at various  times in 1996 and 1997.  The notes were
issued at various times during the period May, 1991 to September,  1996, and the
interest rates vary between 10 and 15 percent.

         ARTRA has suffered  recurring  losses from  operations.  As a result of
these factors,  ARTRA has experienced difficulty in obtaining adequate financing
to replace certain current credit arrangements, certain of which are in default,
to fund its debt service and liquidity requirements.  Due to its limited ability
to receive operating funds from its operating subsidiary, ARTRA historically has
met its operating  expenditures with funds generated by such alternative sources
as private  placements  of ARTRA common  stock and notes,  sales of ARTRA common
stock with put options, loans from  officers/directors and private investors, as
well as through sales of assets (including  COMFORCE shares) and/or other equity
infusions.  ARTRA plans to continue to seek such alternative sources of funds to
meet its future operating expenditures.  However, there can be no assurance that
it will be successful in doing so in the future. If ARTRA is unable to negotiate
extensions  with its  creditors and complete the above  mentioned  transactions,
ARTRA could suffer severe adverse  consequences,  and as a result,  ARTRA may be
forced to liquidate its assets or file for protection under the Bankruptcy Code.



         COMFORCE


         ARTRA, through its wholly owned Fill-Mor subsidiary, owns a significant
minority  interest in COMFORCE,  consisting of 1,813,036 shares or approximately
19% of the outstanding common stock of COMFORCE as of November 25,1996,  with an
aggregate value as of that date of approximately $21,756,432 (value at September
26,  1996 was $31,728,000).  The  value of  COMFORCE  stock  has
fluctuated  substantially  in recent periods.  The high per share for the twelve
period ending  September  26, 1996 was $34.12,  and the per share low during the
same period was $2.75.  There can be no assurance that the value of the COMFORCE
shares will not decline substantially in the future, which would have a material
adverse effect on the value of ARTRA.

                                      - 8 -

<PAGE>


         The  COMFORCE  shares  constitute  unregistered  securities  under  the
Securities Act of 1933 (the "Act"). As a result of ARTRA's former involvement in
the operations  and management of COMFORCE,  ARTRA was considered an "affiliate"
of COMFORCE  under the Act, and because of this, the number of shares that ARTRA
could sell without  registration under the Act within any three-month period was
limited. For the reasons set forth below, the Company believes that an exemption
from registration  under Rule 144(k)  promulgated under the Act is now available
to it, and therefore the limitations  under Rule 144 on the number of restricted
shares that ARTRA could sell within any three-month period without registrations
are no longer applicable to it.

         Rule 144(k) of the Act permits the sale without  registration under the
Act of  restricted  shares of an  issuer  that have been held in excess of three
years by persons who have not been  "affiliates" of the issuer for the preceding
three months.  Since  December 28, 1995,  ARTRA,  Fill-Mor and their  respective
officers,  directors,  affiliates  and  employees  have  held no  managerial  or
executive  positions  with  COMFORCE  nor have any of the  above  served  in the
capacity of directors, nor have any of them had the right under any agreement or
otherwise to serve in such capacity since December 28, 1995.  Likewise,  neither
ARTRA,  Fill-Mor  nor any of the  above had the right  under  any  agreement  or
otherwise to serve in such capacity since December 28, 1995. Finally, since that
time, neither ARTRA,  Fill-Mor nor any of their respective officers,  directors,
affiliates  and employees  have had any material  involvement  in, nor have they
been able to  exercise  any  control  over,  COMFORCE,  either  individually  or
together with any other person or entity.  Because of this, the Company believes
that ARTRA and Fill-Mor are not  "affiliates"  of COMFORCE and,  since they have
held their shares in excess of three years, qualify for the exemption under Rule
144(k) set forth above.

         COMFORCE  has not agreed  that Rule  144(k) is  available  to ARTRA and
Fill-Mor,  and  accordingly  has not permitted ARTRA and Fill-Mor to sell shares
using  the  Rule  144(k)  exemption,  and  ARTRA  has no  right,  short of legal
proceedings, to force COMFORCE to permit it to sell shares using the Rule 144(k)
exemption.  Likewise, there can be no assurance that the Securities and Exchange
Commission would concur with the Company's position. Notwithstanding this, ARTRA
does not believe that its ability to sell  COMFORCE  shares,  or  eventually  to
realize on the value of its  COMFORCE  shares,  will be  affected  in a material
adverse way,  although it may not be able to sell its COMFORCE shares as quickly
as it could if it were to use Rule 144(k),  and in any event, an attempt to sell
a large number of its COMFORCE shares over a limited period could be expected to
result in a reduction in the value of such shares.



         Inability to Honor Put Options


         ARTRA has entered into various  agreements  under which it has sold its
common  shares  along with put options that require  ARTRA to  repurchase  these
shares at the option of the holder, usually one year after the date of each such
agreement.  At September 26, 1996,  options were outstanding that, if exercised,
would  require  ARTRA to  repurchase  98,734  shares of its Common  Stock for an
aggregate of  $3,565,000.  ARTRA does not have  adequate  resources to make such
redemptions.  However,  the holders  have the option to sell their shares in the
market,  subject to the  limitations  of Rule 144 of the  Securities  Act, which
could  adversely  impact the market price of the Common Stock. At its discretion
and subject to its financial  ability,  ARTRA could reimburse the option holders
for any  shortfall  resulting  from such sale.  At the present  time none of the
option  holders  have  demanded  payment,  and all of the  option  holders  have
indicated to the Company a  willingness  to work with the Company to satisfy the
obligations,  in some  manner  other  than a demand  for  payment  under the put
option.  See "Risk  Factors -  Dilution  and  Depression  of Market  Price  from
Issuance of Additional Common Stock" and "- Limited Trading Activity."



         Need for Additional Funds; Unfavorable Credit Terms


         The  Company  continues  to be engaged in efforts to obtain  equity and
debt financing.  Even if the Company's  Bagcraft  subsidiary  generates positive
cash flow (and there can be no  assurances  that it will),  it is  restricted in
paying  dividends  or making  distributions  to the Company  under  certain loan
agreements (except for limited overhead  allocations payable to ARTRA in certain
circumstances and payments under tax sharing arrangements where applicable).  As
a  result,  ARTRA  does not have a means of  generating  cash  flow on a regular
basis.  Consequently,  ARTRA is reliant on its  ability to place debt and equity
securities  privately and to sell  COMFORCE  shares to raise cash needed to meet
its working capital requirements.

         The costs and conditions  associated with raising  required capital may
not be on  favorable  terms,  and the Company  may not be able to sell  COMFORCE
shares at  favorable  prices.  In recent  years,  short-term  borrowings  by the
Company from private investors have generally been available, but at a high cost
to the Company. Stated base interest rates on its notes have been as high as 20%
(with  substantially  higher default  rates),  and certain of the borrowers have


                                      - 9 -

<PAGE>


demanded  warrants as additional  consideration for agreeing to extend credit to
the  Company.  Warrants  to  purchase  approximately  1,584,514  shares  of  the
Company's  common  stock (at  exercise  prices  equal to the  market  price when
issued,  which has ranged from $3.50 to $9.875 per share) have  previously  been
issued  to  private   lenders  in  connection  with  these   transactions.   The
continuation of such practices could result in further  dilution of the existing
shareholders' interests in the Company.



         Risks Relating to Peter R. Harvey



         The  Company's  ability to  continue to  refinance  its  operations  is
dependent on the ability of the  Company's  officers and  directors,  especially
Peter R. Harvey,  to raise capital.  In the event Mr. Harvey were not affiliated
with the Company for any reason,  this could adversely affect the ability of the
Company to survive.

         As of September 26, 1996, ARTRA has outstanding  total amounts due from
Peter R. Harvey,  including accrued interest,  of $5,861,000.  The advances bear
interest at the prime rate plus 2%, which was 10.25% at September 26, 1996. This
receivable has been classified as a reduction of common shareholder's equity.

         As partial collateral for amounts due from Peter R. Harvey, the Company
has received the pledge of 1,523 shares of ARTRA  redeemable  Series A preferred
stock (with a liquidation value of $1,523,000, plus accrued dividends) which are
owned by Mr.  Harvey.  In  addition,  Mr.  Harvey has pledged a 25%  interest in
Industrial Communication Company (a private company). Such interest is valued by
Mr. Harvey at $800,000 to $1,000,000.  During 1995, Peter R. Harvey entered into
a pledge agreement with ARTRA whereby Mr. Harvey pledged  additional  collateral
consisting of 42,067 shares of ARTRA common stock and 707,281  shares of PureTec
Corporation, a publicly traded corporation ("PureTec"). As of November 25, 1996,
the closing  market price of PureTec on the NASDAQ  National  Market was $2.0625
per  share.  In  addition,  in  connection  with a  discharge  of  certain  bank
indebtedness  discussed below, ARTRA received rights under a mortgage of certain
real estate owned by Mr.  Harvey.  The real estate had an appraised  value of $2
million as of December 13, 1993. The mortgage  secures  $2,150,000 of the amount
owed by Mr. Harvey.  Bank of America Illinois has a senior security  interest in
the  amount  of  $850,000.  See  "Transactions  with  Management  And  Others --
Settlement of the Bank of America Illinois Debt."



         Explanatory Paragraph in Report of Independent Accountants


         The  Company's  independent  accountants,   Coopers  &  Lybrand  L.L.P.
("Coopers & Lybrand"),  has issued an explanatory  paragraph with respect to the
Company,  that expresses  substantial  doubt as to the ability of the Company to
continue as a going concern due to recurring  losses from  operations  and a net
capital  deficiency  at December 28,  1995.  Coopers & Lybrand has stated in its
report  that,  as a  result  of  these  factors,  the  Company  has  experienced
difficulty  in  obtaining  adequate  financing  to replace  the  current  credit
agreements,   to  fund  its  debt  service  and  liquidity   requirements.   The
Consolidated  Financial  Statements  do not include any  adjustments  that might
result  from this  uncertainty.  If the  Company  ceases to  operate  as a going
concern,  an  investor  would be likely  to lose his  entire  investment  in the
Company's Common Stock.



         Dilution and  Depression  of Market Price from  Issuance of  Additional
Common Stock


         As of September 26, 1996,  there were 7,694,872 shares of the Company's
common stock  outstanding.  The  Company's  Board of Directors  has the power to
issue any and all authorized but unissued shares without  shareholder  approval.
At the  annual  meeting  held on August 29,  1996,  the  Company's  shareholders
approved an amendment to the Company's Articles of Incorporation to increase the
number of authorized  common shares from 7,500,000 to  20,000,000.  In addition,
the Company anticipates that holders of options and warrants will exercise their
options and warrants in order to sell the underlying shares  registered  hereby.
Such an exercise could result in a dilution of the interests of existing

                                     - 10 -

<PAGE>



shareholders.  Purchasers of the Shares  offered hereby should be aware that the
issuance of  additional  shares may result in a reduction in the market price of
the Company's  Common Stock then  outstanding.  See also "Risk Factors - Limited
Trading Volume."



         Possible  Delisting of Securities  from the New York Stock Exchange and
the Pacific Stock Exchange



         The  Company's  Common  Stock is  currently  listed on the New York and
Pacific Stock  Exchanges.  The Company has been unable to maintain the standards
for continued listing on these exchanges,  and the Company's securities could be
subject to delisting  from these  exchanges  at any time.  Trading of the Common
Stock might  thereafter  be  conducted  in the  over-the-counter  markets on the
electronic  bulletin board  established  for securities that do not meet the New
York and Pacific  Stock  exchange  listing  requirements  or in what is commonly
referred to as the "pink sheets." If delisting were to occur,  an investor could
find it more difficult to dispose of, or to obtain accurate quotations regarding
the price of the  Company's  Common  Stock,  and the market  price of the Common
Stock could decline significantly.



         Composition of the Board


         The  Company's  Articles  of  Incorporation  require  that at least six
persons  serve on the Board of  Directors.  Vacancies  existed on the  Company's
Board  between 1989 and August 29, 1996.  All  corporate  actions  taken between
October 12, 1993 and August 29, 1996 are potentially voidable since such actions
were take in reliance on the  consent or  affirmative  vote of less than four of
the Company's  directors  which would  constitute a majority of the required six
person Board.



         Conflicts of Interest


         In the past, the Company has been a party to numerous transactions with
officers  and  directors of the Company or with  entities in which  officers and
directors of the Company own  substantial  equity  interests.  While the Company
does not presently  contemplate  effectuating any additional  transactions  with
officers and directors of the Company or with management-owned  entities,  there
can be no assurance that it will not do so in the future. See "Transactions with
Management   and  Others."  In   addition,   as   described   under   "Principal
Shareholders,"  various  officers  and  directors  hold  warrants  or options to
purchase  shares of the  Company's  Common Stock,  including at exercise  prices
lower than the market price of the Company's Common Stock as of the date hereof.



         Limited Trading Activity


         During the six months  ended  September  26,  1996,  the daily  average
number of  shares of Common  Stock  traded on the New York  Stock  Exchange  was
approximately  39,500  shares.  If  such  trading  levels  continue,  it  may be
difficult  for Selling  Shareholders  to effect sales of their shares on the New
York and Pacific Stock  Exchanges,  and the placement of a substantially  larger
number of sell orders could materially and adversely impact the market price
                                     - 11 -

<PAGE>



of the Common Stock.  See also "Risk Factors - Dilution and Depression of Market
Price from Issuance of Additional Common Stock."



         Competitive Conditions in the Packaging Products Industry



         The packaging  products industry is highly  competitive.  The Company's
Bagcraft  subsidiary  competes as a printer and converter within the competitive
flexible  packaging  business.  Management  believes the  principal  competitive
factors in the Company's markets are product quality and  functionality,  price,
service and reputation.  Bagcraft  encounters  competition  from both integrated
producers  and  independents  in  each of its  four  divisions.  Some  of  these
competitors  are larger  and have  access to greater  financial  resources  than
Bagcraft. Bagcraft's costs have increased substantially in recent years, largely
due to increases in the cost of paper. Although Bagcraft generally seeks to pass
its increased costs on to its customers,  this is frequently not possible due to
the  competitive  nature of the  paper  products  industry.  See  "Business  and
Properties - Packaging Products Segment."



         Litigation



         At September  26,  1996,  ARTRA has  reserved  $1,900,000  for business
litigation and environmental liabilities.  Based on investigation and settlement
discussions,  the  Company  believes  this  to be a  sufficient  amount  for any
potential  costs or liabilities for the matters  described  below.  However,  no
assurance  can be given that the reserved  amount is  sufficient  to satisfy all
potential business litigation and environmental liabilities.  As described under
"Business and Properties - Legal Proceedings"  herein, ARTRA or its predecessors
or their subsidiaries have been identified by the U.S. Environmental  Protection
Agency ("EPA") as potentially  responsible  parties for  environmental  clean-up
costs (or sued by a named potentially  responsible party seeking indemnification
or contribution  for clean-up costs) for waste sent to several sites included on
the EPA's  National  Priorities  List,  which are commonly  known as "Superfund"
sites. In addition, ARTRA or its predecessors and their subsidiaries are alleged
to have sent  hazardous  substances to certain  other sites which,  although not
designated  as Superfund  sites,  are sites at which  environmental  clean-up or
remediation  may be  required  to be  undertaken.  ARTRA  and its  predecessors,
directly and through  subsidiaries,  have, since 1960,  operated in excess of 30
manufacturing  facilities.  Certain of these  facilities  used and/or  generated
hazardous  materials  and  disposed  of the  hazardous  substances,  directly or
through third party waste  disposal  firms at various  off-site  waste  disposal
locations,  in most  cases  before  laws had  been  enacted  governing  the safe
disposal of hazardous substances.



         ARTRA  has  not   conducted   a   comprehensive   audit  of   potential
environmental liability at the facilities formerly owned or operated by ARTRA or
its  predecessors  and their  subsidiaries  since it is no  longer  the owner or
operator  of most of the  properties  at which it or its  predecessors  or their
affiliates  conducted  manufacturing  operations.  As  a  result,  ARTRA  cannot
accurately  quantify  potential  environmental  liability  associated  with past
ownership or operation  of these  facilities.  ARTRA did not keep records of the
companies  with which it  contracted  for the  disposal  of wastes  before  such
record-keeping became mandated by law.



         In addition,  even if ARTRA is not found to be responsible for clean-up
costs at any particular  site, the costs of defending  itself in any proceedings
or inquiries instituted by the EPA, any state environmental  agencies or private
parties could itself be significant. As described under "Risk Factors - Need for
Additional Funds" herein, ARTRA has limited funds available to it, including for
its legal defense. In certain cases, ARTRA may be unable to raise

                                     - 12 -

<PAGE>



the funds  needed to mount an  adequate  (or any)  defense  against  the  claims
raised,  even if it has  legal  grounds  to do so. In one case  described  under
"Business and Properties - Legal Proceedings" herein, ARTRA did not prosecute an
appeal  of a  decision  adverse  to  ARTRA  in which  its  insurer  was held not
responsible  for  defending  or  indemnifying   ARTRA  in  connection  with  two
environmental clean-up cases in California.  In addition, in another case, ARTRA
entered into a consent decree with the EPA to pay certain  clean-up  costs,  but
was unable to pay the costs it had agreed to bear.



         No Cash Dividends



         The  Company  has not paid any cash  dividends  on its Common  Stock in
recent  years  and  does  not  anticipate  paying  any  such  dividends  in  the
foreseeable  future.  In addition,  the  Bagcraft  operating  subsidiary  of the
Company  is  prohibited  from  or  restricted  in  paying  dividends  or  making
distributions  to the Company under various loan agreements  (except for limited
overhead  allocations payable to ARTRA in certain  circumstances and tax sharing
agreements  where  applicable).  Accordingly,  even if  ARTRA  were  able to pay
dividends to its  shareholders,  the  restrictions or limitations on Bagcraft in
upstreaming payments would make payment of dividends by ARTRA unlikely.



         Negative  Effect on  Shareholders  from Possible  Issuance of Preferred
Stock



         The Company is authorized to issue up to 2,000,000  shares of preferred
stock,  par value $1,000 per share.  The preferred stock may be issued in one or
more series, the terms of which may be determined at the time of issuance by the
Board of Directors,  without  further  action by  shareholders,  and may include
voting rights  (including the right to vote as a series on particular  matters),
preferences as to dividends and  liquidation,  conversion and redemption  rights
and sinking fund provisions. In 1990 the Company issued 3,750 shares of Series A
Preferred  Stock and in 1996 the  Company has agreed to issued  2,250  shares of
Series E Preferred Stock. No other preferred stock is currently  outstanding and
the Company has no present plans for the issuance  thereof.  The issuance of any
preferred  stock could  affect the rights of the holders of Common Stock and, in
certain circumstances, reduce the value of the Common Stock. See "Description of
the Company's Securities".
                                     - 13 -

<PAGE>



                                 CAPITALIZATION

                                 (in thousands)





         The  following  table sets forth the  capitalization  of the Company at
September  26,  1996.  The  following  should  be read in  conjunction  with the
Company's   consolidated   financial  statements  appearing  elsewhere  in  this
Prospectus.

Current maturities of long-term debt                           $     2,407
                                                               ===========

Long-term debt:
   Bagcraft Credit Agreement,
     Term loans, interest at the prime rate
       plus 1.75% to 3%, matures 9/30/97                       $    12,400
     Revolving credit loan, interest at the 
       prime rate plus 1.5%, matures 9/30/97                        12,311
     Unamortized discount                                              (71)

   Bagcraft, City of Baxter Springs, 
     Kansas loan agreements, interest, 
       at varying rates to 6.6%, 
       due in varying amounts through 2025                           9,901
                                                               -----------

                                                               $    34,541
                                                               ===========

Redeemable common stock, issued 164,847 shares                 $     3,565
                                                               ===========

ARTRA redeemable preferred stock:
   Series  A,  $1,000  par  value,
   6%  cumulative  payment-in-kind, including
   accumulated dividends, net of unamortized
   discount of $1,349 in 1996 and
   $1,575 in 1995; redeemable March 1, 2000
   at $1,000 per share plus accrued dividends;
   authorized 2,000,000 shares all series;
    issued 3,750 shares                                              4,157
                                                               ===========

Series E, $1,000 par value, 10% cumulative,
   liquidation  preference equal to $1,000
   or 200 shares of common stock per
   share, plus accrued dividends;
   convertible, at the holder's option into
   200 shares of common stock per share                              2,250
                                                               ===========

Bagcraft redeemable preferred stock 
   payable to a related party, cumulative $.01
   par value, 13.5%; including accumulated dividends;  
   redeemable in 1997 with a liquidation preference
   equal to $100 per share; 
   8,650 shares issued and outstanding                         $     1,978
                                                               ===========

BCA Holdings preferred stock:
   Series A, $1.00 par value, 6% cumulative;
   including  accumulated  dividends;
   liquidation preference of $1,000 per share;
   10,000 shares authorized; issued 3,675 shares               $     4,308
                                                               ===========

   Series B,  payable to a related  party,  
   $1.00 par value,  13.5%  cumulative;
   including accumulated dividends; 
   redeemable in 1997 with a liquidation
   preference of $1,000 per share;
   8,135 shares authorized and issued                          $     8,818
                                                               ===========




                                     - 14 -

<PAGE>

                                                               

Common stock, no par value; 
   authorized 20,000,000 shares; 
   issued 7,603,766 shares                                     $    5,777
Additional paid-in capital                                         40,140
Unrealized appreciation of investments                             34,960
Receivable from related party,
   including accrued interest                                      (5,861)
Accumulated deficit                                               (86,568)
                                                               -----------
                                                                  (11,552)
Less treasury stock (7,628 shares), at cost                           (52)
                                                               -----------
Total shareholders' equity                                     $  (11,604)
                                                               ===========

Total capitalization                                           $   50,420
                                                               ===========








                                     - 15 -

<PAGE>



         Management's Discussion and Analysis of Financial Condition and Results
of Operations.



         ARTRA,  through  its  Bagcraft  subsidiary,  currently  operates in one
industry segment as a manufacturer of packaging products principally serving the
food  industry.  ARTRA also owns a  significant  minority  interest  in COMFORCE
through ARTRA's wholly owned Fill-Mor subsidiary, consisting of 1,813,036 shares
or approximately 19% of the outstanding common stock of COMFORCE as of September
26, 1996. COMFORCE provides  telecommunications  and computer technical staffing
services  worldwide to Fortune 500 companies  and maintains an extensive  global
database of technical specialists,  with an emphasis on wireless  communications
capabilities.  COMFORCE  is a  public  company,  whose  stock is  listed  on The
American  Stock  Exchange under the symbol "CFS." On November 25, 1996, the last
reported  sale  price for the  Common  Stock of  COMFORCE  was $12.00 per share.
Fill-Mor has no assets other than its COMFORCE shares.

         The  following  discussion  supplements  the  information  found in the
financial statements and related notes:



Changes in Business


         Arcar



         As  discussed  in  Note  2  to  the  Company's  condensed  consolidated
financial  statements  for the nine months ended  September 26, 1996,  effective
April 8,  1994,  Bagcraft  purchased  the  business  assets,  subject to buyer's
assumption of certain  liabilities,  of Arcar, a manufacturer and distributor of
waterbase inks.  Effective October 26, 1995,  Bagcraft sold the business assets,
subject to the buyer's assumption of certain  liabilities,  of Arcar for cash of
approximately  $20,300,000,  resulting  in a net  gain  of  $8,483,000.  The net
proceeds,   after   extinguishment  of  certain  Arcar  debt   obligations,   of
approximately $10,400,000, were used to reduce Bagcraft debt obligations.



         COMFORCE



         Prior to September, 1995, ARTRA's then 62.9% owned subsidiary, COMFORCE
(formerly  Lori),  operated  as a designer  and  distributor  of  popular-priced
fashion costume jewelry and accessories.  In September, 1995, COMFORCE adopted a
plan to discontinue its jewelry  business and recorded a provision of $1,000,000
for the estimated  costs to complete the disposal of the fashion costume jewelry
business.

         Effective October 17, 1995,  COMFORCE acquired all of the capital stock
of COMFORCE Global,  Inc.  ("Global"),  formerly Spectrum Global Services,  Inc.
d/b/a YIELD Global, for consideration of approximately $6.4 million, net of cash
acquired.  This  consideration  consisted of cash to the seller of approximately
$5.1 million, fees of approximately  $700,000,  including a fee of $500,000 to a
related party,  and 500,000  shares of COMFORCE  common stock valued at $843,000
(at a price per share of $1.68)  issued as  consideration  for various  fees and
guarantees  associated  with the  transaction.  The  500,000  shares of COMFORCE
common stock  consisted of (i) 100,000  shares issued to an unrelated  party for
guaranteeing  the purchase  price to the seller,  (ii) 100,000  shares issued to
ARTRA,  then the majority  stockholder  of  COMFORCE,  in  consideration  of its
guaranteeing  the  purchase  price to the seller and  agreeing to enter into the
Assumption Agreement,  as discussed below, (iii) 150,000 issued to two unrelated
parties for  advisory  services in  connection  with the  acquisition,  and (iv)
150,000 shares issued to Peter R. Harvey,  then a Vice President and director of
COMFORCE for  guaranteeing the payment of the $6.4 million purchase price to the
seller. Additionally, in conjunction with the Global acquisition,  ARTRA entered
into an  Assumption  Agreement  whereby  it agreed to assume  substantially  all
pre-existing  Lori  liabilities  and indemnify  COMFORCE in the event any future
liabilities  arise concerning  pre-existing  environmental  matters and business
related  litigation.  Accordingly,  at  September  26,  1996,  $764,000  of such
pre-existing Lori liabilities were classified in ARTRA's condensed  consolidated
balance as current liabilities of discontinued operations.


                                     - 16 -

<PAGE>

         Global  provides  telecommunications  and computer  technical  staffing
services  worldwide to Fortune 500 companies  and maintains an extensive  global
database of technical  specialists  with an emphasis on wireless  communications
capability.  The  acquisition  of COMFORCE  Global was  completed on October 17,
1995.

         Effective July 4, 1995,  Lori's  management agreed to issue up to a 35%
common  stock  interest  in  the  COMFORCE  to  certain  individuals  to  manage
COMFORCE's entry into the  telecommunications  and computer  technical  staffing
business.  COMFORCE  recognized a non-recurring  charge of $3,425,000 related to
this stock  since these stock  awards  were 100%  vested when  issued,  and were
neither conditioned upon these individuals'  service to the Company as employees
nor the  consummation  of the COMFORCE  Global  acquisition.  Accordingly,  this
compensation  charge was fully recognized in 1995. The shares of COMFORCE common
stock issued in  accordance  with the above  agreements  were valued at $.93 per
share.  COMFORCE's  management  valued  COMFORCE based on its  discussions  with
market  makers and other  advisors,  taking  into  account  (i) that the Jewelry
Business, which was discontinued at the end of the second quarter of 1995, had a
negligible value, and (ii) the value of COMFORCE was principally  related to the
potential effect that a purchase of COMFORCE Global, if successfully  concluded,
would have market value of COMFORCE common stock. COMFORCE's management believed
this  value of $.93 per  share to be a fair and  appropriate  value  based  upon
COMFORCE's financial condition as of the date COMFORCE became obligated to issue
these shares. After the issuance of the COMFORCE common shares, plus the effects
of other  transactions,  ARTRA's  common  stock  ownership  interest in COMFORCE
common stock was reduced to approximately  19% and 25% at September 26, 1996 and
December 28, 1995, respectively.  Accordingly,  in October 1995, the accounts of
COMFORCE and its majority-owned  subsidiaries were  deconsolidated  from ARTRA's
consolidated  financial  statements.  See  Note  5 to  the  Company's  condensed
consolidated  financial  statements for the nine months ended September 26, 1996
for a further  discussion of the accounting  treatment of ARTRA's  investment in
COMFORCE.

         A  disagreement  has  arisen  between  ARTRA  and  COMFORCE   regarding
interpretations of the July 4, 1995 agreement,  as amended, to issue up to a 35%
common stock interest in COMFORCE to certain  individuals  to manage  COMFORCE's
entry into the  telecommunications and computer technical staffing business; the
Global acquisition agreement;  and the Assumption Agreement whereby ARTRA agreed
to assume substantially all pre-existing Lori liabilities and indemnify COMFORCE
in the event any future liabilities arise concerning pre-existing  environmental
matters and business  related  litigation.  The disputed  issues include (i) the
number of  COMFORCE  common  shares  issued to the above  individuals  to manage
COMFORCE's entry into the  telecommunications  and computer  technical  staffing
business. Accordingly, ARTRA voted against ratification of the issuance of these
shares at COMFORCE's  Annual Meeting of  Stockholders  held on October 28, 1996;
(ii) the number of COMFORCE  common stock options  issued to COMFORCE's  current
management  group subsequent to the Global  acquisition;  (iii) 100,000 COMFORCE
common shares to be issued to ARTRA in  consideration  of its  guaranteeing  the
Global purchase price to the seller and agreeing to assume certain  pre-existing
Lori  liabilities;  (iv) 150,000 COMFORCE common shares to be issued to Peter R.
Harvey for  guaranteeing the payment of the Global purchase price to the seller,
and (vi) certain  stock options  granted in 1993 under  provisions of COMFORCE's
Long-Term Stock Investment Plan. As a result of the above  disagreements,  ARTRA
has not exchanged its Lori Series C preferred stock with a liquidation  value of
$19.5 million for 100,000 COMFORCE common shares,  as required by the Assumption
Agreement,  and will not  consummate  the exchange until all of the disputes are
resolved.  ARTRA's financial  statements have reflected the exchange of the Lori
Series C preferred  stock for 100,000  COMFORCE common shares in accordance with
the  Assumption  Agreement.  Based  on the  above  disputed  matters,  ARTRA  is
withholding  delivery  of the Lori  Series C  preferred  shares  and is  seeking
appropriate   resolution  in  conformity  with  the  Assumption   Agreement  and
resolution of the other obligations owed by COMFORCE to ARTRA and its employees,
or ARTRA  will  seek to  rescind  this  aspect of the  agreement.  Additionally,
ARTRA's  financial  statements  have reflected the issuance of 100,000  COMFORCE
common shares to ARTRA as  compensation  for  guaranteeing  the Global  purchase
price to the seller and  entering  into the  Assumption  Agreement.  COMFORCE is
withholding  issuance  of such  shares  to ARTRA,  in  violation  of the  Global
acquisition  agreement.  ARTRA has aggressively attempted to resolve its dispute
with  COMFORCE  without  success  and at this  point,  ARTRA can not predict the
ultimate   resolution,   nor  whether  such  dispute  can  be  resolved  without
litigation.


         Results of Operations


         On October 26, 1995, the Company's wholly-owned  subsidiary,  Bagcraft,
completed the sale of the business assets,  subject to the buyer's assumption of
certain liabilities, of its Arcar subsidiary.

         In September,  1995, COMFORCE adopted a plan to discontinue its jewelry
business and  recorded a provision  of  $1,000,000  for the  estimated  costs to
complete the disposal of the jewelry business.

                                    - 17 -

<PAGE>


         The Company's  consolidated financial statements have been reclassified
to  report  separately  the  results  of  operations  of  Arcar  and  COMFORCE's
discontinued  jewelry business prior to the  deconsolidation of COMFORCE and its
majority-owned  subsidiaries effective October 1995. The following discussion of
results of operations is presented  for the Company's  continuing  operations at
September 26, 1996 and December 28, 1995,  which were conducted by the Company's
Bagcraft subsidiary.



         The Company's Bagcraft subsidiary sells all of its products directly to
its customers. On a very limited basis certain customers may be offered extended
payment  terms beyond 30 days  depending  upon  prevailing  trade  practices and
financial strength.


Nine Months Ended September 26, 1996 vs. Nine Months Ended September 28, 1995


         Net sales from continuing operations of $90,162,000 for the nine months
ended September 26, were $541,000, or 0.6%, lower than net sales from continuing
operations for the nine months ended September 28, 1995. The 1996 sales decrease
is  attributable  to an overall volume  decrease  partially  offset by increased
selling  prices.  The volume  decrease  is  principally  attributable  to a 1995
promotion by a major fast food customer.  The increased 1996 selling prices were
in response to the significant increases in paper costs in 1995.

         The Company's cost of sales from  continuing  operations of $71,710,000
for the nine months ended September 26, 1996 decreased $5,161,000 as compared to
the  nine  months  ended  September  28,  1995.  Cost of sales  from  continuing
operations  in the nine months ended  September  26, 1996 was 79.5% of net sales
compared  to a cost of sales  percentage  of 84.8%  for the  nine  months  ended
September 28, 1995. The decrease in cost of sales is primarily  attributable  to
lower paper costs and  decreased  sales volume as noted  above.  The decrease in
cost of sales  percentage  is  primarily  attributable  to lower paper costs and
improved production efficiencies in 1996.



         Selling, general and administrative expenses from continuing operations
were  $10,967,000  in the nine months  ended  September  26, 1996 as compared to
$15,972,000 in the nine months ended  September 28, 1995.  Selling,  general and
administrative  expenses  were  12.2%  of net  sales in the  nine  months  ended
September  26, 1996 as  compared to 17.6% of net sales in the nine months  ended
September  28, 1995.  The 1996 decrease in selling,  general and  administrative
expenses is primarily  attributable to a third quarter 1995 compensation  charge
related to the issuance of a 35% common stock interest in COMFORCE as additional
consideration  for certain  individuals  to enter into  employment or consulting
services  agreements  to manage  COMFORCE's  entry into and  development  of the
telecommunications  and computer  technical  business and to  professional  fees
incurred in 1995 related to certain consulting projects.

         Depreciation  and amortization  expense from continuing  operations was
$2,954,000 in the nine months ended September 26, 1996 as compared to $3,306,000
in the nine months ended  September  28,  1995.  Depreciation  and  amortization
expense was 3.3 % of net sales in the three months ended  September  26, 1996 as
compared to 3.6% of net sales in the three months ended  September 28, 1995. The
1996 decrease in depreciation and amortization expense is primarily attributable
to the December,  1995  write-down of idle machinery and equipment  dedicated to
the production of microwave popcorn products.

         The Company had operating  earnings in the nine months ended  September
26, 1996 of $4,531,000  as compared to operating  loss of $5,446,000 in the nine
months ended  September  28, 1995.  The 1996  increase in operating  earnings is
attributable  to  improved  operating  margins  and to the  decrease in selling,
general and administrative expenses as noted above.

         Interest  expense from  continuing  operations in the nine months ended
September  26, 1996  decreased  $1,022,000  as compared to the nine months ended
September 28, 1995. The 1996 decrease is principally due to an overall  decrease
in borrowings.

                                     - 18 -

<PAGE>

         During the nine months ended  September  26,  1996,  ARTRA sold 193,000
COMFORCE shares in the market.  As additional  consideration for 1996 short-term
loans,  the  lenders  received  95,000  COMFORCE  common  shares held by ARTRA's
Fill-Mor  subsidiary.  The disposition of these 288,000 COMFORCE shares resulted
in realized gains of $4,823,000 during the nine months ended September 26, 1996.

         The  1996 and 1995  extraordinary  credits  represent  net  gains  from
discharge of  indebtedness.  No income tax expense is reflected in the Company's
financial  statements  resulting  from the  extraordinary  credits  and from the
Company's 1996 earnings from continuing operations due to the utilization of tax
loss  carryforwards.  Due  to the  Company's  tax  loss  carryforwards  and  the
uncertainty  of future taxable  income,  no income tax benefit was recognized in
connection with the Company's 1995 pre-tax loss.


Year Ended December 28, 1995 vs. Year Ended December 29, 1994



         Net sales from continuing operations of $121,879,000 for the year ended
December  28,  1995  were  $10,042,000,  or 9.0%,  higher  than net  sales  from
continuing  operations  for the year ended  December  29,  1994.  The 1995 sales
increase is attributable to increased 1995 selling prices due to the significant
increases  in paper  costs in the  second  half of 1994 and early 1995 and to an
improved sales mix in 1995.



         The Company's cost of sales from continuing  operations of $102,508,000
for year ended December 28, 1995 increased  $7,742,000 as compared to year ended
December 29, 1994.  Cost of sales from  continuing  operations in the year ended
December 28, 1995 was 84.1% of net sales compared to a cost of sales  percentage
of 84.7% for the year ended  December 29, 1994. The increase in cost of sales is
primarily attributable to the significant increases in paper costs in the second
half of 1994  and  early  1995.  The  decrease  in cost of sales  percentage  is
primarily  attributable  to the Company's  ability to pass along the significant
increases in paper costs and to improved production efficiencies in 1995.



         Selling, general and administrative expenses from continuing operations
were  $19,131,000 in the year ended December 28, 1995 as compared to $16,760,000
in the year  ended  December  29,  1994.  Selling,  general  and  administrative
expenses were 15.7% of net sales in the year ended December 28, 1995 as compared
to 15.0% of net sales in the year ended  December 29, 1994. The 1995 increase in
selling,  general and  administrative  expenses is primarily  attributable  to a
compensation  charge of $3,000,000 related to the issuance of a 35% common stock
interest in COMFORCE as additional compensation for certain individuals to enter
into employment or consulting  services  agreements to manage its entry into and
development of the  telecommunications  and computer technical staffing services
business.



         In recent  years,  Bagcraft has  experienced  a decline in its domestic
microwave  popcorn business due to the acquisition of one of its major customers
by a company with its own packaging ability.  Accordingly, at December 31, 1995,
Bagcraft  incurred  a charge to  operations  of  $1,503,000  to  write-down  the
carrying  value of idle  machinery and equipment  dedicated to the production of
microwave popcorn products.



         Operating  loss from  continuing  operations in the year ended December
28, 1995 was  $5,593,000 as compared to operating loss of $4,026,000 in the year
ended December 29, 1994. The increased operating loss is primarily  attributable
to a compensation  charge of $3,000,000  related to the issuance of a 35% common
stock interest in COMFORCE as additional compensation for certain individuals to
enter into employment or consulting services agreements to manage its entry into
and  development  of the  telecommunications  and  computer  technical  staffing
services  business and a charge to operations  of  $1,503,000 to write-down  the
carrying  value of idle  machinery and equipment  dedicated to the production of
microwave  popcorn products,  partially offset by improved  operating margins of
the Bagcraft subsidiary.

                                     - 19 -

<PAGE>




         Interest expense from continuing  operations in the year ended December
28, 1995  increased  $1,164,000 as compared to the year ended December 29, 1994.
The 1995 increase is principally due to the cost of ARTRA common stock issued as
additional  compensation  for the  December  1995  private  placement  of  ARTRA
short-term notes.



         Due to the  Company's tax loss  carryforwards  and the  uncertainty  of
future taxable  income,  no income tax benefit was recognized in connection with
the  Company's  1995 and 1994  pre-tax  losses.  The 1995  extraordinary  credit
represents a net gain from discharge of bank indebtedness.



Year Ended December 29, 1994 vs. Year Ended December 30, 1993



         Net sales from continuing operations of $111,837,000 for the year ended
December 29, 1994 were $1,747,000, or 1.5%, lower than net sales from continuing
operations  for the year ended December 30, 1993. The 1994 net sales decrease is
primarily attributable to the sale of Bagcraft's Roll Press division,  which was
completed in the second quarter of 1993.



         The Company's cost of sales from  continuing  operations of $94,766,000
for year ended December 29, 1994 increased  $1,305,000 as compared to year ended
December 30, 1993.  Cost of sales from  continuing  operations in the year ended
December 29, 1994 was 84.7% of net sales compared to a cost of sales  percentage
of 82.3% for the year ended  December  30, 1993.  The increase in the  packaging
segment cost of sales and cost of sales percentage is primarily  attributable to
unforeseen  delays in the  completion  of and higher than  anticipated  start-up
costs of the Baxter Springs,  Kansas production facility and higher raw material
costs in the second half of 1994,  partially offset by a more favorable  product
mix.



         Selling, general and administrative expenses from continuing operations
were  $16,760,000 in the year ended December 29, 1994 as compared to $15,537,000
in the year  ended  December  30,  1993.  Selling,  general  and  administrative
expenses were 15.0% of net sales in the year ended December 29, 1994 as compared
to 13.7% of net sales in the year ended  December 30, 1993. The 1994 increase in
selling,  general and  administrative  expenses is primarily  attributable to an
increase in employee benefit costs and professional fees.



         In  December,  1993  the  Bagcraft  subsidiary  recorded  a  charge  to
operations of $1,175,000  representing  equipment and inventory relocation costs
and employee  severance and outplacement costs relating to the construction of a
new manufacturing facility in Baxter Springs, Kansas.



         Operating  loss from  continuing  operations in the year ended December
29, 1994 was  $4,026,000  as compared to operating  loss of $974,000 in the year
ended December 30, 1993. The increased operating loss is primarily  attributable
to unforeseen  delays in the completion of and higher than anticipated  start-up
costs of the Baxter Springs, Kansas production facility.



                                     - 20 -

<PAGE>



         Interest expense from continuing  operations in the year ended December
29, 1994  increased  $2,067,000 as compared to the year ended December 30, 1993.
The 1994 increase is principally due to an overall increase in borrowings due to
the December, 1993 refinancing of Bagcraft's bank debt, an increase in the prime
rate and fees incurred for short-term borrowings at the Corporate entity.



         The 1994  extraordinary  credit represents a net gain from discharge of
bank  indebtedness  under the loan  agreements  of  COMFORCE  and its  operating
subsidiaries.  The  1993  extraordinary  credit  represents  a  gain  from a net
discharge of indebtedness at COMFORCE's New Dimensions subsidiary. No income tax
expense is reflected in the Company's  financial  statements  resulting from the
extraordinary credit due to the utilization of tax loss carryforwards.



Liquidity and Capital Resources



         Cash and Cash Equivalents and Working Capital



         Cash and cash equivalents  decreased  $2,248,000 during the nine months
ended September 26, 1996. Cash flows used by operating  activities of $4,516,000
and cash flows used by financing  activities of  $637,000  exceeded cash flows
from investing activities of $2,905,000. Cash flows used by operating activities
were  principally  attributable  to funds used to pay down accounts  payable and
accrued  liabilities.  Cash flows used by financing  activities were principally
attributable  to a net  reduction  of  short-term  borrowings.  Cash  flows from
investing  activities  principally  represent proceeds from the sale of COMFORCE
common stock.



         Cash and cash  equivalents  increased  $277,000  during  the year ended
December 28, 1995.  Cash flows used by operating  activities of  $5,943,000  and
cash flows used by financing  activities of $14,419,000 exceeded cash flows from
investing  activities of  $20,639,000.  Cash flows used by operating  activities
were principally  attributable to the Company's loss from operations,  exclusive
of the effect of a charge to operations of $6,430,000 representing an impairment
of goodwill at  COMFORCE's  discontinued  jewelry  business  and a  compensation
charge to  continuing  operations  of  $3,000,000  representing  the issuance in
aggregate of a 35% common stock interest in COMFORCE as additional consideration
under employment or consulting  services  agreements with certain individuals to
manage  COMFORCE's  entry into and  development  of the  telecommunications  and
computer  technical  staffing  services  business.  Cash flows used by financing
activities  were  principally  attributable to a net reduction of long-term debt
with proceeds from the October 26, 1995 sale of Arcar. Cash flows from investing
activities represent proceeds from the October 26, 1995 sale of Arcar.



         The  Company's   consolidated   working  capital  deficiency  decreased
$15,486,000 to $10,879,000  during the nine months ended September 26, 1996. The
decrease  in  working  capital  deficiency  is  principally  attributable  to an
agreement  to  discharge  amounts  due on ARTRA bank notes and  related  accrued
interest and fees.



         The  Company's   consolidated   working  capital  deficiency  decreased
$34,107,000 to $26,365,000 during the year ended December 28, 1995. The decrease
in working capital deficiency is principally attributable to the

                                     - 21 -

<PAGE>



classification  of borrowings  under  Bagcraft's  credit  agreement as long-term
liabilities  at  December  28,  1995 due to a February  1, 1996  amendment  that
extended the maturity date of the agreement  until  September 30, 1997 (see Note
10 to the  Company's  consolidated  financial  statements  for  the  year  ended
December 28, 1995). At December 29, 1994,  borrowings  under  Bagcraft's  credit
agreement  were  classified  in the  Company's  consolidated  balance  sheet  as
currently payable.



         Status of Debt Agreements and Operating Plan



         At September  26, 1996 the Parent  Company was in default of provisions
of certain of its credit  agreements.  Under certain debt agreements of Bagcraft
with its lenders,  Bagcraft is restricted in the distributions  that it can make
to ARTRA.  Effective February 1, 1996,  Bagcraft's credit agreement was extended
until  September  30,  1997.  See  Notes 6, 7 and 8 to the  Company's  condensed
consolidated  financial  statements for the nine months ended September 26, 1996
and discussion below.



         ARTRA Corporate



         As of  September  26,  1996,  the  Company had  outstanding  short-term
indebtedness of approximately $15,500,000, of which $3,300,000 was past due.



         ARTRA has outstanding an aggregate of $3,000,000 in loans from RCK. All
of these loans are currently past due, but RCK has made no demand for payment of
past due  amounts.  During 1993,  RCK,  which held  approximately  8% of ARTRA's
outstanding  Common Stock  (including  the stock  issuable  upon the exercise of
warrants) as of September 26, 1996, made certain short-term loans to the Company
of which $2,000,000, with interest at 10%, was outstanding at December 31, 1993.
As additional  compensation,  RCK received  warrants to purchase an aggregate of
86,250 ARTRA common shares at prices ranging from $6.00 to $7.00 per share based
upon the  market  price of ARTRA's  common  stock at the date of  issuance.  The
warrants expire five years from the date of issuance.  In January 1994, RCK made
an additional  $1,000,000  short-term loan to the Company, also with interest at
10%. The proceeds of this loan were used to pay down  various  ARTRA  short-term
loans and other debt obligations. In December, 1995, RCK received 126,222 shares
of ARTRA  common in payment  of past due  interest  through  October  31,  1995.
Payment on the loans was due March 31, 1994. In August, 1996 RCK received a cash
payment of approximately  $240,000  representing past due interest through June,
1996. Payment on the loans was due March 31, 1994.



         In July 1996,  ARTRA  completed a private  placement of 12%  promissory
notes due April 15, 1997 in the principal  amount of  $7,575,000.  The notes are
collateralized by ARTRA's interest in all of the common stock of BCA (the parent
company of Bagcraft).  As additional  consideration,  the  noteholders  received
warrants to purchase an aggregate of 378,750  ARTRA common  shares at a price of
$6.00 per share. In addition,  warrants to purchase an additional  35,000 shares
were  issued  to an  unrelated  party as a  commission  in  connection  with the
offering.  The warrants became  exercisable August 15, 1996 and expire April 15,
1999.  The proceeds  from this private  placement  were used to pay down various
ARTRA debt obligations.



                                     - 22 -

<PAGE>



         On August  15,  1996,  ARTRA  and its 100%  owned  Fill-Mor  subsidiary
entered into a $2,500,000 term loan agreement with Manufacturers Bank. The loan,
payable  by  Fill-Mor  in 90 days  from the date of the  loan  agreement,  bears
interest,  payable monthly, at the bank's reference rate. Fill-Mor has an option
to extend the loan for an additional 90 days. In November  1996,  the option was
exercised and the loan was extended to February 11, 1997.  The loan,  guaranteed
by ARTRA, is  collateralized  by 800,000 shares of COMFORCE common stock. In the
event of a default, the bank has the right to sell all of its right and interest
in the loan to an  unaffiliated  individual for an aggregate  price equal to the
outstanding principal balance of the loan plus accrued interest. The proceeds of
the loan were used for working capital.

         In May,  1996,  ARTRA  borrowed  $100,000  from Mr.  Celano,  a private
investor,  evidenced by an unsecured  short-term  note,  due August 7, 1996, and
renewed to January 6, 1997,  bearing  interest at 10%. At the  Company's  annual
meeting of  shareholders,  held August 29, 1996,  Mr.  Celano was elected to the
Company's board of directors. The $100,000 loan is currently outstanding.

         In August,  1996,  ARTRA borrowed  $500,000 from Mr. Conant,  a private
investor,  evidenced by an  short-term  note,  due  December  23, 1996,  bearing
interest at 10%. The loan is collateralized by 125,000 shares of COMFORCE common
stock owned by the Company's Fill-Mor subsidiary. As additional compensation for
the loan, the lender  received a warrant,  expiring in 2001, to purchase  25,000
ARTRA  common  shares at a price of $5.00 per  share.  At the  Company's  annual
meeting of  shareholders,  held August 29, 1996,  Mr.  Conant was elected to the
Company's board of directors. The $500,000 loan is currently outstanding.

         ARTRA also has outstanding  short-term  borrowings from other unrelated
parties aggregating approximately $1,850,000, of which $300,000 is past due. The
remaining  amounts come due at various  times in 1996.  The notes were issued at
various times during the period May, 1991 to May,  1996,  and the interest rates
vary between 10 and 15 percent.

         In October 1996 the Company and its Fill-Mor  subsidiary entered into a
margin loan agreement with a financial institution which provided for borrowings
of $600,000,  with interest  approximating the prime rate.  Borrowings under the
loan agreement are  collateralized  by 125,000  shares of COMFORCE  common stock
owned by the Company's Fill-Mor subsidiary.

         ARTRA has  suffered  recurring  losses  from  operations  and had a net
capital  deficiency  at September 26, 1996 and December 28, 1995. As a result of
these factors,  ARTRA has experienced difficulty in obtaining adequate financing
to replace certain current credit arrangements, certain of which are in default,
to fund its debt service and liquidity  requirements in 1996. Due to its limited
ability  to  receive  operating  funds  from  its  operating  subsidiary,  ARTRA
historically  has met its operating  expenditures  with funds  generated by such
alternative sources as private placements of ARTRA common stock and notes, sales
of ARTRA  common  stock  with put  options,  loans from  officers/directors  and
private  investors,  as well as  through  sales of  assets  (including  COMFORCE
shares)  and/or  other  equity  infusions.  ARTRA plans to continue to seek such
alternative sources of funds to meet its future operating expenditures.

         ARTRA  believes  that  it will be  able  to  satisfy  its  obligations.
However,  there can be no  assurance  that  ARTRA  will be able to  successfully
refinance  the  above  referenced  indebtedness  or that it will be able to sell
COMFORCE   shares  at  an  acceptable   price.   See   "Investment  In  COMFORCE
Corporation." If ARTRA is unable to negotiate  extensions with its creditors and
complete the above  mentioned  transactions,  ARTRA could suffer severe  adverse
consequences,  and as a result,  ARTRA may be forced to liquidate  its assets or
file for protection under the Bankruptcy Code.

         ARTRA was the obligor  under two demand notes issued to CIPKA S.A.,  an
unrelated Swiss company,  in the amount of $1,811,000.  The notes were issued in
October,  1990 and with interest at 15 percent.  In September,  1996, CIPKA S.A.
agreed to exchange  its notes and the amounts due under other ARTRA  obligations
for 2,250 shares of ARTRA Series E Preferred Stock.

         As of February 26, 1996, ARTRA was indebted to Bank of America Illinois
("B of A") in the sum of $14,563,639.59 including accrued interest and fees (the
"Prior  ARTRA  Indebtedness").  As of February 26,  1996,  Peter R.  Harvey,  an
officer and director of ARTRA,  was indebted to B of A in the sum of  $7,496,830
including  accrued interest (the "Prior Harvey  Indebtedness").  The Prior ARTRA
Indebtedness and the Prior Harvey  Indebtedness are collectively  referred to as
the "Debt," or "Prior Notes."

         
                                     - 23 -

<PAGE>

         On February 26, 1996,  for an aggregate  purchase  price of  $5,150,000
(the "Purchase Price") Arabella,  S.A.  ("Arabella")  purchased from B of A (the
"Debt  Purchase")  all  of B of A's  interest  in the  Debt  except  that B of A
retained the rights to $3 million of the Prior Harvey Indebtedness.  B of A then
entered  into a  Participation  Agreement  with ARTRA  pursuant  to which B of A
transferred  to ARTRA the right to  receive  $2.15  million of the  retained  $3
million  indebtedness.  The $3 million  indebtedness is secured by a mortgage on
certain  real  estate  owned by Mr.  Harvey.  B of A's  rights to the  remaining
$850,000 of the  indebtedness  have  priority  over ARTRA's  rights to the $2.15
million.



         The Prior ARTRA  Indebtedness  and the Prior Harvey  Indebtedness  were
satisfied as follows.



         1. ARTRA paid Arabella cash in the amount of $2,650,000, 100,000 shares
of ARTRA  common  stock  (valued at  $440,667  after a discount  for  restricted
marketability)  and 25,000 shares of COMFORCE common stock held by ARTRA (with a
then fair market value of $200,000).



         2. BCA executed a note in favor of Arabella in the principal  amount of
$1,900,000  with a maturity  date of May 26,  1996 (the "New ARTRA  Note"),  and
Peter R. Harvey executed a note in favor of Arabella in the principal  amount of
$2,296,830 (the "New Harvey Note"). The amount of the Harvey Note was reduced to
$100,000 if payment was made by May 26, 1996.  Arabella was entitled to up to an
additional  100,000  shares of ARTRA common stock and 25,000  shares of COMFORCE
stock  depending on when ARTRA and Peter R. Harvey repaid the new debt.  The New
ARTRA and Harvey Notes were repaid in April, 1996, principally from the proceeds
of a private placement completed in July (and commenced in April).  Based on the
date of the repayment,  Arabella  received an additional  50,000 shares of ARTRA
stock,   which  had  a  value  of  $220,000  after  a  discount  for  restricted
marketability.  Arabella  also  received an  additional  $125,000 in lieu of the
additional  12,500 shares of COMFORCE to which it was entitled based on the date
of repayment.



         3. ARTRA gave Arabella an option to purchase 40% of the common stock of
Bagcraft for nominal  consideration.  The option was valued at $500,000. Per the
terms of the  agreement,  ARTRA  repurchased  the option for  $550,000 in April,
1996.



         ARTRA  recognized a gain on the discharge of indebtedness of $9,424,000
($1.23 per share) in the first quarter of 1996 and recorded a receivable for Mr.
Harvey's  pro rata  share  ($1,089,000)  of the  debt  discharge  funded  by the
Company. In addition,  ARTRA discharged $2,150,000 of amounts previously owed to
it by Peter Harvey,  which offset ARTRA's right to receive  $2,150,000  from Mr.
Harvey  pursuant  to  the   Participation   Agreement   discussed   above.   See
"Transactions  With  Management  And Others -- Settlement of the Bank of America
Illinois Debt."



         In December 1995, ARTRA completed a private  placement of $2,500,000 of
12% convertible  subordinated promissory notes due March 21, 1996. As additional
consideration  the  noteholders  received  15,000 ARTRA  common  shares per each
$100,000 of notes issued,  or an aggregate of 375,000 ARTRA common  shares.  The
ARTRA common shares were valued at $1,266,000  ($3.375 per share) based upon the
closing market value of ARTRA common stock on the date of issue,  discounted for
restricted  marketability.  In the event the notes and all accrued interest were
not paid in full at maturity, the noteholders had the option to convert all or a
portion of the amount due into shares of ARTRA common at a  conversion  price of
$3.00 per share.  The  proceeds  from the private  placement,  held in escrow at
December  28,  1995,  were used to pay down other debt  obligations  in January,
1996. At March 28, 1996, the outstanding principal amount due on these notes was
reduced to  $1,975,000.  In April,  1996, the remaining  outstanding  notes were
repaid  principally  with  proceeds  from the private  placement  of ARTRA notes
completed in July, 1996 as discussed above.

                                     - 24 -

<PAGE>




         On March 31, 1994,  ARTRA entered into a series of agreements with B of
A and Kenny Construction Company ("Kenny"),  which had guaranteed  $2,500,000 of
ARTRA bank notes held by B of A. A major  shareholder  and executive  officer of
Kenny  is an  ARTRA  director.  Per  terms of the  agreements,  Kenny  purchased
$2,500,000  of  ARTRA  notes  from B of A and B of A  released  Kenny  from  its
$2,500,000 loan guaranty. As additional consideration,  Kenny received an option
to put back to ARTRA  the  49,980  shares  of ARTRA  common  stock  which it had
received as compensation  for the former  $2,500,000 loan guaranty at a price of
$15.00 per share.  The put option was  exercisable  on the later of the day that
the $2,500,000 note payable to Kenny became due or the date the ARTRA bank notes
payable to B of A were paid in full.  The option  price was to increase by $2.25
annually.  During the first  quarter of 1996,  the  $2,500,000  note and related
accrued interest was paid in full, principally with the proceeds from additional
short-term borrowings. The put option remains outstanding.



         On  February  20,  1996,  the Company  issued 10%  Secured  Convertible
Promissory  Notes  to  two  lenders  for  the  aggregate   principal  amount  of
$2,400,000. Up to an aggregate principal amount of $400,000 of Secured Notes was
convertible into common stock of the Company at the rate of $5.00 per share. The
notes were collateralized by an aggregate of 1,980,000 shares of COMFORCE common
stock, which constituted all of the COMFORCE stock owned by the Company. The 10%
Notes were due on June 19,  1996.  The holders  converted  notes with a value of
$400,000,  and the  remaining  notes were repaid with the proceeds from the June
sale of COMFORCE shares. See "Investment In COMFORCE Corporation."



         As  discussed  in  Note  14 to  the  Company's  condensed  consolidated
financial  statements  for the nine months ended  September 26, 1996,  ARTRA has
total amounts due from its president,  Peter R. Harvey,  of which  7,232,000 and
$5,369,000,  including accrued interest,  remained  outstanding at September 26,
1996 and December 28, 1995,  respectively.  The amounts due bear interest at the
prime rate plus 2% (10.25% at September 26, 1996 and 10.5% at December 28, 1995,
respectively).  This  receivable  from Peter R. Harvey has been  classified as a
reduction of common shareholders' equity.



         Commencing  January 1, 1993 to date,  interest  on all amounts due from
Peter R. Harvey has been accrued and fully reserved.



         As partial collateral for amounts due from Peter R. Harvey, the Company
has  received  the pledge of 1,523 shares of ARTRA  redeemable  preferred  stock
(with a liquidation value of $1,523,000, plus accrued dividends) which are owned
by Mr. Harvey. In addition,  Mr. Harvey has pledged a 25% interest in Industrial
Communication Company (a private company). Such interest is valued by Mr. Harvey
at $800,000 to  $1,000,000.  During 1995,  Peter R. Harvey entered into a pledge
agreement with ARTRA whereby Mr. Harvey pledged additional collateral consisting
of 42,067  shares of ARTRA  common  stock and 707,281  shares of PureTec.  As of
November 25, 1996,  the closing  market price of Puretec on the NASDAQ  National
Market was $2.0625 per share.  In addition,  in  connection  with a discharge of
certain  bank  indebtedness  discussed  below,  ARTRA  received  rights  under a
mortgage of certain  real  estate  owned by Mr.  Harvey.  The real estate had an
appraised  value of $2 million as of December  13, 1993.  The  mortgage  secures
$2,150,000  of the amount owed by Mr.  Harvey.  Bank of America  Illinois  has a
senior  security  interest in the amount of  $850,000.  See  "Transactions  With
Management And Others -- Settlement of the Bank of America Illinois Debt."



         ARTRA's  corporate  entity  has no  material  commitments  for  capital
expenditures.

                                     - 25 -

<PAGE>




         Bagcraft



         Bagcraft has entered into a Credit  Agreement (the "Credit  Agreement")
that provides for a revolving  credit loan and two separate term loans. The term
loans are separate facilities  initially totaling  $12,000,000 (Term Loan A) and
$8,000,000 (Term Loan B), bearing interest at the lender's index rate plus 1.75%
and 3%, respectively. At September 26, 1996, outstanding borrowings on Term Loan
A and Term Loan B were $12,000,000 and $2,800,000,  respectively,  with interest
rates  of 10%  and  11.25%  respectively.  At  December  28,  1995,  outstanding
borrowings  on Term  Loan A and Term  Loan B were  $12,000,000  and  $4,600,000,
respectively, with interest rates of 10.25% and 11.5% respectively.



         The amount  available to Bagcraft  under the  revolving  credit loan is
subject to a borrowing base, as defined in the Credit Agreement, up to a maximum
of  $18,000,000.  At September  26, 1996 and  December  28, 1995,  approximately
$1,900,000 and  $6,600,000,  respectively,  was available and unused by Bagcraft
under the revolving credit loan. Borrowings under the revolving credit loan bear
interest at the lender's  index rate plus 1.5% and are payable upon  maturity of
the Credit Agreement, unless accelerated under terms of the Credit Agreement. At
September 26, 1996 and December 28, 1995, interest rates on the revolving credit
loan were 9.75% and 10%, respectively.



         Effective  February 1, 1996, the Credit  Agreement was amended whereby,
among other things, the maturity date of the Credit Agreement was extended until
September  30, 1997,  and certain loan  covenants  were  amended.  The principal
payments  under  Term  Loan B were  modified  to  include  twenty-three  monthly
installments  of $200,000 from November 15, 1995 to September 30, 1997, with the
remaining  balance payable at maturity  (September 30, 1997).  Additionally,  in
conjunction with a preferred stock exchange agreement between BCA (the parent of
Bagcraft),  Bagcraft and the holder of Bagcraft's  13.5%  cumulative  redeemable
preferred  stock,  the lender  consented to an advance to Bagcraft of $4,135,000
under the revolving  credit loan to be  transferred  to ARTRA as a dividend (see
Note 10 to the Company's  condensed  consolidated  financial  statements for the
nine months ended September 26, 1996).



         As additional  compensation for borrowings under the Credit  Agreement,
the lender received a detachable  warrant,  expiring in December 1998,  allowing
the holder to purchase up to 10% of the fully diluted  common equity of Bagcraft
at a nominal value. Under certain conditions  Bagcraft is required to repurchase
the warrant from the lender.  The  determination  of the repurchase price of the
warrant is to be based on the  warrant's  pro rata share of the  highest of book
value,  appraised  value or market value of  Bagcraft.  In  connection  with the
February 1, 1996 amendment to the Credit  Agreement,  the warrant  agreement was
amended to permit the holder to purchase 13% of the fully diluted  common equity
of Bagcraft at the original  nominal purchase price and to extend the expiration
date to December 17, 1999.



         Borrowings   under  the  Credit   Agreement   are   collateralized   by
substantially all of the assets of Bagcraft.  The Credit Agreement,  as amended,
contains various restrictive covenants,  that among other restrictions,  require
Bagcraft to maintain minimum levels of tangible net worth and liquidity  levels,
and  limits  capital  expenditures  and  restricts  additional  loans,  dividend
payments and payments to related  parties.  In  addition,  the Credit  Agreement
prohibits  changes in ownership of Bagcraft.  At September 26, 1996 Bagcraft was
in compliance with the provisions of its Credit Agreement.



                                     - 26 -

<PAGE>



         In  March,  1994  Bagcraft  and the  City  of  Baxter  Springs,  Kansas
completed a $12,500,000  financing package associated with the construction of a
new 265,000 sq. ft. production facility in Baxter Springs, Kansas. The financing
package,  funded by a combination of Federal, state and local funds, consists of
the following loan agreements payable by Bagcraft directly to the City of Baxter
Springs:



         A $7,000,000  promissory  note payable in ten  installments of $700,000
         due annually on July 21 of each year beginning in 1995 through maturity
         on July 21,  2004.  Interest,  at varying  rates from 4.6% to 6.6%,  is
         payable semi-annually.  At September 26, 1996, Bagcraft had outstanding
         borrowings of $5,600,000 under this loan agreement.


         A $5,000,000 subordinated promissory note payable as follows:  $150,000
         due in 1996;  $2,425,000  due in 1998;  and $2,425,000 due in 1999. The
         subordinated  promissory  note  is  non-interest  bearing,  subject  to
         certain repayment  provisions as defined in the agreement (as amended).
         At  September  26,  1996,   Bagcraft  had  outstanding   borrowings  of
         $4,850,000 under this loan agreement.



         Two separate $250,000 subordinated  promissory notes payable in varying
         installments  through  January 20, 2025.  The  subordinated  promissory
         notes are non-interest bearing, subject to certain repayment provisions
         as defined  in the  agreement.  At  September  26,  1996  Bagcraft  had
         outstanding borrowings of $234,000 under this loan agreement.



         Borrowings  under the above loan  agreements  are  collateralized  by a
first lien on the land and  building at the Baxter  Springs,  Kansas  production
facility and by a second lien on certain machinery and equipment.  Under certain
circumstances,  repayment of the borrowings  under the above loan  agreements is
subordinated to the repayment of obligations  under Bagcraft's Credit Agreement.
At December 28, 1995,  $552,000 of borrowings from the above loan agreements was
reflected  in the  condensed  consolidated  balance  sheet in current  assets as
restricted cash and equivalents.  These funds, invested in interest bearing cash
equivalents and restricted for expenditures  associated with the Baxter Springs,
Kansas  project  were  expended  during the first  quarter of 1996.



         The  Kansas  facility  replaced  Bagcraft's  production  facilities  in
Joplin,  Missouri and Carteret, NJ. 



         Bagcraft has  historically  funded its capital  requirements  with cash
flow from operations and funds available under its revolving  credit loan. These
sources  should  provide  sufficient  cash  flow to fund  Bagcraft's  short-term
capital  requirements.  As discussed  above,  it is anticipated  that Bagcraft's
recently amended Credit Agreement will provide Bagcraft with the ability to fund
its long-term capital  requirements.  Bagcraft is currently negotiating with the
lender to extend the maturity date  (September 30, 1997) and increase the amount
of borrowings available to it under the credit agreement.




         Bagcraft  anticipates that its 1996 capital  expenditures,  principally
for manufacturing equipment, will be approximately $2,500,000 and will be funded
principally from the above-mentioned credit facilities and also from operations.

                                     - 27 -

<PAGE>


         The common  stock and  virtually  all the assets of the Company and its
Bagcraft subsidiary have been pledged as collateral for borrowings under various
loan  agreements.  Under certain debt  agreements  the Company is limited in the
amounts it can withdraw from its operating  subsidiaries.  At September 26, 1996
and December 28, 1995,  substantially  all cash and equivalents on the Company's
consolidated  balance  sheet  were  restricted  to use by and for the  Company's
operating subsidiaries.



         Investment In COMFORCE Corporation


         ARTRA, through its wholly owned Fill-Mor subsidiary, owns a significant
minority  interest in COMFORCE,  consisting of 1,813,036 shares or approximately
19% of the outstanding common stock of COMFORCE as of November 25, 1996, with an
aggregate value as of that date of approximately $21,756,432 (value at September
26,  1996  was  $31,728,000).   The  value  of  COMFORCE  stock  has  fluctuated
substantially in recent periods. The high per share for the twelve period ending
September 26, 1996 was $34.12,  and the per share low during the same period was
$2.75.  There can be no assurance that the value of the COMFORCE shares will not
decline  substantially in the future, which would have a material adverse effect
on the value of the Company.

         The  COMFORCE  shares  constitute  unregistered  securities  under  the
Securities Act of 1933 (the "Act"). As a result of ARTRA's former involvement in
the operations  and management of COMFORCE,  ARTRA was considered an "affiliate"
of COMFORCE  under the Act, and because of this, the number of shares that ARTRA
could sell without  registration under the Act within any three-month period was
limited. For the reasons set forth below, the Company believes that an exemption
from registration  under Rule 144(k)  promulgated under the Act is now available
to it, and therefore the limitations  under Rule 144 on the number of restricted
shares that ARTRA could sell within any three-month period without registrations
are no longer applicable to it.

         Rule 144(k) of the Act permits the sale without  registration under the
Act of  restricted  shares of an  issuer  that have been held in excess of three
years by persons who have not been  "affiliates" of the issuer for the preceding
three months.  Since  December 28, 1995,  ARTRA,  Fill-Mor and their  respective
officers,  directors,  affiliates  and  employees  have  held no  managerial  or
executive  positions  with  COMFORCE  nor have any of the  above  served  in the
capacity of directors, nor have any of them had the right under any agreement or
otherwise to serve in such capacity since December 28, 1995.  Likewise,  neither
ARTRA,  Fill-Mor  nor any of the  above had the right  under  any  agreement  or
otherwise to serve in such capacity since December 28, 1995. Finally, since that
time, neither ARTRA,  Fill-Mor nor any of their respective officers,  directors,
affiliates  and employees  have had any material  involvement  in, nor have they
been able to  exercise  any  control  over,  COMFORCE,  either  individually  or
together with any other person or entity.  Because of this, the Company believes
that ARTRA and Fill-Mor are not  "affiliates"  of COMFORCE and,  since they have
held their shares in excess of three years, qualify for the exemption under Rule
144(k) set forth above.

         COMFORCE  has not agreed  that Rule  144(k) is  available  to ARTRA and
Fill-Mor,  and  accordingly  has not permitted ARTRA and Fill-Mor to sell shares
using  the  Rule  144(k)  exemption,  and  ARTRA  has no  right,  short of legal
proceedings, to force COMFORCE to permit it to sell shares using the Rule 144(k)
exemption.  Likewise, there can be no assurance that the Securities and Exchange
Commission would concur with the Company's position. Notwithstanding this, ARTRA
does not believe that its ability to sell  COMFORCE  shares,  or  eventually  to
realize on the value of its  COMFORCE  shares,  will be  affected  in a material
adverse way,  although it may not be able to sell its COMFORCE shares as quickly
as it could if it were to use Rule 144(k),  and in any event, an attempt to sell
a large number of its COMFORCE shares over a limited period could be expected to
result in a reduction in the value of such shares.

         In January 1996, the Company's Board of Directors  approved the sale of
200,000 of ARTRA's COMFORCE common shares to certain officers, directors and key
employees of ARTRA for non-interest bearing notes totaling $400,000.  The notes,
collateralized by the 200,000 COMFORCE common shares sold, are not payable until
the earlier of the registration of these shares under the Securities Act of 1993
or the expiration of the applicable  resale waiting period under  Securities Act
Rule 144.  Additionally,  the  noteholders  have the right to put their COMFORCE
shares back to ARTRA in full payment of the balance of their  notes.  Based upon
the preceding factors,  the Company has concluded that, for reporting  purposes,
it has effectively sold options to certain officers, directors and key employees
to acquire 200,000 of ARTRA's COMFORCE common shares. Accordingly, these 200,000
COMFORCE  common  shares  have been  removed  from the  Company's  portfolio  of
"Available-for-sale  securities"  and are classified in the Company's  condensed
consolidated balance sheet at September 26, 1996 as other current assets with an
aggregate  value of  $400,000,  based upon the value of  proceeds to be received
upon future exercise of the options.  The disposition of these 200,000  COMFORCE
common  shares  will  result in a gain which has been  deferred  and will not be
recognized in the Company's  financial  statements until the options to purchase
these 200,000 COMFORCE common shares are exercised. As of September 26, 1996, no
options to acquire any of the 200,000 COMFORCE common shares had been exercised.

         
                                     - 28 -

<PAGE>


During the nine months ended  September  26,  1996,  ARTRA sold 193,000
COMFORCE shares in the market.  As additional  consideration for 1996 short-term
loans,  the lenders  received 95,000  COMFORCE common shares held by ARTRA.  The
disposition  of these  288,000  COMFORCE  shares  resulted in realized  gains of
$4,823,000 during the nine months ended September 26, 1996.

         At  September  26,  1996  ARTRA's  remaining   investment  in  COMFORCE
(1,813,036  shares, or approximately a 19% common stock ownership  interest) was
classified in the Company's condensed  consolidated  balance sheet in noncurrent
assets as  "Available-for-sale  securities."  At  September  26,  1996 the gross
unrealized  gain  relating to ARTRA's  investment  in  COMFORCE,  reflected as a
separate component of shareholders' equity, was $34,950,000.

         In  conjunction  with the Global  acquisition,  ARTRA  agreed to assume
substantially all pre-existing  COMFORCE liabilities (i.e., COMFORCE liabilities
existing  from  operations  prior to the  acquisition  of Global) and  indemnify
COMFORCE  in the event any  future  liabilities  arise  concerning  pre-existing
environmental matters and business related litigation. Accordingly, at September
26, 1996 and December 28, 1995,  respectively,  $764,000 and  $4,500,000 of such
pre-existing   COMFORCE   liabilities  were  classified  in  ARTRA's   condensed
consolidated  balance sheet as current  liabilities of discontinued  operations.
See  Note 5 to the  condensed  consolidated  financial  statements  for the nine
months ended September 26, 1996 for a further  discussion of ARTRA's  investment
in COMFORCE.  See "Changes in Business - COMFORCE"  for  additional  information
relating to the Company's investment in COMFORCE.

         Litigation



         The  Company  and  its  subsidiaries  are  the  defendants  in  various
business-related  litigation  and  environmental  matters.  See  Note  13 to the
Company's condensed  consolidated financial statements for the nine months ended
September 26, 1996. At September 26, 1996 and December 28, 1995, the Company had
accrued $1,900,000 and $1,500,000, respectively, for business-related litigation
and environmental liabilities. However, as discussed elsewhere herein, ARTRA may
not  have   available   funds   to  pay   liabilities   arising   out  of  these
business-related  litigation and environmental matters or, in certain instances,
to provide for its legal defense. ARTRA could suffer severe adverse consequences
in the  event of an  unfavorable  judgment  in any of these  matters.  See "Risk
Factors -- Litigation," and "Legal Proceedings."



         Net Operating Loss Carryforwards


         At September  26, 1996,  the Company and its  subsidiaries  had Federal
income tax loss  carryforwards  of  approximately  $33,000,000  available  to be
applied against future taxable income, if any. ARTRA's tax loss carryforwards of
approximately  $22,000,000  expire  principally  in 2003 -  2010.  Additionally,
ARTRA's  discontinued  Ultrasonix and Ratex  subsidiaries had Federal income tax
loss carryforwards of approximately  $11,000,000 available to be applied against
future taxable income, if any. In recent years, the Company has issued shares of
its  common  stock to repay  various  debt  obligations,  as  consideration  for
acquisitions,  to fund working  capital  obligations  and as  consideration  for
various  other  transactions.  Section 382 of the Internal  Revenue Code of 1986
limits a corporation's  utilization of its Federal income tax loss carryforwards
when certain changes in the ownership of a corporation's common stock occurs. In
the  opinion  of  management,  the  Company  is not  currently  subject  to such
limitations   regarding  the   utilization   of  its  Federal  income  tax  loss
carryforwards.  Should the  Company  continue to issue a  significant  number of
shares of its common stock,  it could trigger a limitation that would prevent it
from   utilizing  a  substantial   portion  of  its  Federal   income  tax  loss
carryforwards.


                                     - 29 -

<PAGE>



Impact of Inflation and Changing Prices



         Bagcraft's costs have increased  substantially in recent years, largely
due to  increases  in the cost of  paper.  Although  Bagcraft  seeks to pass its
increased costs on to its customers,  this is frequently not possible due to the
competitive nature of the paper products industry.



Recently Issued Accounting Pronouncements



         Impairment of Long-Lived Assets



         SFAS No. 121,  "Accounting for the Impairment of Long-Lived  Assets and
for Long-Lived  Assets to be Disposed Of",  requires that long-lived  assets and
certain  identifiable  intangibles  to be held and used by an entity be reviewed
for impairment  whenever  events or changes in  circumstances  indicate that the
carrying amount of an asset may not be  recoverable.  Impairment is evaluated by
comparing future cash flows (undiscounted and without interest charges) expected
to result from the use or sale of the asset and its eventual disposition, to the
carrying amount of the asset. This new accounting principle is effective for the
Company's  fiscal year ending  December  26,  1996.  The Company  believes  that
adoption did not have a material impact on its financial statements.



         Stock-Based Compensation



         SFAS No. 123,  "Accounting for Stock-Based  Compensation",  encourages,
but does not require,  companies to recognize compensation expense for grants of
stock,  stock options,  and other equity  instruments to employees  based on new
fair value accounting  rules.  Although  expense  recognition for employee stock
based compensation is not mandatory,  the pronouncement  requires companies that
choose not to adopt the new fair value accounting, to disclose the pro-forma net
income  and  earnings  per  share  under  the new  method.  This new  accounting
principle is effective for the Company's  fiscal year ending  December 26, 1996.
The  Company  believes  that  adoption  will not have a  material  impact on its
financial  statements  as  the  Company  will  not  adopt  the  new  fair  value
accounting, but instead comply with the disclosure requirements.



                             BUSINESS AND PROPERTIES



General



         At December 29, 1994 and,  through  September 1995,  ARTRA  principally
operated in two industry  segments as: 1) a manufacturer  of packaging  products
principally  serving the food  industry;  and 2) a designer and  distributor  of
popular-priced fashion costume jewelry.



                                     - 30 -

<PAGE>



         During 1995, the Company's packaging products business was conducted by
its current principal operating subsidiary,  Bagcraft, and its then wholly-owned
subsidiary Arcar Graphics,  Inc.  ("Arcar") acquired effective April 9, 1994. As
discussed in Note 3 to the Company's  consolidated  financial statements for the
year ended December 28, 1995, effective October 26, 1995, Bagcraft completed the
sale of the  business  assets of Arcar,  subject to the  buyer's  assumption  of
certain liabilities.



         During  1995,  the  Company's  fashion  costume  jewelry  business  was
conducted by its then majority-owned subsidiary COMFORCE (then known as The Lori
Corporation) through its wholly-owned subsidiaries: Rosecraft, Inc. and Lawrence
Jewelry  Corporation.  In  recent  years,  COMFORCE's  fashion  costume  jewelry
operations  had  experienced a pattern of  significantly  lower sales levels and
related  operating losses primarily due to a shift in the buying patterns of its
major  customers  (i.e.  certain  mass   merchandisers)  from  participation  in
COMFORCE's  service  program to  purchases  of costume  jewelry and  accessories
directly  from   manufacturers  and  due  to  a  continued   unfavorable  retail
environment.  Accordingly,  in  September,  1995,  COMFORCE  adopted  a plan  to
discontinue  its  jewelry  business  as  discussed  in  Note 3 to the  Company's
consolidated financial statements for the year ended December 28, 1995.



         As  discussed  in  Note  3  to  the  Company's  consolidated  financial
statements for the year ended  December 28, 1995, on October 17, 1995,  COMFORCE
completed  the  acquisition  of one  hundred  percent  of the  capital  stock of
COMFORCE Global, Inc. ("Global"),  formerly Spectrum Global Services, Inc. d/b/a
YIELD Global,  a wholly owned subsidiary of Spectrum  Information  Technologies,
Inc. for consideration of approximately $6.4 million, net of cash acquired. This
consideration   consisted  of  cash  of  approximately  $5.1  million,  fees  of
approximately  $700,000  including  a fee of $500,000  to a related  party,  and
500,000 shares of COMFORCE common stock issued as consideration for various fees
and   guarantees    associated   with   the    transaction.    Global   provides
telecommunications and computer technical staffing services worldwide to Fortune
500  companies  and  maintains  an  extensive,   global  database  of  technical
specialists,   with  an   emphasis  on   wireless   communications   capability.
Additionally,  in conjunction with the Global  acquisition,  ARTRA has agreed to
assume certain  pre-existing  COMFORCE liabilities and indemnify COMFORCE in the
event any future liabilities arise concerning pre-existing environmental matters
and business related litigation.


         Effective July 4, 1995,  COMFORCE and ARTRA entered into  employment or
consulting  services  agreements with certain  individuals to manage  COMFORCE's
entry into and  development  of the  telecommunications  and computer  technical
staffing services business. As additional compensation,  the agreements provided
for the issuance in aggregate of a 35% common stock interest in COMFORCE.  After
the issuance of the COMFORCE common shares,  plus the effects of the issuance of
COMFORCE  common shares sold by private  placements  and other  COMFORCE  common
shares issued in conjunction with the Global  acquisition,  ARTRA's common stock
ownership  interest in  COMFORCE  was  reduced to  approximately  19% and 25% at
September 26, 1996 and December 28, 1995, respectively. See "Changes in Business
- COMFORCE" for additional  information  relating to the Company's investment in
COMFORCE.



         Packaging Products Segment



         Effective  March 3, 1990,  ARTRA  entered into the  packaging  products
business with its acquisition of Bagcraft.  Bagcraft,  established in 1947, is a
leading  manufacturer  and supplier of flexible  packaging  products to the fast
food,  bakery,  microwave  popcorn  and  supermarket  industries  and is  also a
significant supplier to the theater

                                     - 31 -

<PAGE>



industry.  Several of Bagcraft's  products are widely recognized and have become
standard  items  within  various  segments of the food  industry.  Bagcraft is a
full-service   supplier   complete  with  its  own  laboratory  and  engineering
departments.  Bagcraft's  sales and  technical  staff work in  conjunction  with
Bagcraft's  customers  to  determine  the  proper  components  of  the  package.
Bagcraft's  art  department  creates  packaging  designs,  subject  to  customer
approval, or duplicates  customer-supplied designs. Thereafter, the packaging is
produced in accordance with customer  specifications  using a variety of papers,
film,  foil and  lamination.  Bagcraft  has  developed  a number of  proprietary
innovations  in the  manufacture  of its packaging  products.  Such  innovations
include the  Dubl-Wax(TM)  bag,  which  introduced  specialty  waxed bags to the
retail bakery  industry.  Bagcraft is also credited with being  instrumental  in
developing and producing the first microwave popcorn bags.



         Bagcraft  currently  produces  over two  billion  bags and two  billion
sheets and  wrappers  annually for the  packaging  of more than 1,000  different
products. Bagcraft purchases the paper, foil, films and chemicals it uses from a
number of different unaffiliated suppliers. Since Bagcraft purchases each of the
raw materials it requires from more than one supplier,  it is not dependent upon
a single supplier for any specific materials or supplies.



         Sales orders are processed,  and manufacturing  and delivery  schedules
are determined  primarily at Bagcraft's  headquarters  and principle  production
facility in Chicago. In September,  1994, Bagcraft completed the construction of
a new 265,000 sq. ft.  production  facility in Baxter Springs,  Kansas.  The new
Kansas facility,  which has added production capacity in Bagcraft's growing food
service  products  business,  has  replaced  Bagcraft's  production  facility in
Joplin,  Missouri  (which was conveyed to a contractor  involved in constructing
the Baxter Springs facility in partial consideration of such contractor's fees),
its facility in Carteret,  New Jersey  (which was sold in 1994) and its facility
in Forest Park, Georgia (which was converted into a distribution facility).



         Bagcraft's  products are sold  throughout  the United States by a sales
force  of  approximately  20  full-time   salespersons  who  sell  to  wholesale
distributors and a number of independent brokers who sell Bagcraft product lines
to large food processors and food chains.  Bagcraft presently sells its products
to more than 1,000  customers.  Although  some of these are the largest and most
recognizable  companies in the food industry,  no single customer  accounted for
more than 10% of ARTRA's consolidated net sales in 1995.



         Sales to customers  are made  pursuant to orders  placed in advance for
periods of up to one year.  In certain  instances  Bagcraft  and a customer  can
enter into an  agreement  to  maintain a  specified  minimum  inventory  for the
customer.  The contracts  entered into by Bagcraft  with its  customers  vary in
length  depending on the customer's  needs and  Bagcraft's  capacity to meet the
customer's requirements.  Generally, Bagcraft's contracts provide advance notice
of from 30 days to one year to  terminate a contract.  The  contracts  typically
provide  for  delivery  of goods  at an  agreed-upon  fixed  price,  subject  to
adjustment upon timely notice in advance.  Bagcraft usually grants its customers
rights of return,  subject to penalty,  except in the case of goods  produced to
specification.  In addition,  Bagcraft  typically  requires payment for goods 30
days after  shipment,  but gives its  customers a 1% discount if payment is made
within 10 days after shipment.



         Bagcraft  believes that it is the  manufacturer of the most diversified
line of flexible packaging products in the United States.  However,  there are a
number of domestic and foreign companies which compete directly with Bagcraft in
each of its major  product  lines,  certain of which have a larger  market share
with respect to specific product lines.  Bagcraft's competitors range from small
companies to divisions of large corporations which have

                                     - 32 -

<PAGE>



substantially  greater  financial  resources  than those  available to Bagcraft.
Bagcraft  competes  on the  basis  of  quality,  service  and the  price  of its
products.



         Bagcraft  believes that only a modest level of continuing  research and
development and strict quality and process control will be necessary to maintain
and  improve  its  position  in the  flexible  packaging  industry.  All product
modifications and manufacturing  innovations reflect input from its personnel in
general management, sales, marketing design, R&D and engineering.



         Bagcraft's  products are sold by four marketing  divisions as described
below:



         Paper Division



         Bagcraft  believes it is the industry  leader in specialty  paper bags,
which represented  approximately 32% of Bagcraft's 1995 sales.  Bakeries account
for  approximately  60%  of  the  paper  division's  sales  which  also  include
supermarkets  and various retail food chains.  A number of the paper  division's
products,   including   Dubl-Wax(TM),    Dubl-Panel(TM),    Dubl-Clear(TM)   and
Sealing-Strip(TM)  represent  significant  manufacturing  innovations which have
contributed  to  Bagcraft's  position as the industry  leader.  Major  customers
include  Wal*Mart,  Walgreen's,  Albertson's,  Dunkin' Donuts and Boston Market.
Bagcraft believes the outlook for the future indicates stability and growth.



         Bagcraft's Paper Division stocks  approximately  150 generic  products,
which enables  Bagcraft to lead the industry in providing the widest  variety of
immediately  available  unprinted  and  stock  printed  bags and  sheets  in the
industry.  Stock  products are bought and  inventoried by  distributors  who, in
turn, sell them in varying  quantities to end-users for a multitude of purposes.
The  stock  line  is  sold  mainly  through   Bagcraft  field   salespeople  and
telemarketing from Bagcraft's Chicago home office.



         Food Service Division



         The Food  Service  Division,  which  represented  approximately  47% of
Bagcraft's 1995 sales, is a leader among its  competitors.  Bagcraft's  products
sold to the food  service  industry  include  foil and paper bags and sheets for
sandwiches,  french fries,  chicken and other prepared foods. Major customers in
this  industry  include  Wendy's,  Burger  King,  Taco  Bell,  Dairy  Queen  and
McDonald's.



         The  development of the Honeycomb  sheet helped propel  Bagcraft to its
industry leading position. The Honeycomb sheet incorporates a moisture absorbing
layer which  prevents buns from becoming soggy and tends to keep food warm for a
longer period of time.  Additionally,  when used to replace rigid packaging,  it
represents significant source reduction to the solid waste system.



                                     - 33 -

<PAGE>



         Specialty Bag Division



         The Specialty Bag Division represented  approximately 15% of Bagcraft's
1995 sales.  Many of the  division's  products  represent  unique  additions  to
Bagcraft's  standard  products.  The  Cue-Pon  Bag(TM)  has a "tear out"  coupon
affixed  near the  window on the bag which  offers  the  shopper  the  immediate
benefit of the coupon upon  purchase.  The Cue-Pon Pocket Bag(TM) has a pouch on
the front of the bag which can be filled with novelty items by the retailer.



         The division  features products for the packaging of bakery goods, such
as cookies and donuts,  coffee, pre- popped popcorn and specialized  promotional
items such as premiums for kids meals sold by food service chains. This division
provides bags with transparent windows, metal tin tie attachments and convenient
self-opening bottoms.



         This  division also produces  theater  popcorn bags,  which provide the
theater  chains with a more  economical  package  that is easy to dispose of and
substantially  reduces the amount of space  needed to  inventory  the product as
well as providing a conveniently  resealable bag by using Tac-Labels(TM) in lieu
of Tin Ties.  Bagcraft is the leading supplier of popcorn bags to theater chains
such as General Cinema  Corporation  and Mann Theaters.  The newest  addition to
this division is the "To Go!"  Bags(TM).  These double wall bags provide many of
the  properties  of  rigid   containers  such  as  tubs  and  cartons  with  the
environmental  and storage  advantages of bags.  Although in the early stages of
production,  "To Go!" Bags(TM) have been  enthusiastically  received and now are
subject  to a  backlog.  Other  customers  for the  division  include  Bake-Line
Products and Interstate Brands.



         Microwave Popcorn Division



         The Microwave Popcorn Division,  which represented  approximately 5% of
Bagcraft's  1995 sales,  represents  an example of  Bagcraft's  high  technology
advancements.  Bagcraft supplies microwave popcorn packaging to several industry
leaders, including Hunt-Wesson (Orville Redenbacher) and U.S.A. Family Foods.



         Bagcraft was  instrumental  in the  development of the first  microwave
popcorn bag and played an important role in developing  "susceptor"  accelerator
technology which it has incorporated into its products. The susceptor technology
involves  placing a metallized  material into the popcorn bag which  accelerates
the heat  transfer  and results in a higher  percentage  of the popcorn  kernels
being popped.



         In recent  years,  Bagcraft has  experienced  a decline in its domestic
microwave  popcorn business due to the acquisition of one of its major customers
by a company with its own packaging ability.  Accordingly, at December 31, 1995,
Bagcraft  incurred  a  charge  to  operations  of  approximately  $1,500,000  to
write-down the carrying  value of idle machinery and equipment  dedicated to the
production of microwave popcorn products.



                                     - 34 -

<PAGE>



         Discontinued Business - Arcar



         As  discussed  in  Note  3  to  the  Company's  consolidated  financial
statements  for the year  ended  December  28,  1995,  effective  April 8, 1994,
Bagcraft acquired the business assets,  subject to buyer's assumption of certain
liabilities of Arcar Graphics, Inc. ("Arcar"), a manufacturer and distributor of
waterbase inks for the flexographic and rotogravure printing  industries.  Arcar
is one of the larger  waterbase  ink  suppliers in the United  States and serves
over 500 customers.  The principal markets of Arcar's products included printers
of  tags  and  labels,  flexible  packaging  manufacturers  and  polycoated  cup
manufacturers.  As discussed in Note 3 to the Company's  consolidated  financial
statements  for the year ended  December 28, 1995,  effective  October 26, 1995,
Bagcraft  completed  the sale of the  business  assets of Arcar,  subject to the
buyer's assumption of certain liabilities.



Employees



         The Company  currently employs  approximately 940 persons.  The Company
considers its relationships with its employees to be good.



Properties



         The following table sets forth a brief description of the properties of
the Company and its subsidiaries.  The Company and its subsidiaries believe that
all  of  their   facilities  are  adequate  for  their  present  and  reasonably
anticipated future business requirements.

<TABLE>
<CAPTION>

Location                               General Description                                      Ownership
--------                               -------------------                                      ---------
<S>                                    <C>                                                     <C>
ARTRA:

   Northfield, IL (1)                  Headquarters facility of                                Leased, month to month
                                       approximately 7,000 sq. ft

Bagcraft:

    Chicago, IL                        Administrative and manufacturing facility of            Owned
                                       approximately 148,000 sq. ft.


    Chicago, IL (2)                    Warehouse and office facility of                        Leased, expiring in 2006
                                       approximately 63,000 sq. ft

    Baxter Springs, KS(3)              Manufacturing, warehouse and office facility
                                       of approximately 265,000 sq. ft.                        Owned

    Forest Park, GA(3)                 Warehouse and office facility                           Owned
                                       of approximately 35,000 sq. ft






                                     - 35 -

<PAGE>


<FN>
(1)      In July, 1992  ARTRA sold its headquarters building,  and now leases it
         under a month-to-month lease.
    

(2)      This lease provides for  a ten-year option to renew at the then current
         market rate.

(3)      In September,  1994,  Bagcraft completed  construction of a new 265,000
         sq. ft. production  facility in Baxter Springs,  Kansas.  This facility
         replaced  Bagcraft's   production   facilities  in  Joplin,   Missouri,
         Carteret,  New Jersey and Forest Park,  Georgia.  Bagcraft conveyed the
         former Joplin,  Missouri facility to one of the contractors involved in
         the  construction  of the Baxter  Springs,  Kansas  facility as partial
         consideration for the work performed by this contractor.  Bagcraft sold
         the Carteret,  New Jersey  facility in 1994.  The Forest Park,  Georgia
         facility was retained as a distribution center until June, 1996 and was
         subsequently closed.
</FN>
</TABLE>

Legal Proceedings

         The  Company  and  its  subsidiaries  are  the  defendants  in  various
business-related litigation and environmental matters. At September 26, 1996 the
Company had accrued $1,900,000 for business-related litigation and environmental
liabilities.  While these  litigation  and  environmental  matters  involve wide
ranges of potential liability,  management does not believe the outcome of these
matters will have a material adverse effect on the Company's financial position;
however it may have have an adverse  effect on the results of operations  for an
individual reporting period.  However, ARTRA may not have available funds to pay
liabilities arising out of these  business-related  litigation and environmental
matters or, in certain instances, to provide for its legal defense.

         In  November,  1993,  ARTRA  filed  suit in the  Circuit  Court  of the
Eighteenth Judicial Circuit for the state of Illinois (the "State Court Action")
against Salomon Brothers,  Inc., Salomon Brothers Holding Company, Inc., Charles
K. Bobrinskoy, Michael J. Zimmerman (collectively,  "Salomon Defendants"),  D.P.
Kelly & Associates, L.P. ("DPK"), Donald P. Kelly ("Kelly Defendants" along with
DPK),  James F.  Massey and  William  Rifkind  relating  to the  acquisition  of
Envirodyne in 1989 form Emerald  Acquisition Corp.  ("Emerald").  Envirodyne had
filed a Chapter 11  bankruptcy on January 7, 1993 which  provided  ARTRA with no
value in the Emerald  Stock  received in  connection  with the  acquisition.  On
November 22, 1993, ARTRA filed a First Amended Complaint. The defendants removed
the case to the  Bankruptcy  Court  in  which  the  Emerald  Chapter  11 case is
pending. On July 15, 1994, all but two of ARTRA's causes of action were remanded
to the state court. The Bankruptcy Court retained jurisdiction of ARTRA's claims
against the  defendants  for  breaching  their  fiduciary  duty as  directors of
Emerald  to  Emerald's  creditors  and  interference  with  ARTRA's  contractual
relations with Emerald. On April 7, 1995, the Company's appeal of the Bankruptcy
Court's order  retaining  jurisdiction  over two claims was denied.  On July 26,
1995, the Bankruptcy Court entered an order  dismissing these claims.  On August
4, 1995, ARTRA appealed from the Bankruptcy Court's dismissal order. That appeal
was denied on October 31, 1996 by the United States District Court.  ARTRA has a
right to appeal the District Court's decision. This appeal has been filed in the
United States Court of Appeals for the Seventh Circuit.

         On July 18, 1995,  ARTRA filed a Fourth Amended  Complaint in the State
Court  Action  for  breach  of  fiduciary  duty,  fraudulent  misrepresentation,
negligent misrepresentation,  breach of contract and promissory estoppel. In the
State Court Action, ARTRA seeks compensatory damages of $136.2 million, punitive
damages of $408.6 million and the repayment of approximately $33 million in fees
paid to Salomon.  The causes of action for breach of the  fiduciary  duty of due
care  were  repleaded  to  reserve  ARTRA's  right to appeal  the State  Court's
dismissal of the causes of action in the Third Amended  Complaint.  The cause of
action  against  defendant  Kelly was  dismissed  with  prejudice  pursuant to a
stipulation between ARTRA and the Kelly Defendants.

         On or about March 1, 1996, DPK brought a motion for summary judgment as
to ARTRA's claims for breach of contract and promissory  estoppel.  DPK's motion
was granted on June 4, 1996. The Company has appealed this decision.

         In January,  1985 the United  States  Environmental  Protection  Agency
("EPA") notified  Bagcraft that it was a potentially  responsible  party ("PRP")
under the Comprehensive Environmental  Responsibility Compensation and Liability
Act ("CERCLA") for alleged release of hazardous substances at the Cross Brothers
site near Kankakee,

                                     - 36 -

<PAGE>



         Illinois.  Although  Bagcraft has denied liability for the site, it has
entered into a  settlement  agreement  with the EPA,  along with the other third
party  defendants,  to resolve  all claims  associated  with the site except for
state claims.  In May,  1994  Bagcraft  paid  $850,000 plus accrued  interest of
$29,000 to formally extinguish the EPA claim. Bagcraft filed suit in 1993 in the
United States District Court for the Northern District of Illinois,  against its
insurers to recover its liability  costs in connection  with the Cross  Brothers
case.  Bagcraft was  subsequently  reimbursed  by its insurers for its liability
costs  incurred  in  connection  with the EPA  claim.  With  regard to the state
action,  Bagcraft is participating in settlement  discussions with the State and
thirteen other potential  responsible  parties to resolve all claims  associated
with  the  State  action.  The  maximum  State  claim  is $1.1  million  for all
participants.  Bagcraft has accrued  $120,000 related to the State action in the
Company's  consolidated  financial  statements  at  September  26,  1996,  which
constitutes Bagcraft's pro rata share of the $1.1 million.

         Bagcraft  was  listed by the EPA as a de  minimis  PRP at the  American
Chemical Services, Inc. off-site disposal location in Griffith,  Indiana and the
Duane Marine off-site disposal location in Perth Amboy, New Jersey.  These sites
are included in the EPA's  National  Priorities  List. On July 22, 1994 Bagcraft
executed  a de minimis  settlement  with the EPA with  respect  to the  American
Chemical  Services,  Inc.  site.  Bagcraft is presently  unable to determine its
liability, if any, with respect to the Duane Marine site.

         Bagcraft  has  been  notified  by  the  EPA  that  it is a  potentially
responsible  party for the disposal of hazardous  substances at the Ninth Avenue
site in Gary,  Indiana.  This site is listed  on the EPA's  National  Priorities
list.  A group of defendant  PRPs,  known as the Ninth  Avenue  Remedial  Group,
settled with the USEPA and agreed to remediate the site. This Group subsequently
sued numerous third party  defendants,  including  Bagcraft,  alleged also to be
responsible  parties at the site.  The  plaintiffs  have  produced  only limited
testamentary  evidence,  and no documentary  evidence,  linking Bagcraft to this
site,  and the Company has neither  discovered any records which  indicate,  nor
located  any  current  or  former  employees  who have  advised,  that  Bagcraft
deposited hazardous  substances at the site. Based on the foregoing,  management
of the Company does not believe  that it is probable  that the Company will have
any liability for the costs of the clean-up of this site. The Company intends to
vigorously defend itself in this case.

         Bagcraft reported a release  associated with solvent tanks located in a
vault at its Chicago  facility.  After seeking approval from the IEPA,  Bagcraft
installed and is currently operating a soil vapor and extraction system designed
to achieve  remedial  objectives which the IEPA has determined to be appropriate
to the site.

         Bagcraft's  Chicago  facility has also been the subject of  allegations
that it violated  laws and  regulations  associated  with the Clean Air Act. The
facility has numerous  sources of air  emissions of volatile  organic  materials
("VOMs") associated with its printing operations and is required to maintain and
comply  with  permits  and  emissions  regulations  with regard to each of these
emission sources.

          In  November  of 1995,  the EPA issued a Notice of  Violation  ("NOV")
against  Bagcraft's  Chicago facility alleging numerous  violations of the Clean
Air Act and related regulations. The NOV alleges that the facility installed and
operated  emission  sources  without  permits,  that it  failed to  operate  air
pollution  control  equipment  at  required  efficiencies  and that  there  were
releases of VOMs above  permitted  limits.  Although  Bagcraft is  attempting to
negotiate a settlement,  the EPA may yet file a federal complaint to enforce its
NOV. The EPA has not demanded a specific penalty but maximum penalties under the
Clean Air Act are $25,000 per day for each demonstrated violation.

         In April 1994,  the EPA  notified the Company that it was a PRP for the
disposal of hazardous  substances  (principally waste oil) at a disposal site in
Palmer, Massachusetts generated by a manufacturing facility formerly operated by
the Clearshield  Plastics Division  ("Clearshield") of Harvel  Industries,  Inc.
("Harvel"),  a majority owned  subsidiary of ARTRA.  In 1985,  Harvel was merged
into  ARTRA's  subsidiary,  Fill-Mor.  This site has been  included on the EPA's
National  Priorities  List.  In  February,  1983,  Harvel  sold  the  assets  of
Clearshield to Envirodyne. The alleged waste disposal occurred in 1977 and 1978,
when Harvel was a majority-owned  subsidiary of ARTRA. In early 1994, a group of
PRP's filed a claim in the Envirodyne  bankruptcy proceeding with respect to the
Palmer  site.  In May  1994,  Envirodyne  and  its  Clearshield  National,  Inc.
subsidiary filed an adversary  proceeding  against ARTRA for  indemnification in
connection  with this claim.  Both the claim and the adversary  proceeding  were
voluntarily dismissed, but the PRP group has requested that ARTRA pay a share of
the response costs. The cost of clean-up at the Palmer,  Massachusetts  site has
been estimated to be approximately $7 million

                                     - 37 -

<PAGE>



according  to proofs of claim  filed in the  adversary  proceeding.  A committee
formed by the PRP group has estimated the liability respecting the activities of
Clearshield to be  approximately  $400,000.  ARTRA has not made any  independent
investigation of the amount of its potential  liability and no assurances can be
given that it will not substantially exceed $400,000.

         In a case titled Sherwin-Williams  Company v. ARTRA GROUP Incorporated,
filed in 1991 in the United States District Court for Maryland, Sherwin-Williams
Company  ("Sherwin-Williams") brought suit against ARTRA and other former owners
of a paint manufacturing  facility in Baltimore,  Maryland for recovery of costs
of  investigation  and  clean-up  of  hazardous  substances  which were  stored,
disposed of or otherwise released at this manufacturing  facility. This facility
was owned by Baltimore  Paint and  Chemical  Company,  formerly a subsidiary  of
ARTRA, from 1960 to 1980.  Sherwin-William's  current  projection of the cost of
clean-up is approximately $5 to $6 million.  The Company has filed counterclaims
against  Sherwin-Williams  and cross claims  against  other former owners of the
property.  The Company also is vigorously  defending  this action and has raised
numerous defenses.  Currently,  the case is in its early stages of discovery and
the Company cannot determine what, if any, its liability may be in this matter.

         ARTRA was named as a defendant  in United  States v.  Chevron  Chemical
Company brought in the United States District Court for the Central  District of
California  respecting  the Operating  Industries,  Inc. site in Monterey  Park,
California. This site is included on the EPA's National Priorities List. ARTRA's
involvement  stemmed from the alleged  disposal of hazardous  substances  by The
Synkoloid  Company  ("Synkoloid"),  a subsidiary of Baltimore Paint and Chemical
Company,  which was formerly owned by ARTRA.  Synkoloid  manufactured  spackling
paste, wall coatings and related products,  certain of which generated hazardous
substances as a by-product of the manufacturing process.

         ARTRA entered into a consent  decree with the EPA in which it agreed to
pay $85,000 for one phase of the clean-up  costs for this site;  however,  ARTRA
defaulted on its payment  obligation.  ARTRA is presently unable to estimate the
total  potential  liability for clean-up  costs at this site,  which clean-up is
expected to continue for a number of years.  The consent decree,  even if it had
been honored by ARTRA,  was not  intended to release  ARTRA from  liability  for
costs  associated with other phases of the clean-up at this site. The Company is
presently unable to determine what, if any, additional liability it may incur in
this  matter.  There can be no  assurance  that  ARTRA's  liability  will not be
material in amount.

         Several  cases have  arisen from  ARTRA's  purchase of Dutch Boy Paints
which owned a facility in Chicago which it purchased  from NL  Industries.  In a
case titled City of Chicago v. NL Industries, Inc. and ARTRA GROUP Incorporated,
filed in the Circuit Court of Cook County, Illinois, the City of Chicago brought
a  nuisance  action  and  alleged  that  ARTRA  (and NL  Industries,  Inc.)  had
improperly stored,  discarded and disposed of hazardous  substances at the Dutch
Boy site,  and that ARTRA had conveyed the site to Goodwill  Industries to avoid
clean-up costs. At the time the suit was filed, the City of Chicago claimed that
it would cost $1,000,000 to remediate the site.

         ARTRA and NL  Industries,  Inc.  have  counter sued each other and have
filed third party actions  against the  subsequent  owners of the property.  The
Company is presently  unable to determine its  liability,  if any, in connection
with this case.  The parties were  conducting  discovery but the case was stayed
pending the resolution of the EPA action described below.

         In  1986,  in a case  titled  People  of the  State of  Illinois  v. NL
Industries,  Inc.,  ARTRA GROUP  Incorporated,  et al., the Cook County  State's
attorney  filed suit seeking  response  costs in excess of $2,000,000 and treble
punitive damages for costs expended by IEPA in remediating  contamination at the
Dutch  Boy  site,   alleging   that  all  former  owners   contributed   to  the
contamination. In 1989, the Circuit Court dismissed the action, holding that the
state had failed to exhaust its administrative procedures. In 1992, this holding
was reversed by the Illinois  Supreme  Court.  In 1996,  the Illinois  Appellate
Court affirmed the District  Court's  decision to dismiss the case based on lack
of due diligence on the part of the State of Illinois. The State of Illinois has
filed a Petition for

                                     - 38 -

<PAGE>



Rehearing  which was  granted.  The  Company is  presently  unable to  determine
ARTRA's liability, if any, in connection with this case.

         On November 17, 1995,  the EPA issued  letters to ARTRA,  NL Industries
and others alleging that they were potentially  responsible parties with respect
to  releases  at the Dutch Boy  facility  in  Chicago  and  demanding  that they
remediate  the site.  NL  Industries  entered into a consent  decree with EPA in
which it agreed to  remediate  the site.  The  Company  is  presently  unable to
determine its liability, if any, in connection with this case.

         On August 7, 1995, a Second Amended Verified Complaint was filed in the
Supreme  Court of N.Y. by Philip  Elghanian  against  ARTRA,  its  officers  and
directors  (the "ARTRA  Defendants")  and others  alleging  that the  defendants
engaged  in a scheme to defraud  plaintiff  of  approximately  $5 million of the
value of his  investment  in shares of ARTRA.  The  plaintiff  seeks damages and
interest in excess of $38 million and punitive and  exemplary  damages in excess
of $100 million.  On January 19, 1996,  the ARTRA  Defendants  filed a motion to
dismiss the Second  Amended  Complaint.  As of June 7, 1996 that motion is still
pending. Since New York permits interlocutory appeals, the decision, if adverse,
may be appealed.

         On June 14, 1995 Tartan  Resources  brought  suit in the United  States
District  Court for the  Northern  District of  Illinois  against  A.G.  Holding
Corporation,  The  Lori  Corporation  and  Bagcraft.  Bagcraft  was  voluntarily
dismissed from the lawsuit by the plaintiff. Tartan Resources alleges that under
the alter-ego  theory,  A.G.  Holding is liable for a judgment  entered  against
ARTRA and Artra Resources Corp. The plaintiff seeks  $151,215.46  plus interest,
costs and attorneys  fees.  Discovery is complete and all parties are moving for
summary judgment.

         On March 17, 1993, a judgment in the amount of $599,187.52  was entered
against  Artra  Group,  Inc.  in  the  matter  entitled  SW  Associates  Limited
Partnership v. Artra Group, Inc., Case No. 90 L 19514.  Plaintiff commenced post
judgment  collection  proceedings  to  collect  its  debt,  but  in  1994  these
proceedings  were  dismissed for lack of  diligence.  To date, no money has been
recovered from Artra.

         In  connection  with the sale of its former  Sargent  Welch  Scientific
Company  subsidiary,  ARTRA  assumed  liabilities  relating to early  retirement
claims.  ARTRA is  approximately  $120,000 behind in scheduled  payments.  ARTRA
intends to pay the entire liability,  which is a maximum of $320,000,  depending
upon years lived by covered employees.  ARTRA has accrued the entire $320,000 in
its financial statements.

         In 1994, ARTRA entered into a settlement agreement in connection with a
lawsuit  filed  by  Hosiery  Manufacturing  Company.  Under  the  terms  of  the
settlement,  ARTRA  was to  pay  $500,000.  ARTRA  was  unable  to  satisfy  its
obligations under the settlement  agreement and subsequently  entered into a new
settlement agreement reducing the liability to $125,000.





                                     - 39 -

<PAGE>



                   MARKET PRICE OF THE COMPANY'S COMMON STOCK


         ARTRA's  common  stock,  without  par value,  is traded on the New York
("NYSE")  and  Pacific  Stock  Exchanges.  The Company  currently  does not meet
certain of the requirements for maintaining its listing on the NYSE and the NYSE
is  reviewing  the  status  of the  Company's  listing  on the  exchange.  As of
September 26, 1996 and December 28, 1995, the  approximate  number of holders of
its common stock was 2,500.

         The high and low sales prices for ARTRA's common stock,  as reported in
the NYSE Quarterly Market Statistics reports, during the quarter ended September
26, 1996 and the past two fiscal years were as follows:
<TABLE>
<CAPTION>


                                      1996                     1995                       1994
                             --------------------      ---------------------       ---------------------
                               High         Low          High         Low            High         Low   
                             --------    --------      --------    ---------       --------    --------- 


<S>                           <C>         <C>           <C>          <C>            <C>          <C>    
First quarter                 6 - 3/4     4 - 5/8       5 - 3/4      3 - 1/2        7 - 3/4      5 - 1/8

Second quarter                9 - 1/4     5 - 3/4       5 - 1/2      3 - 1/4        6 - 1/4      4 - 3/8

Third quarter                 8 - 3/8     4 - 3/4       6            4 - 1/8        7 - 1/4      5

Fourth quarter                   *           *          5 - 1/8      3 - 5/8        5 - 3/8      3 - 3/4


</TABLE>


         No  dividends  have been  paid thus far in 1996 nor were any  dividends
paid in 1995 or 1994, and no dividends are anticipated in the remainder of 1996.
The Company was prohibited from paying dividends to its stockholders pursuant to
the terms of its bank loan  agreement  that was  discharged in February 1996. In
addition, the Company's operating subsidiaries historically have been prohibited
from or  restricted  in paying  dividends  or making  distributions  under their
respective debt agreements (except for limited overhead  allocations or payments
in accordance with tax sharing agreements with the parent entity).  Accordingly,
current  restrictions  or  limitations on the Company's  Bagcraft  subsidiary in
upstreaming  payments in 1996 and beyond  would make the payment of dividends by
ARTRA unlikely. See "Management's Discussion and Analysis of Financial Condition
and  Results of  Operations"  for a  discussion  of the loan  agreements  of the
Company and its Bagcraft subsidiary.

                                     - 40 -

<PAGE>



                     DESCRIPTION OF THE COMPANY'S SECURITIES

General

         The authorized  capital stock of the Company consists of (i) 20,000,000
shares of Common Stock without par value,  of which  7,694,872  shares have been
issued and are  outstanding as of September 26, 1996, and (ii) 2,000,000  shares
of Preferred  Stock,  par value $1,000 per share,  which may be issued in one or
more series  with such  rights and  preferences  as  determined  by the Board of
Directors,  of which  3,750  shares of a series  designated  "Series A Preferred
Stock"  have been  issued  and are  outstanding  as of the date  hereof  and the
Company has agreed to issue 2,250  shares of "Series E Preferred  Stock".  As of
the date  hereof,  there  were  approximately  2,600  holders  of  record of the
Company's Common Stock. Common Stock

         The  Company  has not paid any cash  dividends  on its Common  Stock in
recent  years  and  does  not  anticipate  paying  any  such  dividends  in  the
foreseeable  future.  In addition,  Bagcraft is prohibited from or restricted in
paying  dividends  or making  distributions  to the Company  under  various loan
agreements (except for limited overhead allocations payable to the parent entity
and payments under tax sharing arrangements where applicable). Accordingly, even
if the  Company  were  permitted  to pay  dividends  to  its  shareholders,  the
restrictions  or  limitations  on Bagcraft in  upstreaming  payments  would make
payment of dividends by the Company unlikely.

         Payment of dividends by the Company is also subject to the  significant
cumulated  dividends on the Company's  Series A Preferred  Stock,  which must be
paid prior to the payment of dividends on the common  stock.  The holders of the
Common Stock are entitled to  dividends or other  distributions  only if, as and
when  declared out of funds  legally  available  therefor  after  payment of any
dividends   required  to  be  paid  in  respect  of  any  preferred  stock  then
outstanding.  Holders of the Series A  Preferred  Stock are  entitled to receive
cumulative  dividends  at the rate of $60.00  per  share per annum  prior to the
payment of dividends on the Common Stock.

         The  Company's  ability to pay dividends in respect of the Common Stock
may be further  limited  since it is  required  to redeem the Series A Preferred
Stock on March 1, 2000 to the extent of legally available funds for a redemption
price of $1,000  per share plus  accrued  and  unpaid  dividends  to the date of
redemption.  In the event legally available funds are insufficient to redeem the
Series A Preferred  Stock on March 1, 2000,  ARTRA must  thereafter  redeem such
stock when and as funds become legally  available.  In addition,  in the event a
"control  transaction"  (as described  below under "-Series A Preferred  Stock")
occurs, which is not approved by the Board of Directors,  the Series A Preferred
Stock is required to be thereupon redeemed.

         Pursuant to the Articles of Incorporation of the Company,  the Board of
Directors  may,  without  shareholder  approval,  authorize the issuance of such
other series of preferred stock with dividend rights and liquidation preferences
prior  and  superior  to those of the  common  stock.  In the event the Board of
Directors  authorizes  one or more  additional  series of Preferred  Stock,  the
ability of the Company to pay dividends or other distributions to the holders of
the Common Stock may be further  limited and could have the effect of making the
acquisition  of the Company more difficult or  unattractive  or uneconomic for a
potential hostile acquirer,  as more fully described under  "Shareholder  Voting
Rights," below.

         The  Common  Stock  is not  subject  to any  conversion  or  redemption
provisions and the holders thereof are not provided any pre-emptive  rights. All
outstanding shares of Common Stock are fully-paid and non-assessable.

         See also  "Shareholder  Voting  Rights," below for a description of the
voting rights of shareholders.

                                     - 41 -

<PAGE>


Series A Preferred Stock

         The following is a brief  description of the rights and  preferences of
the Series A  Preferred  Stock.  No Series A  Preferred  Stock is being  offered
hereby, but the rights of the holders of Common Stock are affected by the rights
and preferences of the Series A Preferred Stock.

         Holders  of the  Series A  Preferred  Stock  are  entitled  to  receive
dividends  at the rate of $60.00  per share per  annum,  payable  annually.  The
annual  dividend  shall be  payable in cash or at the sole  option of ARTRA,  in
additional  shares or fractional  shares of the Series A Preferred  Stock having
the  aggregate  redemption  value  equal to the amount of such  dividends.  Such
dividends  shall be  cumulative  and shall  accrue on each share on a day-to-day
basis. No dividends or distributions upon liquidation may be paid to the holders
of common stock if there is any  deficiency in the payment of Series A Preferred
Stock  dividends  and,  in the  case of  distributions  upon  liquidation,  of a
liquidation  preference  of $1,000 per share of  Preferred  Stock.  To date,  no
dividends have been declared or paid on the Series A Preferred Stock.

         The  outstanding  shares of Series A Preferred Stock are required to be
redeemed  by ARTRA on March 1, 2000 to the extent  funds are  legally  available
therefor.  The redemption  price is $1,000 per share plus an amount equal to the
accrued and unpaid  dividends  to the date fixed for  redemption.  Also,  in the
event of a "control transaction" which is not approved by the Board of Directors
of ARTRA, all of the outstanding shares of the Series A Preferred Stock shall be
redeemed at a price of $1,000 per share plus unpaid accrued  dividends  prior to
the consummation of the "control  transaction."  The term "control  transaction"
means the acquisition by a person or group (other than Messrs.  P. Harvey and J.
Harvey and their  affiliates)  of the voting  power over voting  shares of ARTRA
which would  entitle  the holder or holders  thereof to cast at least 40% of the
votes  that  all  shareholders  would  be  entitled  to cast in an  election  of
directors of ARTRA.

         The Series A Preferred Stock is not  convertible  into Common Stock and
no  pre-emptive  rights have been granted with respect to the Series A Preferred
Stock.

         See also  "Shareholder  Voting  Rights," below for a description of the
voting rights of shareholders.


Series E Preferred Stock

         The following is a brief  description of the rights and  preferences of
the Series E  Preferred  Stock.  No Series E  Preferred  Stock is being  offered
hereby, but the rights of the holders of Common Stock are affected by the rights
and preferences of the Series E Preferred Stock.

         Holders of the Series E Preferred  Stock are  entitled to receive  cash
dividends,  payable  quarterly.  Such  dividends  shall be cumulative  and shall
accrue,  whether or not declared from  September 30, 1996. The rate of dividends
shall be 10% per annum of the Class E Preferred Stock liquidation preference per
share. No dividends or distributions upon liquidation may be paid to the holders
of common  stock or any other  stock  ranking  junior to this Series E Preferred
Stock, other than a dividend or distribution  payable in shares of common stock,
or in any other stock ranking junior to this Series E Preferred  Stock, if there
is any deficiency in the payment of Series E Preferred Stock dividends.

         The Company may at any time redeem all or any number of the outstanding
shares of Series E Preferred  Stock.  The  redemption  price is $1,000 per share
plus an amount  equal to the accrued and unpaid  dividends to the date fixed for
redemption. 

         Each share of Series E Preferred  Stock is convertible  into 200 shares
of Common Stock.

         Series  E  Preferred  Stock  is not  entitled  to vote  on any  matters
required or permitted to be submitted to the shareholders of the Corporation.


Shareholder Voting Rights

         Each share of Common  Stock has equal  voting  rights and each share is
entitled to one vote in all matters in which  shareholders  shall be entitled to
vote.  The  Articles  of  Incorporation  provide  for  cumulative  voting in the
election  of  directors.  Therefore,  every  shareholder  entitled  to vote  for
directors has the right,  in person or by proxy, to multiply the number of votes
to which the shareholder is entitled to cast by the total number of directors to
be elected in the same election.  The  shareholder  may cast the whole number of
such  votes  for one  candidate  or may  distribute  them  among any two or more
candidates.



                                     - 42 -

<PAGE>


         Generally, the holders of shares of Common Stock and Series A Preferred
Stock are entitled to one vote per share on a combined  basis and not on a class
basis except in limited  circumstances.  Under the Articles of  Incorporation of
the Company,  the affirmative  vote of a majority of the holders of Common Stock
and Series A Preferred Stock (voting as a single class) represented in person or
by proxy at a meeting at which a quorum is  present,  is  generally  required to
approve matters  submitted to the  shareholders,  subject to certain  exceptions
under  both  the  Articles  of  Incorporation  and  the  Pennsylvania   Business
Corporation Law of 1988, as amended (the "BCL"), described below.


         Under the BCL,  the  holders  of the stock of each  class or series are
entitled to vote, as a class, on the following: (i) an amendment to the Articles
of  Incorporation  authorizing  the board to fix the rights and  preferences  of
preferred stock; (ii) an amendment to the Articles of Incorporation  authorizing
a new class or series of shares,  or increasing the number of authorized  shares
of any class or series of shares  having a preference  as to dividends or assets
which is  senior to an  existing  class of  shares;  (iii) an  amendment  to the
Articles of  Incorporation  making a change in the  preferences,  limitations or
special  rights of any class of shares which is adverse to such class;  and (iv)
adoption of a plan authorizing the division, merger, consolidation or conversion
of the corporation or the sale by the corporation of all or substantially all of
its assets if the plan  effects a change in the Articles of  Incorporation  such
that a vote would have been required under any of the preceding three clauses.

         Under  the  Company's  Articles  of  Incorporation,  shareholders  have
certain special voting rights.  The Articles provide that if required by the BCL
(as summarized in the preceding  paragraph),  the holders of stock of each class
or series are entitled to vote as a class.  Since the designations of rights and
preferences  of the Series A Preferred  Stock  provide  that the holders of such
stock shall vote with the  holders of the common  stock as a single  class,  the
holders of Series A Preferred  Stock  would vote as a separate  class only where
required by the BCL.
These special voting rights are as follows:

         (1) Removal of the entire Board of  Directors  or any class  thereof or
any individual  director without assigning any cause requires the vote of 80% of
the shares of all shareholders entitled to vote on the election of directors.

         (2) Approval of (a) a proposal  that the Company enter into a merger or
consolidation with a person who, together with his affiliates,  owns or controls
5% or more of the voting stock of the Company,  or (b) a proposal to  reclassify
securities,  recapitalize  or  other  transaction  (except  certain  redemptions
permitted by the terms of the security to be redeemed)  designed to decrease the
number of shares of voting stock outstanding after any person has acquired 5% or
more of the Company's voting stock,  requires the affirmative vote of 80% of the
shares of all  shareholders  entitled to vote on the  proposal,  except that the
foregoing  provisions do not apply to a merger,  consolidation or sale of assets
and property (i) which shall have been approved by a resolution  duly adopted by
a  majority  of the  directors  in the office  and the  affirmative  vote of the
holders of shares of voting  stock of the  Corporation  representing  at least a
majority of the shares of all  shareholders  entitled to vote on the proposal or
(ii)  between the Company  and  another  corporation,  50% or more of the voting
stock of  which is owned by the  Company,  if the  Company  is the  survivor  or
purchaser.

         (3) The  affirmative  vote  of 80% of the  shares  of all  shareholders
entitled  to vote on the  amendment  of the  Articles of  Incorporation  or of a
majority  of the  shares  of all  shareholders  entitled  to vote and 80% of the
directors  in office is  required  to amend the  provisions  of the  Articles of
Incorporation described in paragraphs (1) and (2).



                                     - 43 -

<PAGE>


         These  provisions could have the effect of deterring a hostile takeover
attempts in several respects. First, the takeover of the Company would certainly
be made more difficult (and thus the Company would be a less attractive  target)
in that  removal  of a member or class of  members  of, or the  entire  board of
directors  requires  approval  of the  holders  of 80% of the  Company's  stock.
Second, the requirement that the holders of 80% of the Company's stock approve a
merger with a 5% stockholder unless the Company's board approves the transaction
(in which case the  affirmative  vote of the  holders of only a majority  of the
Company's stock is needed to approve the transaction)  could also make a hostile
takeover quite  difficult,  while  increasing the probability that a transaction
with a person  controlling  the board or with another  friendly  suitor would be
approved.




"Blank Check" Preferred Stock

         The Articles of  Incorporation  of the Company  authorize  its Board of
Directors to establish  series or classes of preferred stock and fix the rights,
preferences,  privileges and  restrictions  thereof.  The Board is authorized to
issue up to 2,000,000 shares of preferred stock, of which 3,750 shares of Series
A Preferred Stock have been issued and are are oustanding as of the date hereof.
Effective  September  1996, the Company agreed to issue 2,250 shares of Series E
Preferred Stock in settlement of certain liabilities.

         The BCL provides that if any proposed  amendment to the  certificate of
incorporation of a corporation adversely affects the preferences, limitations or
special rights of any class of shares,  then the holders of shares of such class
are entitled to vote as a class as to such amendment. However, since the holders
of Common Stock  approved an amendment to the Articles of  Incorporation  of the
Company  which  permits the Board of Directors to authorize  the issuance of new
series of  preferred  stock  with such  rights  (including  voting  rights)  and
preferences as fixed by the Board of Directors, the holders of Common Stock will
not have the right to vote,  whether as class or  otherwise,  to  authorize  the
issuance of new series of preferred  stock with  preferences as to dividends and
distributions on liquidation.

         By authorizing and issuing preferred stock with particular  rights, the
Company might be able to deter a hostile  acquisition.  For example, the Company
could  issue  shares of  preferred  stock with  extraordinary  voting  rights or
liquidation preferences to make it more difficult for a hostile acquirer to gain
control of the Company. In addition to the anti-takeover  effect of the issuance
of preferred  stock,  holders of preferred stock have a preferred  position over
holders of common stock on liquidation, the right to a fixed or minimum dividend
before any  dividend  is paid (or  accrued)  on common  stock,  and the right to
approve certain extraordinary corporate matters.

         See also "Description of the Company's  Securities - Series A Preferred
Stock."

Put Options

         From time to time the Company has issued  shares of its Common Stock to
private   investors   in   transactions   in  which   the   investors   received
non-transferable put options to resell such shares to the Company for prescribed
periods at prices in excess of the purchase  price paid by them for such shares.
As of September 26, 1996,  private investors held in the aggregate 98,734 shares
of the Common Stock  subject to put options  requiring the Company to repurchase
shares for $3,565,000 in the aggregate.

Warrants and Options

         From time to time the  Company  has  issued  warrants  and  options  to
purchase its Common Stock for an exercise  price  generally  based on the market
price of the Common  Stock as of the date of grant of the option or warrant.  As
of September 26, 1996,  investors held warrants to purchase  1,584,514 shares in
the aggregate of Common Stock. In addition, as of such date, employees or former
employees of the Company held options  granted  under the  Company's  1985 Stock
Option Plan to purchase 932,350 shares in the aggregate of Common Stock.

                                     - 44 -

<PAGE>



                                                    MANAGEMENT

Information Regarding Directors

         The  following  table lists the name and age of each director of ARTRA,
his business experience during the past five (5) years, his positions with ARTRA
and certain directorships.


Name                          Age         Positions and Experience
----                          ---         ------------------------
                                           
John Harvey                   64          Chairman of the Board of Directors and
                                          Chief  Executive   Officer  of  ARTRA;
                                          Director  since 1968;  Chairman of the
                                          Board  of  Directors,  since  1985,  a
                                          Director  from 1982 to  December  1995
                                          and the Chief  Executive  Officer from
                                          1990  to  November  1995  of  COMFORCE
                                          Corporation  (temporary   professional
                                          employment,    formerly    The    Lori
                                          Corporation);  an  equity  holding  of
                                          ARTRA  representing  19%  of  COMFORCE
                                          outstanding   stock;   a  Director  of
                                          Plastic  Specialties and Technologies,
                                          Inc.  ("PST")   (textiles,   hose  and
                                          tubing);   and   Director   of   Ozite
                                          Corporation   (textiles,    hose   and
                                          tubing).     Director    of    PureTec
                                          Corporation,  the  successor by merger
                                          to  Ozite.  Former  Director  of Rymer
                                          Foods,   Inc.  (portion  control  meat
                                          products and seafood).


Peter R. Harvey              61           President and Chief Operating  Officer
                                          and a Director  since  1968;  Director
                                          of  COMFORCE  (temporary  professional
                                          employment,     formerly   The    Lori
                                          Corporation)from 1985 to December 1995
                                          and a vice  president through  January
                                          1996, an equity   holding   of   ARTRA
                                          representing    19%    of     COMFORCE
                                          outstanding  common  stock;  a  former
                                          Director  and Chief Operating  Officer
                                          of SoftNet Systems,  Inc. ("SoftNet").
                                          During   1995,   Mr.   Harvey resigned
                                          from  all  of  the  Softnet   offices,
                                          formerly The Vader  Group  Inc. (image
                                          processing   and   health  care   cost
                                          containment);   Vice   President   and
                                          Director  of   Ozite  Corporation, the
                                          majority parent of PST (textiles, hose
                                          and tubing).   Director   of   PureTec
                                          Corporation, the successor by   merger
                                          to Ozite.  Former   Director  of Rymer
                                          Foods Inc.,   (portion   control  meat
                                          products and seafood).

Gerard M. Kenny               44          Director  since  1988;  Executive Vice
                                          President  and Director  since 1982 of
                                          Kenny Construction  Company since 1982
                                          (diversified   heavy    construction);
                                          General Partner of Clinton  Industries
                                          (investments),  a limited partnership,
                                          since 1972.


Edward A. Celano              57          Executive   Vice   President   of  the
                                          Atlantic Bank of New York since May 1,
                                          1996,   Senior   Vice   President   of
                                          National  Westminster,  USA from  1984
                                          through April 1996, corporate finance.


Howard R. Conant              71          Retired  Chairman  of  the   Board  of
                                          Interstate  Steel  Co.,  1970 to 1990,
                                          and a consultant to Interstate through
                                          1992.


                                     - 45 -
<PAGE>





Maynard K. Louis              66          Retired Chairman of  the Board of Lord
                                          Label   (now   known   as   Porter   &
                                          Chatburn),  a printing  company,  from
                                          1965 to 1989, Vice President,  1989 to
                                          1993,  director  of  ARTRA  from  1993
                                          through 1995.


Robert L. Johnson             60          Chairman  and Chief  Executive Officer
                                          of  Johnson  Bryce,   Inc.,   flexible
                                          packaging  materials of food  products
                                          since 1991, and  previously,  for many
                                          years,   a  vice  president  of  Sears
                                          Roebuck & Co.



         John  Harvey and Peter R.  Harvey are  brothers.  COMFORCE  was a 64.3%
owned subsidiary of ARTRA until October,  1995. ARTRA now owns approximately 19%
of COMFORCE. PureTec International, Inc. and PST are affiliates of ARTRA.

Information Regarding Executive Officers

         Set forth below is information  concerning  the executive  officers and
other key  employees  of ARTRA who were in office or  employed as of the date of
this Prospectus.



Name                   Age                      Position
----                   ---                      --------

John Harvey            64         Chairman of the Board and Chief Executiv0
                                  Officer of ARTRA

Peter R. Harvey        61         President and Chief Operating Officer of ARTRA

John G. Hamm           57         Executive Vice President of ARTRA

Robert S. Gruber       63         Vice President - Corporate Relations of ARTRA

James D. Doering       59         Vice President, Treasurer and Chief  Financial
                                  Officer of ARTRA

John Conroy            52         Vice President  - Corporate  Administration of
                                  ARTRA

Lawrence D. Levin      44         Controller of ARTRA

Edwin G. Rymek         66         Secretary of ARTRA




         John  Harvey,  Chairman  and Chief  Executive  Officer  of  ARTRA.  See
"Information  Concerning  Directors"  above for a  description  of Mr.  Harvey's
relevant business experience.

         Peter R. Harvey,  President and Chief Operating  Officer of ARTRA.  See
"Information  Concerning  Directors"  above for a  description  of Mr.  Harvey's
relevant business experience.

         John G. Hamm, Executive Vice President of ARTRA. Mr. Hamm has served as
Executive  Vice  President,  since  February 1988, and Vice President - Finance,
from 1975 until 1988,  of ARTRA.  Mr.  Hamm has also served as Vice  President -
Finance,  from August 1990 until July 1995,  and as a Director,  from 1984 until
July

                                     - 46 -

<PAGE>



         1995,  of Ozite  Corporation.  Mr.  Hamm also  serves as a Director  of
SoftNet  Systems,  Inc. since 1985 and served as Director of PST from 1985 until
January, 1996.

         Robert S. Gruber,  Vice President - Corporate  Relations of ARTRA.  Mr.
Gruber has served as Vice  President - Corporate  Relations  of ARTRA since 1975
and The  Lori  Corporation  from  1975 to  1995.  Mr.  Gruber  has  served  as a
consultant to COMFORCE during 1996.

         James D. Doering, Vice President, Treasurer and Chief Financial Officer
of ARTRA. Mr. Doering has served as Vice President, since 1980, Treasurer, since
1987, Chief Financial Officer, since February 1988, and Controller, from 1980 to
1987. Mr. Doering has also served as Vice President and Chief Financial  Officer
of COMFORCE from February 1988 through January 1996.

         John Conroy,  Vice President - Corporate  Administration  of ARTRA. Mr.
Conroy has served as Vice President - Corporate Administration since March 1990.
Prior  thereto,  he served as Vice  President  -  Corporate  Administration,  of
Sargent-Welch  Scientific  Company from  September  1988 to December  1989.  Mr.
Conroy  previously  served in various risk management  positions with ARTRA from
1978 to September 1988, most recently as Corporate Risk Director.

         Lawrence  D.  Levin,  Controller  of ARTRA.  Mr.  Levin  has  served as
Controller, since 1987, Assistant Treasurer and Assistant Secretary, since 1980,
and  Assistant  Controller,  from 1980 to 1987.  Mr.  Levin  has also  served as
Controller  of COMFORCE  since  December  1989  through  January 1996 and as the
Assistant  Chief  Financial  Officer of COMFORCE  from May 1993 through  January
1996.

         Edwin G. Rymek,  Secretary of ARTRA.  Mr. Rymek has served as Secretary
of ARTRA since 1987 and of COMFORCE from 1982 through 1995.

         Officers  are  appointed  by the boards of  directors  of ARTRA and its
subsidiaries and serve at the pleasure of each respective board.  Except for the
relationship  of Peter R. Harvey (a director  and  executive  officer)  and John
Harvey (a director and executive officer), who are brothers, there are no family
relationships  among the executive officers and/or directors,  nor are there any
arrangements or  understandings  between any officer and another person pursuant
to which he was appointed to office except as may be hereinafter described.

                             EXECUTIVE COMPENSATION

Directors' Compensation

         Directors  who are not  employees of ARTRA  ("Outside  Directors")  are
entitled to receive an annual retainer of $4,000 and $250 per meeting  attended;
however,  no fees were paid to Outside  Directors in 1995. Each Outside Director
who sits on an  established  committee  of ARTRA is entitled to receive $150 per
committee  meeting  attended.  Employees  of ARTRA who also  serve as  directors
receive no additional compensation for such service.

Executive Officer Compensation

         The  following  table  shows  all  compensation  paid by ARTRA  and its
subsidiaries for the fiscal years ended December 28, 1995, December 29, 1994 and
December 30, 1993, to the chief executive officer of ARTRA and each of its other
most  highly  compensated  executive  officers  who were  serving  as  executive
officers  of ARTRA as of  December  28,  1995 and  whose  compensation  exceeded
$100,000 in 1995.

                                     - 47 -

<PAGE>



                           SUMMARY COMPENSATION TABLE
<TABLE>                             
<CAPTION>
                                            Annual Compensation(1)       Long Term Compensation(1)
                                            ----------------------       -------------------------
                                                                           Securities          All
                                                                          Underlying(3)       Other
          Name and                      Salary       Salary                 Options -        Compen-
    Principal Positions       Year       Paid      Deferred(2)   Bonus    No. of Shares      sation
    -------------------       ----       ----      -----------   -----    -------------      ------
<S>                           <C>      <C>           <C>         <C>        <C>             <C>      
         John Harvey,         1995     $126,200      $  -0-      $ -0-         -0-          $2,520(4)
      Chairman and Chief      1994      126,200         -0-        -0-         -0-           2,520(5)
      Executive Officer       1993      126,200         -0-        -0-       4,000           2,431(5)
  

      James D. Doering,       1995       49,900       83,500       -0-         -0-           3,470(4)
        V.P. and Chief        1994      111,333       22,267       -0-         -0-           3,000(5)
      Financial Officer       1993      111,133       22,267       -0-      31,000           3,054(5)
          
                                       
        John G. Hamm,         1995       49,900       83,500       -0-         -0-           3,470(4)
          Executive           1994      111,133       22,267       -0-         -0-           3,000(5)
        Vice President        1993       55,667       22,267       -0-      13,200           2,210(5)
           
                                     
      Robert S. Gruber,       1995       92,000       69,000        -0-        -0-           2,868(4)
        Vice President        1994          -0-       18,400        -0-        -0-           3,000(5)
     Corporate Relations      1993       62,753      110,400        -0-     12,000           4,831(5)

-----------------------
<FN>
(1)      No additional annual compensation was paid, no restrictive stock awards
         or stock appreciation  rights were granted,  and no long term incentive
         plan payouts were made to any of the officers listed in the table. Only
         compensation earned in 1995 (irrespective of the year in which paid) is
         considered in determining inclusion in this table.

(2)      Salaries  are  shown as paid (or  deferred)  in the  year  earned.  Any
         deferred  salaries paid in a year subsequent to the year earned are not
         shown as paid in such  subsequent  year.  All salary  deferrals for the
         years 1993, 1994 and 1995 have been paid as of the date hereof.

(3)      All of the  options  shown  in  this  column  were  granted  under  the
         Company's  1985 Stock  Option  Plan at an  exercise  price of $3.75 per
         share, being the closing price of the Company's common stock on the New
         York Stock  Exchange  on the date of grant  (January  8,  1993).  These
         options expire January 8, 2003.

(4)      These amounts  include the Company's  contributions  to the 401(k) plan
         and amounts contributed to the ARTRA GROUP Incorporated  Employee Stock
         Ownership  Plan  (the  "ESOP")  during  1995.  See note (5) below for a
         further discussion of the ESOP.

(5)      These  amounts  represent  the  closing  price  on the New  York  Stock
         Exchange  of  Common  Stock as of the date the  named  officers  became
         entitled to receive the stock (i.e., December 29, 1994 and December 30,
         1993) pursuant to the ESOP. Annual  contributions were made to the ESOP
         at the discretion of the Board of Directors.  ARTRA contributed  15,000
         common  shares to the Plan with a fair market  value of $71,250  ($4.75
         per share) for the plan year ending December 29, 1994 and 65,000 common
         shares to the Plan with a fair  market  value of  $423,000  ($6.50  per
         share) for the plan year ending December 30, 1993.  Effective August 1,
         1995,  the Company  terminated the ESOP and is currently is the process
         of distributing the related Employee accounts to participants.
</FN>
</TABLE>
                                     - 48 -

<PAGE>





         No options to  purchase  capital  stock of the  Company or other  stock
appreciation  rights were granted by the Company in 1995 to any other  executive
officers of the Company named in the Summary Compensation Table.

         The following  table sets forth  information  concerning  the aggregate
number and values of options held by the Chief  Executive  Officer and the other
executive officers of the Company listed in the Summary Compensation Table as of
December 28, 1995 which were granted to such officers in  consideration of their
services as officers or directors  of the Company.  No options held by the Chief
Executive  Officer or any other executive  officers of the Company listed in the
Summary Compensation Table were exercised in 1995.


                     AGGREGATED OPTION EXERCISES IN 1995 AND
                      OPTION VALUES AS OF DECEMBER 28, 1995


<TABLE>
<CAPTION>
                       
                                                                     Number of           Value of Unexercised
                                                                    Unexercised             In-the-Money
                                                                Options at 12-28-95      Options at 12-28-95
                           Shares Acquired          Value           Exercisable/            Exercisable/
      Name                   on Exercise          Realized        Unexercisable(1)         Unexercisable(2)
------------------         ---------------        ---------     -------------------       ------------------ 
<S>                               <C>              <C>                 <C>                   <C>           
John Harvey                       0                $    0              80,000/               $ 117,600/None
                                                                           0

James D. Doering                  0                     0              62,000/                  88,350/None
                                                                           0

John G. Hamm                      0                     0              39,200/                  56,500/None
                                                                           0

Robert S. Gruber                  0                     0              21,000/                  29,775/None
                                                                           0
-------------------------------
<FN>

(1)      See the notes under  "Principal  Shareholders" for a description of the 
         options (including  exercise prices) granted  to each  of the executive 
         officers listed in this table.

(2)      The listed  options  were issued at per share  exercise  prices of from
         $3.65 per share to $3.75 per share. The market price of Common Stock as
         of the close of  trading  on  December  28,  1995 on the New York Stock
         Exchange was $5.125 per share.
</FN>
</TABLE>
                                     - 49 -

<PAGE>



         Compensation Committee Interlocks And Insider Participation

         Authority  to  determine  the  compensation  of  executive  officers is
conferred upon the Company's Board of Directors or, in the case of officers paid
by  Bagcraft  Corporation  of  America  ("Bagcraft"),  by  Bagcraft's  Board  of
Directors. The salary of John Harvey was paid by Bagcraft.

         ARTRA's  Board did not  consider  the  compensation  of its officers in
1995. The decisions concerning the cash compensation of these executive officers
(including of John Harvey,  the Chairman and Chief  Executive  Officer of ARTRA,
who was  compensated  by Bagcraft for his services as its Chairman) were made by
Peter R. Harvey,  the President and Chief Operating  Officer of ARTRA.  Although
ARTRA has an Option and  Compensation  Committee  formed to  consider  and award
options  under  ARTRA's 1985 Stock Option Plan,  this  committee did not meet in
1995. In December,  1995, the ARTRA Board awarded options to the Chief Executive
Officer  and  to  certain   executive   officers  subject  to  approval  by  the
shareholders  of the  proposed  1996 Stock Option  Plan.  Peter R. Harvey,  John
Harvey and Gerard  Kenny  executed the consent  approving  these  awards.  These
awards were granted as  compensation  for late salary payments during the period
1991 to 1995. See "Transactions with Management and Others" for a description of
various  transactions  and  relationships  between the Company and each of these
directors.








                                     - 50 -

<PAGE>




                             PRINCIPAL SHAREHOLDERS


         As of October 31,  1996,  there were  7,694,872  shares of Common Stock
issued and outstanding. The following table sets forth the number and percentage
of Common  Stock known by  management  of ARTRA to be  beneficially  owned as of
October 31, 1996 by (i) all stockholders  known by management of ARTRA to own 5%
or more of  ARTRA's  Common  Stock,  (ii) all  directors  of ARTRA,  (iii)  each
executive  officer  included  in the  Summary  Compensation  Table  and (iv) all
directors,  executive  officers  and other key  employees of ARTRA as a group (9
persons).  Unless stated  otherwise,  each person so named exercises sole voting
and investment power as to the shares of Common Stock so indicated.
         
         As of October 31,  1996,  3,750  shares of Series A Preferred  Stock of
ARTRA, par value $1,000 per share,  were issued and  outstanding.  Each share of
this Series A Preferred  Stock entitles the holder to one vote on an equal basis
with each share of Common Stock. Accordingly,  for purposes of showing ownership
of Common Stock in the table below,  the Series A Preferred  Stock is treated as
Common Stock.

Name of Beneficial Owner                      Number           Percent
                                             of Shares
                                           Beneficially
                                               Owned

Research Center of Kabbalah(1)                 600,772            7.7%
Peter R. Harvey(2)     Common                  440,243            5.7%
                       Preferred                 1,523           40.6%
John Harvey(3)                                 523,796            6.6%
Gerard M. Kenny(4)                             240,048            3.1%
Maynard K. Louis(5)                            110,000            1.4%
Howard R. Connant(6)                           120,000            1.6%
Robert L. Johnson                                2,873              *
John G. Hamm(7)                                143,498            1.8%
Robert S. Gruber(8)                            141,104            1.8%
James D. Doering(9)                            124,311            1.6%
All directors and executive officers
  as a group (12 persons)                    2,072,567           23.5%



*        Less than 1% of the outstanding shares.

         Ozite  Corporation,  an affiliate of ARTRA by reason of Peter R. Harvey
and John Harvey  being  directors  of the parent  corporation,  Puretec,  is the
record holder of 2,227 shares (59.4%) of the ARTRA Series A Preferred.



(1)  The address of Research  Center of Kabbalah  ("RCK") is 83-84 115th Street,
     Richmond Hill, New York 11418. The shares beneficially owned by RCK consist
     of 514,522 shares of Common Stock owned  directly,  21,250 shares of Common
     Stock  issuable  under a  warrant  which  expires  October  29,  1998 at an
     exercise  price of $6.00 per  share,  and  65,000  shares  of Common  Stock
     issuable  under a warrant  which  expires  December 31, 1998 at an exercise
     price of $7.00 per share.


                                     - 51 -

<PAGE>



         
(2)  Mr. Peter R. Harvey's  business address is 500 Central Avenue,  Northfield,
     Illinois  60093.  The shares  beneficially  owned by Mr. Harvey  consist of
     375,138  shares held directly by him (of which 373,615 are Common Stock and
     1,523 are  shares of  Series A  Preferred  Stock),  23,001  shares  held as
     trustee  for the benefit of his  nieces,  800 shares  owned by his wife and
     children,  634 shares  held in his 401(k)  plan,  7,193  shares held in his
     individual retirement account, 20,000 shares issuable under an option which
     expires  September  19,  2001 at an  exercise  price of $3.65 per share and
     15,000 shares  issuable under an option which expires January 8, 2003 at an
     exercise price of $3.75 per share.

(3)  Mr.  John  Harvey's  business  address is 500 Central  Avenue,  Northfield,
     Illinois 60093. The shares of Common Stock beneficially owned by Mr. Harvey
     consist of 123,100  shares held  directly by him,  1,705 shares held in his
     401(k)  plan,  5,746  shares  held in his  individual  retirement  account,
     100,000 shares held by Mr. Harvey's daughters, 75,000 shares issuable under
     an option which expires December 19, 2000 at an exercise price of $3.65 per
     share,  1,000 shares  issuable under an option which expires  September 19,
     2001 at an exercise price of $3.65 per share,  4,000 shares  issuable under
     an option which expires  January 8, 2003 at an exercise  price of $3.75 per
     share,  141,000 shares  issuable  under an option which expires  October 4,
     2006 at an  exercise  price of $5.25 per share and an  aggregate  of 72,245
     shares  issuable under warrants  expiring at various dates in 2000 and 2001
     received  in 1995 and  1996 as  additional  compensation  for 1995 and 1996
     short-term loans at exercise prices of $3.75 per share to $6.25 per share.

(4)  The shares  beneficially  owned by Mr.  Kenny  consist  of 2,000  shares of
     ARTRA's  common stock issuable upon the exercise of an option at $10.00 per
     share  expiring  November 28, 1996,  75,652 shares held by (or issuable to)
     Kenny Construction Company,  14,411 shares held by Clinton Industries,  and
     75,001 shares  issuable  under a warrant held by Clinton  Industries  which
     expires  November 10, 1997 at an exercise  price of $5.00 per share.  Kenny
     Construction  Company  holds put options to sell to ARTRA (i) 23,004 shares
     of Common Stock for a put price of $56.76 per share plus an amount equal to
     15% per annum for each day from  March 1,  1991 to the date of  payment  by
     ARTRA,  which put option expires  December 31, 1997, and (ii) 49,980 shares
     of Common  Stock for a put price of $15.00 per share,  subject to an annual
     increase of $2.25, which put option is exercisable on the later of the date
     ARTRA's obligations to Bank of America are repaid or the $2,500,000 note of
     ARTRA  payable to Kenny  Construction  Company (as described in paragraph 5
     under  "Transactions  with  Management and Others." If the stock subject to
     the put is sold at a price  less  than the put  price,  the  Company  would
     remain  liable  to the  holder  of the put for the  amount by which the put
     price of the shares exceeds the selling price.  Mr. Kenny is Executive Vice
     President,  Director  and  beneficial  owner of  16.66% of the  issued  and
     outstanding  stock of Kenny  Construction  Company.  He is also the General
     Partner  and a 14.28%  beneficial  owner of Clinton  Industries,  a limited
     partnership. See paragraphs 4 and 5 under "Transactions with Management and
     Others."

(5)  Mr.  Louis is the holder of warrants to  purchase  110,000  shares of ARTRA
     common stock at prices of $4.50 to $8.00 which  warrants  expire on various
     dates  commencing  in 1997 and ending June 13, 2001.  Comforce is currently
     indebted to Mr. Louis in the sum of $50,000. Mr. Louis owns 5,000 shares of
     Comforce  common  stock and  warrants to purchase  5,000 shares of Comforce
     common stock at $2 per share expiring September 11, 2000.

(6)  Mr. Conant holds 90,000 ARTRA common  shares  directly,  Mrs.  Conant holds
     5,000 ARTRA common shares and Mr. Conant holds a warrant to acquire  25,000
     shares  of ARTRA  common  stock at $5.00 per share  which  warrant  expires
     August 26, 2001. Mr. Conant owns 130,000 shares of Comforce and warrants to
     purchase 30,000 shares of Comforce common stock at $2.00 per share expiring
     September  11,  2000 and 50,000  shares  Comforce at $3.375 per share which
     warrant  expires  October 17,  2000.  A. G. Holding  Inc.,  a  wholly-owned
     subsidiary  of ARTRA,  is indebted to Mr. Conant in the sum of $200,000 and
     Comforce was formerly  indebted to Mr. Conant in the sum of $300,000  which
     was repaid in May 1996.

                                     - 52 -

<PAGE>





(7)  The shares of Common  Stock  beneficially  owned by Mr. Hamm  consist of 50
     shares held  directly  by him, 93 shares held by him and his wife  jointly,
     2,905  shares held in his 401(k)  plan,  25,000  shares  issuable  under an
     option which  expires  December 19, 2000 at an exercise  price of $3.65 per
     share,  1,000 shares  issuable under an option which expires  September 19,
     2001 at an exercise price of $3.65 per share,  13,200 shares issuable under
     an option which expires  January 8, 2003 at an exercise  price of $3.75 per
     share, and 101,250 shares issuable under an option which expires October 4,
     2006, at an exercise price of $5.25 per share.

(8)  The shares of Common  Stock  beneficially  owned by Mr.  Gruber  consist of
     20,190  shares held  directly by him,  943 shares held in his 401(k)  plan,
     1,221  shares  held in his  individual  retirement  account,  8,000  shares
     issuable  under an option  which  expires  December 19, 2000 at an exercise
     price of $3.65 per  share,  1,000  shares  issuable  under an option  which
     expires September 19, 2001 at an exercise price of $3.65 per share,  12,000
     shares  issuable  under an  option  which  expires  January  8,  2003 at an
     exercise  price of $3.75 per  share and  97,750  shares  issuable  under an
     option which  expires  October 4, 2006,  at an exercise  price of $5.25 per
     share.

(9)  The shares of Common Stock  beneficially  owned by Mr.  Doering  consist of
     2,000 shares held by him in joint tenancy with his wife,  1,693 shares held
     in his 401(k) plan, 1,118 shares held in his individual retirement account,
     25,000 shares  issuable under an option which expires  December 19, 2000 at
     an exercise price of $3.65 per share, 6,000 shares issuable under an option
     which expires  September 19, 2001 at an exercise  price of $3.65 per share,
     31,000 shares  issuable under an option which expires January 8, 2003 at an
     exercise  price of $3.75 per  share and  57,500  shares  issuable  under an
     option which  expires  October 4, 2006,  at an exercise  price of $5.25 per
     share.






                                     - 53 -

<PAGE>



                     TRANSACTIONS WITH MANAGEMENT AND OTHERS

         Effective October 17, 1995,  COMFORCE,  formerly a 64% owned subsidiary
of ARTRA, acquired all of the capital stock of Comforce Global, Inc. ("Global"),
formerly Spectrum Global Services, Inc. d/b/a YIELD Global, for consideration of
approximately $6.4 million, net of cash acquired.  This consideration  consisted
of cash to the  seller of  approximately  $5.1  million,  fees of  approximately
$700,000,  including a fee of $500,000 to a related party, and 500,000 shares of
COMFORCE  common stock valued at $843,000 (at a price per share of $1.68) issued
as   consideration   for  various  fees  and  guarantees   associated  with  the
transaction.  The  500,000  shares of COMFORCE  common  stock  consisted  of (i)
100,000 shares issued to an unrelated party for  guaranteeing the purchase price
to  the  seller,  (ii)  100,000  shares  issued  to  ARTRA,  then  the  majority
stockholder of the Company,  in  consideration  of its guaranteeing the purchase
price to the seller and  agreeing  to enter into the  Assumption  Agreement,  as
discussed  below,  (iii) 150,000  issued to two  unrelated  parties for advisory
services in connection with the  acquisition,  and (iv) 150,000 shares issued to
Peter R. Harvey, then a Vice President and director of COMFORCE for guaranteeing
the payment of the $6.4 million purchase price to the seller.  Additionally,  in
conjunction  with the  Global  acquisition,  ARTRA  entered  into an  Assumption
Agreement  whereby  it agreed  to assume  substantially  all  pre-existing  Lori
liabilities  and indemnify  COMFORCE in the event any future  liabilities  arise
concerning  pre-existing  environmental matters and business related litigation.
Accordingly,   at  September  26,  1996,  $764,000  of  such  pre-existing  Lori
liabilities were classified in ARTRA's condensed consolidated balance as current
liabilities of discontinued operations.

         Effective July 4, 1995,  Lori's  management agreed to issue up to a 35%
common  stock  interest  in  the  COMFORCE  to  certain  individuals  to  manage
COMFORCE's entry into the  telecommunications  and computer  technical  staffing
business.  COMFORCE  recognized a non-recurring  charge of $3,425,000 related to
this stock  since these stock  awards  were 100%  vested when  issued,  and were
neither conditioned upon these individuals'  service to the Company as employees
nor the  consummation  of the COMFORCE  Global  acquisition.  Accordingly,  this
compensation  charge was fully recognized in 1995. The shares of COMFORCE common
stock issued in  accordance  with the above  agreements  were valued at $.93 per
share.  COMFORCE's  management  valued  COMFORCE based on its  discussions  with
market  makers and other  advisors,  taking  into  account  (i) that the Jewelry
Business, which was discontinued at the end of the second quarter of 1995, had a
negligible value, and (ii) the value of COMFORCE was principally  related to the
potential effect that a purchase of COMFORCE Global, if successfully  concluded,
would have market value of COMFORCE common stock. COMFORCE's management believed
this  value of $.93 per  share to be a fair and  appropriate  value  based  upon
COMFORCE's financial condition as of the date COMFORCE became obligated to issue
these shares. After the issuance of the COMFORCE common shares, plus the effects
of other  transactions,  ARTRA's  common  stock  ownership  interest in COMFORCE
common stock was reduced to approximately  19% and 25% at September 26, 1996 and
December 28, 1995, respectively.  Accordingly,  in October 1995, the accounts of
COMFORCE and its majority-owned  subsi diaries were  deconsolidated from ARTRA's
consolidated  financial  statements.  See  Note  5 to  the  Company's  condensed
consolidated  financial  statements for the nine months ended September 26, 1996
for a further  discussion of the accounting  treatment of ARTRA's  investment in
COMFORCE.

         A  disagreement  has  arisen  between  ARTRA  and  COMFORCE   regarding
interpretations of the July 4, 1995 agreement,  as amended, to issue up to a 35%
common stock interest in COMFORCE to certain  individuals  to manage  COMFORCE's
entry into the  telecommunications and computer technical staffing business; the
Global acquisition agreement;  and the Assumption Agreement whereby ARTRA agreed
to assume substantially all pre-existing Lori liabilities and indemnify COMFORCE
in the event any future liabilities arise concerning pre-existing  environmental
matters and business  related  litigation.  The disputed  issues include (i) the
number of  COMFORCE  common  shares  issued to the above  individuals  to manage
COMFORCE's entry into the  telecommunications  and computer  technical  staffing
business. Accordingly, ARTRA voted against ratification of the issuance of these
shares at COMFORCE's  Annual Meeting of  Stockholders  held on October 28, 1996;
(ii) the number of COMFORCE  common stock options  issued to COMFORCE's  current
management  group subsequent to the Global  acquisition;  (iii) 100,000 COMFORCE
common shares to be issued to ARTRA in  consideration  of its  guaranteeing  the
Global purchase price to the seller and agreeing to assume certain  pre-existing
Lori  liabilities;  (iv) 150,000 COMFORCE common shares to be issued to Peter R.
Harvey for  guaranteeing the payment of the Global purchase price to the seller,
and (v) certain  stock  options  granted in 1993 under  provisions of COMFORCE's
Long-Term Stock Investment Plan. As a result of the above  disagreements,  ARTRA
has not exchanged its Lori Series C preferred stock with a liquidation  value of
$19.5 million for 100,000 COMFORCE common shares,  as required by the Assumption
Agreement,  and will not  consummate  the exchange until all of the disputes are
resolved.  ARTRA's financial  statements have reflected the exchange of the Lori
Series C preferred  stock for 100,000  COMFORCE common shares in accordance with
the  Assumption  Agreement.  Based  on the  above  disputed  matters,  ARTRA  is
withholding  delivery  of the Lori  Series C  preferred  shares  and is  seeking
appropriate   resolution  in  conformity  with  the  Assumption   Agreement  and
resolution of the other obligations owed by COMFORCE to ARTRA and its employees,
or ARTRA  will  seek to  rescind  this  aspect of the  agreement.  Additionally,

                                     - 54 -
<PAGE>


ARTRA's  financial  statements  have reflected the issuance of 100,000  COMFORCE
common shares to ARTRA as  compensation  for  guaranteeing  the Global  purchase
price to the seller and  entering  into the  Assumption  Agreement.  COMFORCE is
withholding  issuance  of such  shares  to ARTRA,  in  violation  of the  Global
acquisition  agreement.  ARTRA has aggressively attempted to resolve its dispute
with  COMFORCE  without  success  and at this  point,  ARTRA can not predict the
ultimate   resolution,   nor  whether  such  dispute  can  be  resolved  without
litigation.

         During 1995,  ARTRA  received  $399,000 of advances from  COMFORCE.  In
1996,  COMFORCE advanced ARTRA an additional  $54,000.  As of September 26, 1996
ARTRA  repaid the above  advances and paid down,  assumed or  otherwise  settled
substantially all of the known pre-existing  COMFORCE  liabilities it assumed in
conjunction with the COMFORCE Global acquisition.

         John Harvey was the chief executive officer,  the chairman of the board
of COMFORCE until November 1995 and a director to December 1995. Peter R. Harvey
was a a director of COMFORCE to December  1995 and a vice  president of COMFORCE
through  January 1, 1996.  James D.  Doering  was the vice  president  and chief
financial  officer of COMFORCE  through January 1996.  Lawrence D. Levin was the
controller and assistant  chief  financial  officer of COMFORCE  through January
1996. Edwin Rymek was the secretary of COMFORCE through November 1995.

         In  January  1995,  ARTRA  borrowed  $100,000  from  John  Harvey  on a
short-term  basis evidenced by a note due March 20, 1995 and bearing interest at
8% per  annum.  This  loan,  as well as other  short-term  borrowings  from John
Harvey,  aggregating  $175,000 at December 28,  1995,  have been renewed as they
matured during 1995. In February 1996 ARTRA repaid $50,000 to Mr. Harvey. In May
1996 ARTRA  repaid Mr.  Harvey's  loans and  related  accrued  interest in their
entirety.  As  additional  compensation  the loans  provided for the issuance of
warrants to purchase  ARTRA common  shares,  as determined by the number of days
the  loans are  outstanding.  John  Harvey  received  warrants  to  purchase  an
aggregate of 66,045 shares of ARTRA common stock at prices ranging from $3.75 to
$6.125 per share as additional compensation for his loans to ARTRA.

         During 1990 and 1991, ARTRA made advances to Peter R. Harvey,  of which
$820,000  (including  $112,000  in accrued  interest)  remained  outstanding  at
December 30, 1993.  The  outstanding  principal  balance of these advances bears
interest at the prime rate plus 2%. ARTRA had previously borrowed funds from Mr.
Harvey  evidenced by a $2,000,000  ARTRA note payable to him. Upon Mr.  Harvey's
surrender of this note to ARTRA (which note had  previously  been pledged by him
to secure obligations he owed to another company),  ARTRA applied the $2,000,000
to amounts due from him.

         In addition to the advances  made directly by ARTRA,  certain  advances
were previously made to Mr. Harvey by Bagcraft prior to its acquisition by ARTRA
in 1990. In December 1993,  $1,894,000,  representing  the total amount of these
advances  (including  accrued interest of $120,000) was transferred from ARTRA's
Bagcraft subsidiary to ARTRA as a dividend (a portion of which interest has been
reserved on ARTRA's books).

         In February  1996,  a bank agreed to  discharge  all amounts  under its
ARTRA notes  ($14,563,639.39  including  accrued  interest and fees) and certain
obligations  of ARTRA's  president,  Peter R. Harvey.  In  connection  with said
discharge, ARTRA obtained a $2,150,000 participation right in a $3 million note,
which was offset by the discharge of $2,150,000 in prior Harvey indebtedness. In
addition,  ARTRA recorded a receivable of $1,089,000  for Mr.  Harvey's pro rata
share of the debt  discharge  funded  by the  Company.  See  "Transactions  with
Management and Others -- Settlement of the Bank of America Illinois Debt."

         In May 1991,  ARTRA's  Fill-Mor  subsidiary  made  advances to Peter R.
Harvey. The advances, made out of a portion of the proceeds of a short-term bank
loan,  bear interest at the prime rate plus 2%. The amount of these  advances at
March 30,  1995 was  $1,540,000  (including  $398,000 of accrued  interest).  In
April, 1995, these advances from ARTRA's Fill-Mor  subsidiary to Peter R. Harvey
were transferred to ARTRA as a dividend.

         The aggregate  amount of all amounts due from Mr. Harvey which remained
outstanding as of September 26, 1996 was $5,861,000.  ARTRA has accrued interest
in the sum of $1,371,000 on the principal owed to it by Mr.  Harvey.  Commencing
January 1, 1993 to date,  interest on these amounts due from Peter R. Harvey has
been accrued and fully reserved.

         As partial collateral for amounts due from Peter R. Harvey, the Company
has  received  the pledge of 1,523 shares of ARTRA  redeemable  preferred  stock
(with a liquidation value of $1,523,000, plus accrued dividends) which are owned
by Mr. Harvey. In addition,  Mr. Harvey has pledged a 25% interest in Industrial

                                     - 55 -

<PAGE>


Communication Company (a private company). Such interest is valued by Mr. Harvey
at $800,000 to  $1,000,000.  During 1995,  Peter R. Harvey entered into a pledge
agreement with ARTRA whereby Mr. Harvey pledged additional collateral consisting
of 42,067  shares  of ARTRA  common  stock and  707,281  shares of  PureTec.  In
addition, in connection with a discharge of certain bank indebtedness  discussed
below,  ARTRA  received  rights under a mortgage of certain real estate owned by
Mr. Harvey.  The mortgage  secures  $2,150,000 of the amount owed by Mr. Harvey.
The  bank  has a  senior  security  interest  in the  amount  of  $850,000.  See
"Transactions  With  Management And Others - - Settlement of the Bank of America
Illinois Debt."

         Peter R. Harvey has not received  compensation  for his services  other
than  nominal  amounts  as an  officer  or  director  of  ARTRA  or  any  of its
subsidiaries  since  October  1990.  Additionally,  Mr. Harvey has agreed not to
accept any  compensation  for his services as an officer or director of ARTRA or
any of its  subsidiaries  until his obligations to ARTRA,  described  above, are
fully  satisfied.  Additionally,  since  December 31, 1986,  Peter R. Harvey has
guaranteed  approximately  $40,000,000  of  ARTRA  obligations  to  private  and
institutional lenders (John Harvey also was a co-guarantor of a $26,700,000 loan
included in that total with Peter R. Harvey), and has also hypothecated personal
assets as security for the ARTRA  obligations  which are described in this proxy
statement.

         Under  Pennsylvania   Business   Corporation  Law  of  1988,  ARTRA  (a
Pennsylvania  corporation) is permitted to make loans to officers and directors.
Further,  under the  Delaware  General  Corporation  Law,  Fill-Mor  (a Delaware
corporation) is permitted to make loans to an officer (including any officer who
is also a  director,  as in the  case of  Peter  R.  Harvey),  whenever,  in the
judgment  of the  directors,  the loan can  reasonably  be  expected  to benefit
Fill-Mor.

         At the September 19, 1991 meeting, ARTRA's Board of Directors discussed
but did not act on a proposal to ratify the  advances  made by ARTRA to Peter R.
Harvey.  The 1992  advances  made by ARTRA to Peter R. Harvey  were  ratified by
ARTRA's Board of Directors. In the case of the loan made by Fill-Mor to Peter R.
Harvey,  the Board of Directors of Fill-Mor approved the borrowing of funds from
Fill-Mor's  bank loan  agreement,  a condition of which was the application of a
portion of the proceeds  thereof to the payment of certain of Peter R.  Harvey's
loan obligations to the bank.  However,  the resolutions did not acknowledge the
use of such  proceeds  for this purpose and the formal loan  documents  with the
bank did not set forth this  condition  (though in fact,  the  proceeds  were so
applied by the bank).

         Please see the section  entitled "Artra  Participation  in Peter Harvey
Note,  Collateral  Provided to Artra"  hereafter for a  description  of pledges,
mortgage  and  security  interests  granted to ARTRA on assets owned by Peter R.
Harvey.

         In June 1996,  Peter R.  Harvey  loaned the Company  100,000  shares of
ARTRA common stock with (with a then fair market value of $587,000). The Company
principally  issued  these  common  shares  to  certain  lenders  as  additional
consideration  for  short-term  loans.  In September  1996,  after the Company's
shareholders approved an increase in the number of authorized common shares, the
Company repaid this loan. At Peter R. Harvey's direction,  the 100,000 shares of
the  Company's  common stock were issued in blocks of 25,000  shares to the four
daughters of the Company's  Chairman of the Board, John Harvey.  John Harvey and
Peter R. Harvey are brothers.

         During 1986 and through August 10, 1988, ARTRA entered into a series of
short-term borrowing  agreements with private investors.  Each agreement granted
an investor a put option,  principally  due in one year,  that required ARTRA to
repurchase  any or all of the  shares  sold  at a 15% to 20%  premium  during  a
specified put period.  Kenny  Construction  Company ("Kenny") entered into a put
option  agreement  with ARTRA,  which has been extended from time to time,  most
recently on November 11, 1992. At such time ARTRA and Kenny agreed to extend the
put option  whereby  Kenny  received the right to sell to ARTRA 23,004 shares of
ARTRA  common  stock at a put  price of $56.76  plus an amount  equal to 15% per
annum for each day from  March 1, 1991 to the date of  payment  by ARTRA,  which
option expires December 31, 1997.

         Gerard M. Kenny, a director of ARTRA,  is the Executive  vice-president
and Chief Executive Officer and a director of Kenny and beneficially owns 16.66%
of Kenny's capital stock.

         On March 21,  1989,  ARTRA  borrowed  $5,000,000  from its bank  lender
evidenced by a  promissory  note.  This note has been amended and extended  from
time to time.  The borrowings on this note were  collateralized  by, among other
things, a $2,500,000 personal guaranty by Kenny. Kenny received  compensation in
the form of 833 shares of ARTRA  common  stock for each month that its  guaranty
remained  outstanding  through  March 31, 1994.  Under this  arrangement,  Kenny
received 49,980 shares of ARTRA common stock as compensation for its guaranty.

        
                                     - 56 -

<PAGE>


         On March 31, 1994,  ARTRA entered into a series of agreements  with its
bank lender and with Kenny. Under the terms of these agreements, Kenny purchased
a  $2,500,000  participation  in the  $5,000,000  note  payable to ARTRA's  bank
lender.  Kenny's  participation  is evidenced  by a  $2,500,000  ARTRA note (the
"Kenny  Note")  bearing  interest at the prime rate.  As  consideration  for its
purchase  of this  participation,  the  bank  lender  released  Kenny  from  its
$2,500,000 loan guaranty. As additional consideration,  Kenny received an option
to put back to ARTRA  the  49,980  shares  of ARTRA  common  stock  received  as
compensation  for its  $2,500,000  ARTRA loan  guaranty at a price of $15.00 per
share.  The put option is subject to increase at the rate of $2.25 per share per
annum ($19.50 at May 31, 1996).  The put option is  exercisable  on the later of
the date the Kenny Note is repaid or the date  ARTRA's  obligations  to its bank
lender are fully paid. During the first quarter of 1996, the $2,500,000 note and
related accrued  interest was paid in full,  principally  with the proceeds from
additional short-term borrowings. The put option remains outstanding.

         On September 27, 1989,  ARTRA received a proposal to purchase  Bagcraft
from Sage Group, Inc. ("Sage"), a privately-owned  corporation.  Effective March
3, 1990, a wholly-owned subsidiary of ARTRA indirectly

acquired  from Sage 100% of the  issued  and  outstanding  common  shares of BCA
Holdings,  Inc.,  which in turn owned 100% of the stock of  Bagcraft,  for total
consideration  which was  delivered to Ozite as the successor by merger to Sage,
upon  approval  of ARTRA's  shareholders.  The  consideration  for the  Bagcraft
acquisition consisted of 772,000 shares of ARTRA's common stock and 3,750 shares
of its $1,000 par value junior non-convertible  payment-in-kind  preferred stock
bearing a dividend  rate of 6%. The issuance of the ARTRA  Common and  Preferred
Stock as consideration was approved by ARTRA's shareholders at the December 1990
annual meeting of shareholders. Upon the merger of Sage into Ozite on August 24,
1990,  Ozite became  entitled to receive this  consideration,  which right Ozite
assigned to its PST subsidiary.  Peter R. Harvey,  ARTRA's  President,  and John
Harvey,  ARTRA's  Chairman  of  the  Board  of  Directors,  were  the  principal
shareholders  of Sage and Ozite as of the times that the merger  agreements were
executed and the mergers consummated.

         Ozite  subsequently  repurchased the 3,750 shares of preferred stock in
February 1992, 1,523 of which shares were subsequently  assigned to Peter Harvey
in  consideration  of his discharge of certain  indebtedness  of Ozite to him in
April 1992.  Mr.  Harvey  pledged  these 1,523  preferred  shares to ARTRA.  The
$4,750,000  price of the  772,000  shares  of common  stock and 3,750  shares of
preferred  stock was equal to the fair  market  value  thereof as of January 31,
1991 as determined by an independent  investment  banking firm engaged by PST to
make such determination.

         Peter R. Harvey and John Harvey are  significant  stockholders of PST's
parent,  PureTec,  as  described  in  Note  1  to  the  table  under  "Principal
Shareholders."  Peter R. Harvey is a Vice  President and a director of PST and a
director of PureTec. John Harvey is a director of PST and PureTec.

         In 1987, the predecessor of PST acquired a $5,000,000 subordinated note
bearing  interest  at a rate of 13.5%  per annum and  50,000  shares of  13-1/2%
cumulative redeemable preferred stock of Bagcraft with a liquidation  preference
of $5,000,000 with $10,000,000 of the net proceeds of the PST public offering in
May 1987.  Interest  accrued on the note at a rate of 13.5% per  annum.  No cash
payments of  interest  were made  during the term of the note.  However,  during
1992,  per agreement  with PST, the interest  payments for 1992 were remitted by
Bagcraft  to ARTRA  and the  noteholder  received  Series A  preferred  stock of
Bagcraft's  parent,  BCA Holdings,  Inc.  ("BCA") having a liquidation  value of
$675,000. In December 1993, the principal outstanding under this note was repaid
in full in  cash  from  proceeds  of  Bagcraft's  new  credit  facility  with an
institutional  lender and PST accepted  additional BCA preferred  stock having a
liquidation  value of $3,000,000 in satisfaction of all unpaid accrued  interest
thereon.

         The BCA  preferred  stock  provides  a  $1,000  per  share  liquidation
preference and annual  cumulative cash dividends of $60.00 per share when and if
declared by BCA. The Bagcraft redeemable  preferred stock remains outstanding as
of the date hereof. As of May 30, 1996, dividends in the amount of $ 560,000 had
cumulated thereon.

Settlement of the Bank of America Illinois Debt

         As of February  26,  1996,  ARTRA was  indebted to B of A in the sum of
$14,563,639.59  including accrued interest and fees (the "Prior  Indebtedness").
As of February 26, 1996, Peter R. Harvey,  an officer and director of ARTRA, was
indebted to B of A in the sum of  $7,496,830  including  accrued  interest  (the
"Prior  Harvey  Indebtedness"),  (the Prior  Indebtedness  and the Prior  Harvey
Indebtedness are collectively referred to as the "Debt", or "Prior Notes").

         On February 26, 1996,  for an aggregate  purchase  price of  $5,150,000
(the "Purchase Price") Arabella,  S.A.  ("Arabella")  purchased from B of A (the
"Debt Purchase") all of B of A's interest in the Debt except that B of A 

                                     - 57 -

<PAGE>



retained the rights to $3 million of the Prior Harvey Indebtedness.  B of A then
entered  into a  Participation  Agreement  with ARTRA  pursuant  to which B of A
transferred  to ARTRA the right to  receive  $2.15  million of the  retained  $3
million  indebtedness.  The $3 million  indebtedness is secured by a mortgage on
certain  real  estate  owned by Mr.  Harvey.  B of A's  rights to the  remaining
$850,000 of the  indebtedness  have  priority  over ARTRA's  rights to the $2.15
million.

         The Prior ARTRA  Indebtedness  and the Prior Harvey  Indebtedness  were
satisfied as follows.

         1. ARTRA paid Arabella cash in the amount of $2,650,000, 100,000 shares
of ARTRA  common  stock  (valued at  $440,667  after a discount  for  restricted
marketability)  and 25,000 shares of COMFORCE common stock held by ARTRA (with a
then fair market value of $200,000).

         2. BCA executed a note in favor of Arabella in the principal  amount of
$1,900,000  with a maturity  date of May 26,  1996 (the "New ARTRA  Note,")  and
Peter R. Harvey executed a note in favor of Arabella in the principal  amount of
$2,296,830 (the "New Harvey Note"). The amount of the Harvey Note was reduced to
$100,000 if payment was made by May 26, 1996.  Arabella was entitled to up to an
additional  100,000  shares of ARTRA common stock and 25,000  shares of COMFORCE
stock  depending on when ARTRA and Peter R. Harvey repaid the new debt.  The New
ARTRA and Harvey Notes were repaid in April, 1996, principally from the proceeds
of a private placement completed in July (and commenced in April).  Based on the
date of the repayment,  Arabella  received an additional  50,000 shares of ARTRA
stock,   which  had  a  value  of  $220,000  after  a  discount  for  restricted
marketability.  Arabella  also  received an  additional  $125,000 in lieu of the
additional  12,500 shares of COMFORCE to which it was entitled based on the date
of repayment.

         3. ARTRA gave Arabella an option to purchase 40% of the common stock of
Bagcraft for nominal  consideration.  The option was valued at $500,000. Per the
terms of the  agreement,  ARTRA  repurchased  the option for  $550,000 in April,
1996.

         ARTRA  recognized a gain on the discharge of indebtedness of $9,424,000
($1.23 per share) in the first quarter of 1996 and recorded a receivable for Mr.
Harvey's  pro rata  share  ($1,089,000)  of the  debt  discharge  funded  by the
Company.  In addition,  ARTRA forgave  $2,150,000  debt previously owed to it by
Peter Harvey,  which offset ARTRA's right to receive  $2,150,000 from Mr. Harvey
pursuant to the Participation Agreement discussed above.

         In order to  obtain  access to the  $2,650,000  paid to  Arabella,  the
following transactions occurred.

         1. Bagcraft  purchased from BCA all of the authorized shares of a newly
created BCA Class B Redeemable  Preferred stock (the "BCA B Pref") consisting of
8,135 shares, a $1,000 per share  liquidation  preference and annual  cumulative
cash  dividends  of $135 per  share for  $4,135,000  which  was  borrowed  under
Bagcraft's line of credit.

         2. BCA distributed the $4,135,000 to ARTRA.  ARTRA  paid  $2,650,000 to
Arabella and used the remaining  $1,485,000  to pay down other debt  obligations
and for working capital.

         3. Bagcraft then exchanged the BCA B Pref for 82.7% of the  outstanding
shares of Bagcraft  preferred stock (the "Bagcraft  Preferred") which were owned
by Ozite  Corporation,  a wholly owned  subsidiary  of PureTec.  Following  this
exchange, Ozite held all of the outstanding BCA B Pref. Bagcraft then held 82.7%
of the outstanding  shares of its Preferred which was canceled.  There are 8,650
shares of Bagcraft Preferred remaining outstanding held by PST.

                                     - 58 -

<PAGE>




         Other Transactions

         On March 9, 1990, Maynard K. Louis, a member of the Board of Directors,
made a loan to ARTRA in the principal amount of $500,000 bearing interest at the
rate of 10% per annum.  This loan was repaid in 1992 through the issuance to Mr.
Louis of 68,198 shares of ARTRA's common stock. On April 2, 1992, Mr. Louis made
a loan to ARTRA in the principal amount of $100,000 bearing interest at the rate
of 9% per annum, which loan, due April 1, 1994, has been extended. On October 1,
1993,  Mr.  Louis  made a short  term loan in the  principal  amount of  $75,000
bearing  interest at the rate of 8% per annum to ARTRA's BCA Holdings Inc. and A
G Holding Corp.  subsidiaries  due October 22, 1993,  which loan was repaid.  As
consideration  for making or agreeing to extend these loans,  Mr. Louis received
the warrants to purchase  ARTRA's common stock  described in note 5 to the table
under "Principal Shareholders."

         During  1993,  The  Research  Center of Kabbalah  ("RCK"),  which holds
approximately  8% of  ARTRA's  outstanding  Common  Stock  (including  the stock
issuable upon the exercise of warrants) as of September  26, 1996,  made certain
short-term loans to the Company of which  $2,000,000,  with interest at 10%, was
outstanding  at December  31, 1993.  As  additional  compensation,  RCK received
warrants  to purchase  an  aggregate  of 86,250  ARTRA  common  shares at prices
ranging  from $6.00 to $7.00 per share  based upon the market of ARTRA's  common
stock at the date of issuance.  The warrants  expire five years from the date of
issuance.  In January 1994,  Kabbalah made an additional  $1,000,000  short-term
loan to the Company,  also with  interest at 10%. The proceeds of this loan were
used to pay down various ARTRA short-term loans and other debt  obligations.  In
December,  1995, RCK received  126,222 shares of ARTRA common in payment of past
due  interest  through  October 31, 1995.  In August  1996,  RCK received a cash
payment of $240,000 representing past due interest through June, 1996.

        In May,  1996,  ARTRA  borrowed  $100,000  from Mr.  Celano,  a private
investor,  evidenced by an unsecured  short-term  note,  due August 7, 1996, and
renewed to January 6, 1997,  bearing  interest at 10%. At the  Company's  annual
meeting of  shareholders,  held August 29, 1996,  Mr.  Celano was elected to the
Company's board of directors. The $100,000 loan is currently outstanding.

         In August,  1996,  ARTRA borrowed  $500,000 from Mr. Conant,  a private
investor,  evidenced by an  short-term  note,  due  December  23, 1996,  bearing
interest at 10%. The loan is collateralized by 125,000 shares of COMFORCE common
stock owned by the Company's Fill-Mor subsidiary. As additional compensation for
the loan, the lender  received a warrant,  expiring in 2001, to purchase  25,000
ARTRA  common  shares at a price of $5.00 per  share.  At the  Company's  annual
meeting of  shareholders,  held August 29, 1996,  Mr.  Conant was elected to the
Company's board of directors. The $500,000 loan is currently outstanding.



                                     - 59 -

<PAGE>



                              SELLING SHAREHOLDERS


The following  table sets forth certain  information,  as of September 26, 1996,
when 7,694,872 shares of Common Stock were issued and outstanding  regarding the
shares of Common  Stock held by the persons  ("Selling  Shareholders")  offering
shares pursuant to this Prospectus.  Included in certain of the shares owned and
offered by  Selling  Shareholders  are  shares  issuable  upon the  exercise  of
warrants, as described in the notes to the table.

In cases  where the  Selling  Shareholder  serves or has served  within the past
three  years as an  officer,  director  or employee of the Company or any of its
subsidiaries,  this  relationship is noted. In most instances in which shares of
Common Stock  issuable upon the exercise of Warrants are being  registered,  the
Selling  Shareholder  acquired  the  Warrant  as  additional  consideration  for
extending  credit to the Company or in connection with another  transaction.  In
certain  instances,  shares  of  Common  Stock  of  Selling  Shareholders  being
registered were acquired in exchange for debt securities  (promissory  notes) of
the Company  previously held by the Selling  Shareholders,  or otherwise to pay,
compromise or discharge indebtedness  (including interest) of the Company due to
the Selling Shareholder.  Because the Selling Shareholders may offer all or some
part of the Common Stock that they hold pursuant to the offering contemplated by
this Prospectus,  and because this offering is not being underwritten (on a firm
commitment  or any other  basis),  no estimate  can be given as to the amount of
Common Stock that will be held by Selling  Shareholders upon termination of this
offering.

                                     - 60 -

<PAGE>


<TABLE>
<CAPTION>



                                                                 Before the Offering
                                                 -------------------------------------------------
                                                     Number of        Percent of       Shares
                                                       Shares        Total Shares      Offered
      Name of Beneficial Owner                      Beneficially      Outstanding       Hereby
                                                    Owned (1)(2)          (1)
--------------------------------------------------------------------------------------------------

<S>                                                       <C>              <C>           <C>  
Robert Abrams (22)                                          4,724            *             4,724
Donald Arends (22)                                          2,847            *             2,847
Donald Arends Pension Plan (3)                              2,200            *             2,200
Baytree Associates, Inc. (15)                              15,000            *            15,000
James F. Beedie (4)                                         5,000            *             5,000
James A. Belushi (4)                                        5,000            *             5,000
Morris Belzberg (4)                                        25,000            *            25,000
William Belzberg (4)                                       25,000            *            25,000
K. Reed Berkey (4)                                          2,500            *             2,500
Berkshire Capital/Partners Ltd. (4)                         5,000            *             5,000
Julius Berman (24)                                          6,250            *             6,250
Evelyn Bishop, Trustee (5)                                157,440          2.0%          157,440
Richard Blackmore (28)                                     17,500            *            17,500
Violet M. Blank Living Trust (15)                           7,500            *             7,500
Blacksmith Books, Ltd. (22)                                 2,873            *             2,873
Barry W. Blank (15)                                        75,000            *            75,000
John Bramsen (4)                                           10,000                         10,000
Fred Broling (22)                                          14,234            *            14,234
Robert A. Calabrese (27)                                   15,000            *            15,000
Thomas J. Carroll (34)                                     28,461            *            28,461
Edward A Celano (12)                                       16,327            *            16,327
Woodrow Chamberlain (4)                                    10,000            *            10,000
Cipka S.A. (6)                                            642,790          7.7%          642,790
Clinton Industries (7)                                     75,001          1.0%           75,001

</TABLE>



                                     - 61 -

<PAGE>


<TABLE>
<CAPTION>



                                                                 Before the Offering
                                                 -------------------------------------------------
                                                     Number of        Percent of       Shares
                                                       Shares        Total Shares      Offered
      Name of Beneficial Owner                      Beneficially      Outstanding       Hereby
                                                    Owned (1)(2)          (1)
--------------------------------------------------------------------------------------------------

<S>                                                       <C>              <C>          <C>  
Marilyn Cohen (15)                                          3,750            *            3,750
Stanley Cohen (24)                                          6,250            *            6,250
Earle Combs (22)                                            4,724            *            4,724
Howard R. Conant (20)                                     120,000          1.6%         120,000
Leo Denslow (15)                                            9,000            *            9,000
Ronald Di Martino (15)                                     15,000            *           15,000
David J. Doerge Trust (34)                                 20,677            *           20,677
David J. Doerge Trust (4)                                  45,000            *           45,000
Richard A. Dolan (23)                                      33,263            *           33,263
Mark Dorian (4)                                             5,000            *            5,000
Stephen N. Engberg (4)                                     10,000            *           10,000
Kelly Erickson (15)                                         7,500            *            7,500
Paul Farmer IRA (4)                                         2,500            *            2,500
Leonard Feldman (4)                                        10,000            *           10,000
Barry M. Ferrigno & B. Allan P/S Plan (15)                  7,500            *            7,500
Field Container Corp. (8)                                 150,943          1.9%         150,943
William F. Foster Jr. (32)                                  5,000            *            5,000
Rudolph Frank (22)                                          2,363            *            2,363
Paul H. Fricke (22)                                         2,873            *            2,873
William Gallagher (22)                                      4,724            *            4,724
Gibralt Holdings, Ltd. (4)                                  5,000            *            5,000
Howard Grafman (4)                                          5,000            *            5,000
Ilse W. Grafman (4)                                         5,000            *            5,000
James E. Grieger (22)                                       5,693            *            5,693

</TABLE>


                                     - 62 -

<PAGE>



<TABLE>
<CAPTION>



                                                                 Before the Offering
                                                 -------------------------------------------------
                                                     Number of        Percent of       Shares
                                                       Shares        Total Shares      Offered
      Name of Beneficial Owner                      Beneficially      Outstanding       Hereby
                                                    Owned (1)(2)          (1)
--------------------------------------------------------------------------------------------------

<S>                                                       <C>              <C>            <C>  
Robert S. Gruber (22)                                     141,104          1.8%             2,874
Morton J. Harris (22)                                       2,873            *              2,873
Bucky W.F. Fong (15)                                        3,750            *              3,750
Joseph Giamanco (15)                                       30,000            *             30,000
Myron and Donna Goldstein (15)                             11,250            *             11,250
GHM, Inc. (15)                                              3,750            *              3,750
Clark Gunderson (30)                                        5,000            *              5,000
John Harvey (9)                                           523,796          6.6%            82,206
Peter R. Harvey (21)                                      440,243          5.7%            42,067
Kim Eliabeth Harvey (40)                                   25,000            *             25,000
Julie Harvey Valeriote (40)                                25,000            *             25,000
Lori Ann Harvey (40)                                       25,000            *             25,000
Kim Eliabeth Harvey (40)                                   25,000            *             25,000
Norton Herrick (34)                                        41,333            *             41,333
Austin Iodice (10)                                         17,873            *             17,873
Dane Johnson, IRA (15)                                      3,750            *              3,750
Carol M. Jacobsohn (11)                                     8,250            *              8,250
Robert Johnson (22)                                         2,873            *              2,873
Robert Jones (31)                                           8,321            *              8,321
Catherine Joyce (22)                                        4,745            *              4,745
Karel Private Mangers Fund (24)                            25,000            *             25,000
Karel Private Managers Fund -                              25,000            *             25,000
    Series TE (24)
Robert Kartheiser (22)                                      6,641            *              6,641

</TABLE>


                                     - 63 -
<PAGE>


<TABLE>
<CAPTION>



                                                                 Before the Offering
                                                 -------------------------------------------------
                                                     Number of        Percent of       Shares
                                                       Shares        Total Shares      Offered
      Name of Beneficial Owner                      Beneficially      Outstanding       Hereby
                                                    Owned (1)(2)          (1)
--------------------------------------------------------------------------------------------------

<S>                                                       <C>              <C>            <C>  
Stephen Kaufman (24)                                        6,250            *              6,250
Thomas Kigin (4)                                            2,500            *              2,500
Craig Kubacki (22)                                          4,724            *              4,724
David Kubacki (22)                                          4,724            *              4,724
Kenneth L. Kwiatt (22)                                     12,687            *             12,687
Kwiatt, Silverman & Ruben, Ltd. (38)                       40,000            *             40,000
Michael Laundrie  (12)                                      8,958            *              8,958
R. D. Levy (22)                                             5,364            *              5,364
Steven M. Levy (29)                                        12,500            *             12,500
Robert Lofblad (22)                                        16,154            *             16,154
Frank N. Magid (4)                                          2,500            *              2,500
Maynard K. Louis (13)                                     110,000          1.4%           110,000
MH Capital Partners, L.P. (15)                              7,500            *              7,500
Richard McLean (22)                                         3,320            *              3,320
M. A. Berman Partners, L.P. (24)                           25,000            *             25,000
M. A. Berman Trading (24)                                  12,500            *             12,500
David MacDonald (22)                                        4,726            *              4,726
Maser Sosinski & Assoc. P.A. (15)                           7,500            *              7,500
Thomas L. Mason (22)                                          959            *                959
D. Michael Meyer (4)                                       10,000            *             10,000
John E. Mc Connnaughy (15)                                 75,000          1.0%            75,000
James McHugh (4)                                            5,000            *              5,000
James B. McGill (4)                                         5,000            *              5,000
Johanna B. McGill (4)                                       5,000            *              5,000

</TABLE>


                                     - 64 -

<PAGE>


<TABLE>
<CAPTION>



                                                                 Before the Offering
                                                 -------------------------------------------------
                                                     Number of        Percent of       Shares
                                                       Shares        Total Shares      Offered
      Name of Beneficial Owner                      Beneficially      Outstanding       Hereby
                                                    Owned (1)(2)          (1)
--------------------------------------------------------------------------------------------------

<S>                                                       <C>              <C>           <C>  
Alfred Mendelson (22)                                       9,513            *             9,513
Ira Mendelson (22)                                          4,724            *             4,724
Mesirow Financial Inc., Custodian for                       5,000            *             5,000
    Thomas Philipsborn IRA (4)
Richard Meyer (22)                                          2,873            *             2,873
Jerry Michelson IRA (4)                                     3,750            *             3,750
Jerry Michelson (4)                                         1,250            *             1,250
Mid America Hospital Group Inc. (24)                       12,500            *            12,500
William J. Mirch (4)                                        5,000            *             5,000
Dr. John H. Muehlstein IRA (4)                              5,000            *             5,000
Jerry Pillard (22)                                            385            *               385
Pollack Family L.L.C. (15)                                  3,750            *             3,750
Janet M. Portelly (15)                                      6,000            *             6,000
Ravinia Investors LLC (4)                                   2,500            *             2,500
Charles Reeder (4)                                         20,000            *            20,000
Research Center of Kabbalah (14)                          600,772          7.2%          600,772
William G. Reynolds, Jr. (4)                                1,250            *             1,250
J.E. Rich (22)                                             14,239            *            14,239
Richard Richter, IRA (15)                                  22,500            *            22,500
Evan D. Ritchie Living Trust (4)                            2,500            *             2,500
Robert Rittmaster (22)                                      3,321            *             3,321
Philip E. Ruben (22)                                       12,687            *            12,687
Barry Rymer (35)                                          113,481          1.5%          113,481

</TABLE>

                                     - 65 -



<PAGE>


<TABLE>
<CAPTION>



                                                                 Before the Offering
                                                 -------------------------------------------------

                                                     Number of        Percent of       Shares
                                                       Shares        Total Shares      Offered
      Name of Beneficial Owner                      Beneficially      Outstanding       Hereby
                                                    Owned (1)(2)          (1)
--------------------------------------------------------------------------------------------------

<S>                                                       <C>              <C>           <C>  
B. Rymer Insurance Trust (22)                              48,715            *            48,715
Lenore M. Schnick dtd 12/30/70 (4)                         15,000            *            15,000
Harvey Schuster (33)                                       25,000            *            25,000
Fred Schwartz (24)                                          6,250            *             6,250
James Scott (4)                                             5,000            *             5,000
Martha T. Seelbach (4)                                      3,750            *             3,750
William Seelbach (4)                                        5,000            *             5,000
William G. Reynolds, Jr. (4)                                1,250            *             1,250
Marshall Rodin  (41)                                       18,184            *            18,184
Sherwood Securities Corp. (15)                             15,000            *            15,000
Sigma Pairs (24)                                           87,500          1.1%           87,500
Michael Silverman (22)                                     12,687            *            12,687
Lloyd Singer (22)                                           4,724            *             4,724
Alfred Slatin (22)                                          3,257            *             3,257
Paul Smeets (4)                                            10,000            *            10,000
Eva Staley Residential Trust (4)                            5,000            *             5,000
Henry M. Staley Trust u/a/d 11/13/73 (4)                    7,500            *             7,500
Staley Family Agency Account (4)                           20,000            *            20,000
Avery J. StoneTrust (4)                                    20,000            *            20,000
Josef Strahammer (16)                                     127,512            *           127,512
Shepard C. Swift Trust (4)                                 10,000            *            10,000
Dieter E.A. Tannenberg (39)                                30,000            *            30,000
Michael Targoff (24)                                      125,000          1.6%          125,000

</TABLE>


                                                      - 66 -

<PAGE>


<TABLE>
<CAPTION>



                                                                 Before the Offering
                                                 -------------------------------------------------
                                                     Number of        Percent of       Shares
                                                       Shares        Total Shares      Offered
      Name of Beneficial Owner                      Beneficially      Outstanding       Hereby
                                                    Owned (1)(2)          (1)
--------------------------------------------------------------------------------------------------

<S>                                                       <C>             <C>            <C>  
Emanuel Tarrson (36)                                       37,500           *             37,500
Ronald Tarrson (37)                                        27,500           *             27,500
Steven Tarrson (4)                                         10,000           *             10,000
Joann Timbanard (15)                                        3,750           *              3,750
John Tull (17)                                             13,122           *             13,122
James C. Tull (22)                                          2,873           *              2,873
Thomas Urich (22)                                             448           *                448
Kenneth D. Vander Weele (22)                                2,873           *              2,873
Alexander Verde (18)                                      245,561         3.1%           245,561
Billy Walker Enterprises (15)                               7,500           *              7,500
Martin Weinstein, IRA (15)                                 15,000           *             15,000
Ginette Weiss (22)                                          1,403           *              1,403
Roger Weissenberg (22)                                      1,406           *              1,406
Westminster Capital (34)                                   41,333           *             41,133
Thomas Whitney (4)                                         10,000           *             10,000
Roger D. and Gail L. Williams (15)                          7,500           *              7,500
Diane Wilson (4)                                            1,250           *              1,250
D. R. Zaccone (19)                                        174,000           *            174,000
Marc L. Werner (25)                                        90,000         1.2%            90,000
Manufacturers Indemnity and Insurance                                                           
Co. of America (26)                                         5,000           *              5,000
                                                          -------          ---           -------
         TOTAL                                          5,607,968        63.6%         4,629,972


<FN>
                      -------------------------------------
                 *Less than 1% of the total shares outstanding.
</FN>
</TABLE>

                                     - 67 -

<PAGE>





         (1) The ownership  percentages  are calculated  based on the assumption
that all shares issuable to the Selling Shareholder upon the exercise of options
or warrants by such shareholder (but only such shareholder) have been issued.

         (2) Unless  otherwise  indicated in the notes to this table, all shares
shown as beneficially  owned by the named individual are owned of record by such
person.

         (3)  Consists  of 2,200  shares of Common  Stock  issuable  to the D.L.
Arends Pension Plan upon the exercise of a warrant at an exercise price of $8.00
per share, which expires May 5, 2001.

         (4) Consists of shares of Common Stock  issuable upon the exercise of a
warrant at an exercise  price of $6.00 per share and  expiring  April 15,  1999.
These  warrants  were issued under the Company's  1996 Private  Placement of 12%
Secured Promissory Notes.

         (5)  Consists  of  111,657  shares of Common  Stock  owned of record by
Evelyn  Bishop as trustee under the Bishop Living Trust dated 10/4/94 and 45,783
shares issuable to the trustee upon the exercise of the following warrants:

 Number of Shares         Exercise Price Per Share    Expiration Date of Warrant
          6,685                     8.625                      11-28-96
          4,457                     8.375                      11-16-96
          1,560                     5.375                      05-16-97
          7,023                     5.000                      05-28-97
          7,383                     4.750                      11-28-97
          7,764                     3.750                      05-28-98
         10,911                     8.000                      06-13-01


(6) Consists of 450,000 shares of Common Stock issuable upon conversion of 2,250
shares of ARTRA  Series E Preferred  Stock to be issued to Cipka S.A.  ("Cipka")
and 192,790 shares of Common Stock owned of record by Cipka.

         (7)  Consists  of 75,001  shares of Common  Stock  issuable  to Clinton
Industries  upon the  exercise  of a warrant at an  exercise  price of $5.00 per
share,  which  warrant  expires  November  10,  1997.  Clinton  Industries  is a
partnership,  the general partners of which are the controlling  shareholders of
Kenny Construction Company, also a holder of shares of the Common Stock.

         (8)  Consists  of  150,943  shares of Common  Stock  issuable  to Field
Container  Corp.  upon the exercise of a warrant at an exercise  price of $5.375
per share, which warrant expires May 15, 1997.

         (9) The shares of Common Stock beneficially owned by Mr. Harvey consist
of 123,100  shares held  directly by him,  1,705 shares held in his 401(k) plan,
5,746 shares held in his individual  retirement account,  100,000 shares held by
Mr.  Harvey's  daughters,  75,000 shares  issuable under an option which expires
December 19, 2000 at an exercise price of $3.65 per share, 1,000 shares issuable

                                     - 68 -

<PAGE>



under an option which expires  September 19, 2001 at an exercise  price of $3.65
per share,  4,000 shares  issuable under an option which expires January 8, 2003
at an  exercise  price of $3.75  per  share and an  aggregate  of 72,245  shares
issuable under the following  warrants  issued as additional  consideration  for
short-term loans:

    Number of          Exercise Price       Expiration Date
      Shares              per Share           of Warrant

      4,700                $5.500              02-01-99
      1,500                 5.625              03-30-99
      6,000                 4.750              01-20-00
      11,667                3.750              04-28-00
      7,800                 4.750              04-28-00
      8,426                 4.250              07-27-00
      4,019                 4.625              09-30-00
      4,019                 4.875              10-31-00
      4,019                 4.375              11-30-00
      8,038                 6.125              12-31-00
      4,019                 6.125              02-29-01
      4,019                 6.250              03-31-01
      4,019                 6.000              04-30-01

         (10) Consists of  2,873 owned of record by Mr. Iodice and 30,000 shares
of Common  Stock  issuable  to Mr.  Iodice upon the  exercise  of the  following
warrants:

    Number of           Exercise Price       Expiration Date
      Shares               per Share           of Warrant

      3,000                  5.375              09-30-09
      4,500                  5.375              10-07-98
      7,500                  5.375              10-14-98


         (11)  Consists of 38,000  shares of Common Stock owned of record by Ms.
Jacobsohn and 8,250 shares of the Common Stock  issuable to Ms.  Jacobsohn  upon
the exercise of the following warrants:

    Number of           Exercise Price        Expiration Date
      Shares               per Share            of Warrant

      5,500                 $9.875               01-28-97
      2,750                  5.000               12-02-97



                                     - 69 -

<PAGE>



         (12) Consists of shares of  Common Stock  issuable  upon  conversion of
 a $100,000 short-term note. Mr. Celano is a director of the Company.

         (13) Consists of 110,000  shares of the Common  Stock  issuable to  Mr.
Louis upon the exercise of the following warrants:

    Number of              Exercise Price       Expiration Date
      Shares                  per Share           of Warrant

       3,000                   $7.000              04-02-97
      15,000                    5.625              09-29-97
      15,000                    4.500              04-01-98
      15,000                    5.125              10-01-98
       1,500                    5.375              10-01-98
       2,250                    5.375              10-08-98
       3,750                    5.375              10-15-98
       2,500                    6.000              02-16-99
      15,000                    5.375              04-01-99
      15,000                    5.125              10-01-99
      22,000                    8.000              06-13-01


         Mr. Louis is a director of the Company.

         (14)  Consists  of 514,522  shares of Common  Stock  owned of record by
Research  Center of  Kabbalah  and 21,250  shares of Common  Stock  issuable  to
Research  Center of Kabbalah upon the exercise of a warrant at an exercise price
of $6.00 per share,  which warrant expires October 29, 1998 and 65,000 shares of
Common Stock  issuable  upon the  exercise of a warrant at an exercise  price of
$7.00 per share which warrant expires December 31, 1998.

         (15)  Consists  of shares of Common  Stock of record  issued  under the
Company's  December  1995,  Private  Placement of $2,500,000 of 12%  convertible
subordinated  promissory  notes.  As additional  consideration  the  noteholders
received  15,000 ARTRA common shares per each  $100,000 of notes  issued,  or an
aggregate of 375,000 ARTRA common shares.

         (16) Consists of 20,812 shares of Common Stock issued to Mr. Strahammer
in lieu of interest on certain  borrowings.  These  borrowings  are evidenced by
25,750  shares of Common Stock owned of record by Mr.  Strahammer,  which shares
are subject to a put option  requiring the Company to repurchase such shares (if
the shares  are put to the  Company)  at a price of $26.36 per share.  If at the
time Mr. Strahammer  desires to sell any of the 25,750 shares subject to the put
option, the market price thereof is less than the put price, it is expected that
the Company will enter into an arrangement with Mr.  Strahammer  whereby he will
sell the shares in a regular way brokerage  transaction and the Company will pay
to him an amount  equal to the  difference  by which the put price of the shares
exceeds the selling price. Additionally, Mr. Strahammer has the right to convert
a note due him by ARTRA in the principal  amount of $678,000 which is payable on
demand on December 31, 1998 into 106,702  shares of Common Stock plus the 25,750
shares of Common Stock subject to the put option.
                                     - 70 -

<PAGE>



         (17)  Consists of 11,622  shares of Common Stock owned of record by Mr.
Tull and 1,500 shares of Common Stock  issuable to Mr. Tull upon the exercise of
a warrant  at an  exercise  price of $6.375  per share,  which  warrant  expires
September 9, 1997.

         (18)  Consists of 49,153  shares of Common Stock owned of record by Mr.
Verde and 196,408 shares of Common Stock issuable to Mr. Verde upon the exercise
of the following warrants:

    Number of            Exercise Price          Expiration Date
      Shares                per Share              of Warrant

      76,480                  6.000                 09-09-97
      37,258                  3.750                 02-09-98
      36,651                  4.125                 08-09-98
      35,555                  5.500                 02-09-99
      10,464                  6.625                 08-09-99


         (19) Consists of 174,000  shares of the  Common  Stock  issuable to Mr.
Zaccone upon the exercise of the following warrants:

    Number of             Exercise Price            Expiration Date
       Shares                per Share                of Warrant

       10,000                 $6.250                   07-05-02
          600                  6.250                   09-03-02
       10,600                  6.250                   09-03-02
       17,000                  5.375                   10-31-02
       16,800                  7.750                   12-17-02
       17,000                  3.750                   01-30-03
       17,000                  7.000                   03-31-03
       17,000                  4.000                   05-01-03
        5,667                  3.500                   07-31-03
       11,333                  5.125                   09-01-03
       25,667                  3.500                   09-16-03
       25,333                  5.875                   10-26-03



         (20)  Consists of 90,000  shares of Common Stock owned of record by Mr.
Conant,  25,000 shares of Common Stock  issuable to Mr. Conant upon the exercise
of a warrant at an  exercise  price of $5.00 per share,  which  warrant  expires
August 26, 2001 and 5,000 shares held by Mrs.  Conant.  Mr. Conant is a director
of the Company.


                                     - 71 -

<PAGE>



         (21) The  shares  of  Common  Stock  beneficially  owned by Mr.  Harvey
consist of 375,138  shares  held  directly  by him (of which  373,615 are Common
Stock and 1,523 are shares of Series A Preferred  Stock),  23001  shares held as
trustee  for the  benefit  of his  nieces,  800  shares  owned  by his  wife and
children,  634  shares  held  in his  401(k)  plan,  7,193  shares  held  in his
individual  retirement  account,  20,000 shares  issuable  under an option which
expires  September  19, 2001 at an exercise  price of $3.65 per share and 15,000
shares  issuable  under an option which  expires  January 8, 2003 at an exercise
price of $3.75 per share.  

         (22) As part of the consideration for ARTRA's March 1990 acquisition of
Bagcraft, a subsidiary of Ozite Corporation ("Ozite") received 772,000 shares of
ARTRA common stock. In 1995, Ozite distributed  certain of these shares of ARTRA
common stock to the listed owner of record in  connection  with a settlement  of
certain Ozite liabilities.

         (23) Consists of 33,263  shares of record owned by Mr. Dolan,  of which
7,500 were in payment of the  principal  amount of a short-term  loan,  of which
7,246  were in  payment of an ARTRA loan  guarantee  fee and which  18,517  were
distributed  to Mr. Dolan by Ozite in  connection  with a settlement  of certain
Ozite liabilities.

         (24)  Consists of shares of Common Stock of record sold to the owner in
a private  placement,  the proceeds of which were used to fund  working  capital
obligations.

         (25) Consists of 45,000  shares of Common Stock  issuable to Mr. Werner
upon the  exercise of a warrant at an exercise  price of $4.88 per share,  which
warrant expires  December 24, 1999 and 45,000 shares of Common Stock issuable to
Mr.  Werner upon the  exercise  of a warrant at an exercise  price of $4.125 per
share,  which warrant  expires  August 16, 2000.  These  warrants were issued as
additional compensation for short-term loans.

         (26) Consists of 5,000 shares of Common Stock issuable to Manufacturers
Indemnity  and  Insurance  Co. of America  upon the  exercise of a warrant at an
exercise  price of $6.00 per share,  which warrant  expires April 15, 1999.  The
warrant was issued as additional compensation for a short-term loan.

         (27)  Consists of:

               (a) 5,000 shares of Common Stock owned of record by Mr.Calabrese.

               (b)10,000 shares of Common Stock  issuable to  Mr.Calabrese  upon
                   the  exercise of a warrant at an exercise  price of $6.00 per
                   share,  which warrant expires September 18, 2001. The warrant
                   was issued as additional compensation for a short-term loan.
         (28) Consists of:

               (a) 10,000  shares  of  Common  Stock  owned  of  record  by  Mr.
                   Blackmore.

               (b) 7,500 shares of Common Stock  issuable to Mr.  Blackmore upon
                   the  exercise of a warrant at an exercise  price of $6.00 per
                   share,  which warrant expires September 18, 2001. The warrant
                   was issued as additional compensation for a short-term loan.

         (29)  Consists of 12,500  shares of Common  Stock  issuable to Mr. Levy
upon the  exercise of a warrant at an exercise  price of $4.50 per share,  which
warrant  expires  December  29,  2000.  The  warrant  was  issued as  additional
compensation for a short-term loan.

         (30) Consists of 5,000 shares of Common Stock issuable to Mr. Gunderson
upon the  exercise of a warrant at an exercise  price of $6.00 per share,  which
warrant expires May 28, 2001. The warrant was issued as additional  compensation
for a short-term loan.

         (31)  Consists of 3,321  shares of Common  Stock owned of record by Mr.
Jones and 5,000 shares of Common  Stock  issuable to Mr. Jones upon the exercise
of a warrant at an exercise price of $6.75 per share,  which warrant expires May
28, 2001.


                                     - 72 -

<PAGE>


          (32) Consists of 5,000 shares of Common Stock  issuable to Mr.  Foster
upon the  exercise of a warrant at an exercise  price of $6.00 per share,  which
warrant expires May 28, 2001. The warrant was issued as additional  compensation
for a short-term loan.

          (33) Consists  of  25,000  shares  of  Common  Stock  issuable  to Mr.
Schuster upon the exercise of a warrant at an exercise price of $4.00 per share,
which warrant expires June 13, 2001.

          (34) Consists  of  shares of record  issued  in  payment  of notes and
accrued interest thereon.

          (35) Consists  of  shares  of  Common   Stock  of  record   issued  as
consideration for guarantees of ARTRA bank borrowings.

          (36) Consists of:

               (a) 12,500 shares of Common Stock issuable to Mr. Tarson upon the
                   exercise  of a  warrant  at an  exercise  price of $5.00  per
                   share,  which warrant expires September 12, 2001. The warrant
                   was issued as additional compensation for a short-term loan.

               (b) 25,000 shares of Common Stock issuable upon the exercise of a
                   warrant at an exercise  price of $6.00 per share and expiring
                   April  15,  1999.   These  warrants  were  issued  under  the
                   Company's  1996 Private  Placement of 12% Secured  Promissory
                   Notes.

          (37) Consists of:

               (a) 12,500 shares of Common Stock issuable to Mr. Tarson upon the
                   exercise  of a  warrant  at an  exercise  price of $5.00  per
                   share,  which warrant expires September 12, 2001. The warrant
                   was issued as additional compensation for a short-term loan.

               (b) 15,000 shares of Common Stock issuable upon the exercise of a
                   warrant at an exercise  price of $6.00 per share and expiring
                   April  15,  1999.   These  warrants  were  issued  under  the
                   Company's  1996 Private  Placement of 12% Secured  Promissory
                   Notes.

         (38)  Consists  of 40,000  shares of  Common  Stock  owned of record by
Kwiatt, Silverman & Ruben, Ltd. issued in payment of profession fees.

         (39)  Consists of 30,000  shares of Common Stock owned of record by Mr.
Tannenberg.

         (40)  Consists of shares of Common Stock owned of record by the selling
shareholder.  These 100,000 shares of the Company's  Common Stock were loaned to
the Company by its president,  Peter R. Harvey, in June 1996. In September 1996,
after  the  Company's  shareholders  approved  an  increase  in  the  number  of
authorized  common  shares,  the  Company  repaid  this  loan.  At Mr.  Harvey's
direction,  the 100,000 shares of the Company's  Common Stock were issued to the
following individuals:
 
               Kim Eliabeth Harvey           25,000 shares
               Julie Harvey Valeriote        25,000 shares
               Lori Ann Harvey               25,000 shares
               Kim Eliabeth Harvey           25,000 shares

Kim Eliabeth Harvey,  Julie Harvey  Valeriote,  Lori Ann Harvey and Kim Eliabeth
Harvey are the  daughters of the Company's  Chairman of the Board,  John Harvey.
John Harvey and Peter Harvey are brothers.

         (41)  Consists  of 6,084  shares  of  Common  Stock  issuable  upon the
exercise of a warrant at an exercise  price of $4.00 per share and 12,100 shares
of Common Stock  issuable  upon the warrant at an  excercise  price of $5.75 per
share. These warrants expire September 20, 2001.




                                     - 73 -

<PAGE>



                              PLAN OF DISTRIBUTION

         The manner in which the Common Stock covered by this  Prospectus are to
be distributed is set forth on the cover page hereof. Any sales effected through
securities  brokers or dealers will be on an "agency" basis,  unless as a result
of a  privately  negotiated  transaction  a  broker  or  dealer  enters  into an
agreement with a Selling  Shareholder to purchase shares for its own account. At
the  date  of this  Prospectus,  none of the  Selling  Shareholders  contemplate
entering into such a contractual  relationship with a broker or dealer, although
one or more of them may decide to do so in the future.

         To comply with certain  states'  securities  laws, if  applicable,  the
Common  Stock will be sold in such states only  through  brokers or dealers.  In
addition,  in certain  states the Common  Stock may not be sold unless they have
been  registered  or  qualify  for  sale in such  states  or an  exemption  from
registration  or  qualification  is available and is complied with. From time to
time,  to the  extent  required  by the  rules of the  Securities  and  Exchange
Commission, the Company will distribute Prospectus Supplements.

         The Selling  Shareholders and any  broker-dealers  who participate in a
sale of their shares of Common Stock may be deemed to be  "underwriters"  within
the meaning of Section 2(11) of the Securities Act, and any commissions received
by them,  and  proceeds  of any such  sales as  principal,  may be  deemed to be
underwriting discounts and commissions under the Securities Act.

         All  expenses  of the  registration  of Common  Stock  offered  hereby,
estimated to be approximately $225,000 will be borne by the Company. As and when
the  Company is  required to update  this  Prospectus,  it may incur  additional
expenses in excess of this  estimated  amount.  Normal  commission  expenses and
brokerage  fees,  as  well  as  any  applicable   transfer  taxes,  are  payable
individually by the Selling Shareholders.

         Since the Selling Shareholders will be subject to the anti-manipulation
rules promulgated under the Exchange Act, including Rule 10b-2, 10b-6 and 10b-7,
in connection with  transactions in the Common Stock during the effectiveness of
the  Registration  Statement  of which this  Prospectus  is a part,  the Company
advised the Selling  Shareholders to consult competent  securities counsel prior
to  initiating  any such  transaction.  The Company  will  notify  each  Selling
Shareholder  of the  Commission's  rules and,  as a condition  to  agreeing  the
register  the shares of a Selling  Shareholder,  will  require that such Selling
Shareholder agree to comply with such rules.

         The Company will not receive any  proceeds  from the sale of the Common
Shares  offered  hereby by the  Selling  Shareholders.  However,  insofar as the
holders  of options  or  warrants  to  purchase  shares of the Common  Stock are
expected to exercise  their  warrants or options in order to sell the underlying
shares (which are registered hereby), the Company will receive the amount of the
exercise  prices of any  warrants or options so  exercised.  The Company  cannot
predict  when or if it will  receive  proceeds  from the exercise of warrants or
options,  or the amount of any such  proceeds.  The  Company  intends to use the
proceeds, if any, received from the exercise of warrants or options to retire or
reduce  indebtedness,  to pay certain  expenses of the  offering and for working
capital purposes. The offering is being conducted to satisfy certain contractual
obligations  to holders of options,  as well as to provide a vehicle for certain
of its officers,  directors  and advisors to exercise  their options to purchase
the  Company's  stock (at  exercise  prices which are  currently  lower than the
market  price of the  Company's  stock)  and sell the stock  acquired  upon such
exercise. See "Selling Shareholders."

                    INDEMNIFICATION OF OFFICERS AND DIRECTORS

         The  Company's  By-laws  provide  that the Company  will  indemnify  an
officer  or  director,  and may  indemnify  any  other  employee  or  agent,  in
connection  with any pending or  threatened  suit or  administrative  proceeding
against

                                     - 74 -

<PAGE>



any such  person  by reason  of such  person  serving  as a  director,  officer,
employee or agent of the  Company,  or, at the request of the  Company,  in such
capacity for another entity. However, no indemnification will be made if the act
giving rise to the claim for  indemnification  is  determined by a court to have
constituted willful misconduct or recklessness. In addition, the By-laws provide
that the above indemnification  provisions are not exclusive of any other rights
to  indemnification  any such  person  may have  under any  contract  or vote of
shareholders  or  disinterested  shareholders  or as determined by a court.  The
By-laws   expressly   provide  that  it  is  the  Company's   policy  to  permit
indemnification  to the fullest  extent  permitted by law.  The By-laws  further
provide that the  indemnification  provisions  will be deemed to be amended upon
any amendment of the BCL,  which expands or enlarges the powers of  corporations
to indemnify.

         The BCL provides  that a  corporation  will have the power to indemnify
any  representative  of a corporation,  or of any other entity at the request of
the  corporation,  if  such  person  acted  in good  faith  and in a  manner  he
reasonably  believed  to be in, or not  opposed  to, the best  interests  of the
corporation  and,  with respect to any criminal  proceeding,  had no  reasonable
cause to believe his conduct was unlawful.

         The BCL further  provides that  indemnification  is mandatory where the
representative  is  "successful  on the  merits or  otherwise"  in defense of an
action or  proceeding,  and in  addition,  the BCL  provides  that the method of
indemnification provided by the act is not exclusive of rights under any by-law,
vote of shareholders or disinterested shareholders or otherwise,  unless the act
giving rise to the claim for  indemnification  is  determined by a court to have
constituted willful misconduct or recklessness.

         Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors,  officers or persons  controlling the Company
pursuant to the foregoing provisions,  the Company has been informed that in the
opinion of the  Securities  and  Exchange  Commission  such  indemnification  is
against  public  policy as  expressed  in the  Securities  Act and is  therefore
unenforceable.

                                     EXPERTS

         The  consolidated  balance  sheets  of  ARTRA  GROUP  Incorporated  and
Subsidiaries  as of December 28, 1995 and  December  29,  1994,  and the related
consolidated  statements of operations,  shareholders' equity (deficit) and cash
flows for each of the three years in the period ended December 28, 1995 included
in this Prospectus  have been audited by Coopers & Lybrand  L.L.P.,  independent
accountants,  as stated in their  report  appearing  herein  which  includes  an
explanatory  paragraph  referring to an  uncertainty  concerning  the  Company's
abilitiy to continue as a going concern.

         The  above-referenced  financial statements of ARTRA GROUP Incorporated
have been included in reliance upon the report of Coopers & Lybrand L.L.P. given
upon the authority of that firm as experts in accounting and auditing.
                                     - 75 -

<PAGE>




No  dealer,  salesman  or any  other  person  has  been  authorized  to give any
information or to make any  representations  other than those  contained in this
Prospectus,  and, if given or made, such information or representations must not
be relied upon as having been  authorized by the Company.  This  Prospectus does
not  constitute  an  offer  to sell or a  solicitation  of any  offer to buy any
securities in any  jurisdiction in which such an offer or solicitation  would be
unlawful.  Neither the delivery of this  Prospectus  nor any sale made hereunder
shall  under any  circumstances  create any  implication  that there has been no
change in the affairs of the Company since the date hereof.


                                 LEGAL MATTERS

The validity of the shares of Common Stock offered by the Company hereby will be
passed upon for the  Company by Kwiatt,  Silverman  & Ruben,  Ltd.,  Northfield,
Illinois.  The law firm of Kwiatt,  Silverman & Ruben, Ltd. own 40,000 shares of
Common  Stock of the Company this  represents  less than one (1%) percent of the
total shares outstanding.



                                TABLE OF CONTENTS

                                                          

                  Heading                     Page

Additional Information                           2

Prospectus Summary                               3

Risk Factors                                     7

Capitalization                                  14

Management's Discussion and Analysis            16
of Financial Condition and Results of
Operations

Business and Properties                         30

Legal Proceedings                               36

Market Price of the Company's                   40
Common Stock

Description of the Company's                    41
Securities

Management                                      45

Executive Compensation                          47     ARTRA GROUP Incorporated

Principal Shareholders                          51

Transactions with Management and                54            PROSPECTUS
Others

Selling Shareholders                            60        November 26, 1996

Plan of Distribution                            74

Indemnification of Officers                     74
and Directors

Experts                                         75

Index to Financial Statements                  F-1




<PAGE>
  
                        INDEX TO FINANCIAL STATEMENTS






                                                                          Page


 Condensed Consolidated Balance Sheet as of
     September 26, 1996 (Unaudited)                                    

 Condensed Consolidated Statements of Operations
     Nine Months Ended September 26, 1996 and 
     September 28, 1995 (Unaudited)                           

 Condensed Consolidated Statement of Changes in 
     Shareholders' Equity (Deficit)
     Nine Months Ended September 26, 1996 (Unaudited)   

 Condensed Consolidated Statements of Cash Flows
     Nine Months Ended September 26, 1996 
     and September 28, 1995 (Unaudited)                                 

 Notes to Condensed Consolidated Financial Statements (Unaudited)  


 Report of Independent Accountants  

 Consolidated Balance Sheets as of December 28, 1995
     and December 29, 1994    

 Consolidated Statements of Operations
     for each of the three fiscal years
     in the period ended December 28, 1995                  

 Consolidated Statements of Changes in 
     Shareholders' Equity (Deficit)
     for each of the three fiscal years
     in the period ended December 28, 1995                  

 Consolidated Statements of Cash Flows
     for each of the three fiscal years 
     in the period ended December 28, 1995                  

 Notes to Consolidated Financial Statements   


  Financial Statement Schedules:

        I.      Condensed Financial Information  of Registrant 

       II.      Valuation and Qualifying Accounts 




Schedules  other than those  listed are  omitted as they are not  applicable  or
required or equivalent information has been included in the financial statements
or notes thereto.
<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEET
                            (Unaudited in thousands)


                                                     September 26,
                                                         1996
                                                       --------
                                     ASSETS
Current assets:
   Cash and equivalents                                  $   99       
   Restricted cash and equivalents                          --        
   Receivables, less allowance for doubtful
      accounts of $301                                    9,071       
   Inventories                                           15,211       
   Other                                                  1,108       
                                                       --------       
               Total current assets                      25,489       
                                                       --------       


Property, plant and equipment                            45,645       
Less accumulated depreciation and amortization           19,795       
                                                       --------       
                                                         25,850       
                                                       --------       

Other assets:
   Available -for-sale securities                        31,728       
   Excess of cost over net assets acquired,
      net of accumulated amortization of
      $2,007                                              3,029       
   Other                                                     35       
                                                       --------       
                                                         34,792       
                                                       --------       
                                                        $86,131       
                                                       ========       




The  accompanying  notes  are an  integral  part of the  condensed  consolidated
financial statements.
<PAGE>

                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEET
                            (Unaudited in thousands)


                                                     September 26,    
                                                         1996         
                                                       --------       

                                   LIABILITIES
Current liabilities:
   Notes payable, including amounts due to related
      parties of $3,600                                 $15,518       
   Current maturities of long-term debt                   2,407       
   Accounts payable                                       7,645       
   Accrued expenses                                       9,667       
   Income taxes                                             367       
   Liabilities of discontinued operations                   764       
                                                        -------       
               Total current liabilities                 36,368       
                                                        -------       

Long-term debt                                           34,541       
Other noncurrent liabilities                              1,750       
Commitments and contingencies

Redeemable common stock,
   issued 98,734 shares                                   3,565       
ARTRA redeemable preferred stock:
   Series  A,  $1,000  par  value,
      6%  cumulative  payment-in-kind, including
      accumulated dividends, net of unamortized
      discount of $1,349; redeemable March 1, 2000
      at $1,000 per share plus accrued dividends;
      authorized 2,000,000 shares all series;
      issued 3,750 shares                                 4,157       
   Series E, $1,000 par value, 10% cumulative,
      liquidation  preference equal to $1,000
      or 200 shares of common stock per
      share, plus accrued dividends;
      convertible, at the holder's option into
      200 shares of common stock per share                2,250       
Bagcraft redeemable preferred stock
   payable  to a related  party,
   cumulative $.01 par value, 13.5%; including
   accumulated dividends; redeemable in 1997
   with a liquidation preference equal to
   $100 per share; issued 8,650 shares                    1,978       
BCA Holdings preferred stock:
   Series A, $1.00 par value, 6% cumulative,
      including accumulated dividends;
      liquidation preference of $1,000 per share;
      10,000 shares authorized;
      issued 3,675 shares                                 4,308       
   Series B payable to a related party,
      $1.00 par value, 13.5% cumulative,
      including accumulated  dividends;
      redeemable in 1997 with a liquidation
      preference of $1,000 per share;
      8,135 shares authorized and issued                  8,818       

                         SHAREHOLDERS' EQUITY (DEFICIT)
Common stock, no par value;
    authorized  20,000,000 shares                         5,777       
Additional paid-in capital                               40,140       
Unrealized appreciation of investments                   34,960       
Receivable from related party,
    including accrued interest                           (5,861)      
Accumulated deficit                                     (86,568)      
                                                       --------       
                                                        (11,552)      
Less treasury stock (7,628 shares), at cost                  52       
                                                       --------       
                                                        (11,604)      
                                                       --------       
                                                        $86,131       
                                                       ========       

The  accompanying  notes  are an  integral  part of the  condensed  consolidated
financial statements.

<PAGE>
                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                 (Unaudited in thousands, except per share data)



                                                          Nine Months Ended
                                                       ----------------------
                                                        Sept 26,     Sept 28,
                                                          1996         1995*
                                                       ---------     --------

Net sales                                               $ 90,162     $ 90,703
                                                        --------     --------

Costs and expenses:
   Cost of goods sold,
      exclusive of depreciation and amortization          71,710       76,871
   Selling, general and administrative                    10,967       15,972
   Depreciation and amortization                           2,954        3,306
                                                        --------     --------
                                                          85,631       96,149
                                                        --------     --------

Operating earnings (loss)                                  4,531       (5,446)
                                                        --------     --------

Other income (expense):
   Interest expense                                       (5,370)      (6,392)
   Realized gain on disposal
      of available-for-sale securities                     4,823          --
   Other income (expense), net                              (205)           1
                                                        --------     --------
                                                            (752)      (6,391)
                                                        --------     --------

Earnings (loss) from continuing operations
   before income taxes and minority interest               3,779      (11,837)
Provision for income taxes                                   (87)         (35)
Minority interest                                           (169)        (671)
                                                        --------     --------
Earnings (loss) from continuing operations                 3,523      (12,543)
Loss from discontinued operations                           --         (9,156)
                     
                                                        --------     --------
Earnings (loss) before extraordinary credit                3,523      (21,699)
Extraordinary credit, net discharge of indebtedness        9,424        9,113
                                                        --------     --------
Net earnings (loss)                                       12,947      (12,586)
Dividends applicable to
   redeemable preferred stock                               (463)        (422)
Reduction of retained earnings
   applicable to redeemable common stock                    (297)        (246)
                                                        --------     --------
Earnings (loss) applicable to common shares             $ 12,187     ($13,254)
                                                        ========     ========

Earnings (loss) per share:
   Continuing operations                                $   0.32     ($  1.96)
   Discontinued operations                                  --          (1.36)
                                                        --------     --------
   Earnings (loss) before extraordinary credit              0.32        (3.32)
   Extraordinary credit                                     1.23         1.35
                                                        --------     --------
   Net earnings (loss)                                  $   1.55     ($  1.97)
                                                        ========     ========

Weighted average number of shares of common stock and
   common stock equivalents outstanding                    7,870        6,712
                                                        ========     ========


The  accompanying  notes  are an  integral  part of the  condensed  consolidated
financial statements.


--------------------
*  As reclassified for discontinued operations.

<PAGE>

                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES
  CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
                        (In thousands, except share data)

<TABLE>
<CAPTION>
                                                                Unrealized  Receivable                                      Total
                                     Common Stock   Additional Appreciation    From                  Treasury Stock    Shareholders'
                                 ------------------   Paid-in       of        Related  Accumulated -------------------     Equity
                                   Shares   Dollars   Capital   Investments    Party    (Deficit)    Shares   Dollars     (Deficit)
                                 ---------  -------   -------   -----------  --------   ---------  --------- ---------   ---------

<S>                              <C>         <C>      <C>        <C>         <C>        <C>           <C>      <C>       <C>
Balance at December 28, 1995     7,102,979   $5,540   $38,526    $  21,047   ($4,318)   ($98,755)     57,038   ($  805)  ($ 38,765)
 Net earnings                         --       --        --           --        --        12,947        --        --        12,947
 Common stock issued
   to pay liabilities              125,012       94       362         --        --          --      (120,554)      818       1,274
 Common stock as
   additional consideration
   for short-term borrowings        50,544       38      (398)        --        --          --       (99,456)    1,021         661
 Increase in receivable from
   related party,
   including accrued interest         --       --        --           --      (1,543)       --          --        --        (1,543)
 Common stock loaned
   by related party                   --       --        --           --         587        --       100,000      (587)       --
 Repay common stock
   loaned by related party         100,000       75       512         --        (587)       --          --        --          --
 Increase in unrealized
   appreciation of investments        --       --        --         13,913      --          --          --        --        13,913
 Exercise of stock options
   and warrants                     40,000       30       142         --        --          --       (16,900)      109         281
 Common stock received
   as consideration
   for short-term note                --       --        --           --        --          --        87,500      (608)       (608)
 Reclassification of
   redeemable common stock         185,231     --         996         --        --          --          --        --           996
 Redeemable common
   stock accretion                    --       --        --           --        --          (297)       --        --          (297)
 Redeemable preferred
   stock dividends                    --       --        --           --        --          (463)       --        --          (463)
                                 ---------   ------   -------    ---------   -------    --------   ---------   -------   ---------
Balance at September 26, 1996    7,603,766   $5,777   $40,140    $  34,960   ($5,861)   ($86,568)      7,628   ($   52)  $ (11,604)
                                 =========   ======   =======    =========   =======    =========  =========   ========  =========

<FN>
The accompanying  notes are an integral part of the condensed consolidated financial statements.
</FN>
</TABLE>
<PAGE>

                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (Unaudited in thousands)


                                                         Nine Months Ended
                                                    -------------------------
                                                    September 26, September 28,
                                                          1996        1995
                                                       ---------   ---------

Net cash flows used by operating activities,           ($  4,516)  ($    284)
                                                       ---------   ---------

Cash flows from investing activities:
   Additions to property, plant and equipment             (1,797)     (1,892)
   Retail fixtures                                          --          (631)
   Proceeds from collection of Welch notes                   342       3,000
   Proceeds from sale of COMFORCE common stock             3,717        --
   Investment in COMFORCE Global                            --          (753)
   Payment of liabilites with restricted cash               --           550
   Decrease in unexpended plant construction funds           552         224
   Other                                                      91        --
                                                       ---------   ---------
Net cash flows from investing activities                   2,905         498
                                                       ---------   ---------

Cash flows from financing activities:
   Net increase (decrease) in short-term debt               (577)      1,564
   Proceeds from long-term borrowings                     99,497     101,406
   Reduction of long-term debt                           (99,327)   (104,813)
   Exercise of stock options and warrants                    281        --
   Redeemable common stock options exercised                (510)        (70)
   Other                                                      (1)       (289)
                                                       ---------   ---------
Net cash flows used by financing activities                 (637)     (2,202)
                                                       ---------   ---------

Decrease in cash and cash equivalents                     (2,248)     (1,988)
Cash and equivalents, beginning of period                  2,347       2,070
                                                       ---------   ---------
Cash and equivalents, end of period                    $      99   $      82
                                                       =========   =========

Supplemental cash flow information:
   Cash paid during the period for:
      Interest                                         $   4,388   $   4,793
      Income taxes paid, net                                   8          18

Supplemental schedule of noncash
  investing and financing activities:
    ARTRA Series E redeemable preferred stock
       issued for payment of short-term notes              2,250        --
    BCA Holdings redeemable preferred stock
       issued in exchange for Bagcraft
       redeemable preferred stock                          8,135        --
    Issue common stock
       to pay down current liabilities                     1,274         208
    Issue common stock as additional
       consideration for short-term borrowings               661        --


The  accompanying  notes  are an  integral  part of the  condensed  consolidated
financial statements.

<PAGE>

                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


1.       BASIS OF PRESENTATION AND FINANCIAL RESTRUCTURING

ARTRA GROUP  Incorporated's  ("ARTRA" or the "Company")  condensed  consolidated
financial  statements are presented on a going concern basis, which contemplates
the  realization  of assets and the  satisfaction  of  liabilities in the normal
course of business.  In the opinion of the Company,  the accompanying  condensed
consolidated  financial  statements  reflect  all normal  recurring  adjustments
necessary to present fairly the financial position as of September 26, 1996, and
the results of  operations  and changes in cash flows for the nine month periods
ended  September 26, 1996 and  September 28, 1995. In recent years,  the Company
has suffered recurring losses from operations and has a net capital  deficiency.
As a result  of  these  factors,  the  Company  has  experienced  difficulty  in
obtaining  adequate  financing to replace certain  current credit  arrangements,
certain  of  which  are in  default,  to fund  its debt  service  and  liquidity
requirements in 1996. These factors raise  substantial doubt about the Company's
ability to continue as a going concern.  The financial statements do not include
any adjustments that might result from the outcome of this uncertainty. See Note
7 Notes Payable, and Note 8 Long Term Debt, for further discussion of the status
of  credit  arrangements  and  restrictions  on the  ability  of  the  Company's
operating  subsidiary to fund ARTRA  corporate  obligations.  Due to its limited
ability to receive  operating  funds from its  operating  subsidiary,  ARTRA has
historically met its operating  expenditures with funds generated by alternative
sources,  such as private  placements of ARTRA common stock and notes,  sales of
ARTRA common stock with put options,  loans from  officers/directors and private
investors,  as well as through  sales of assets  and/or other equity  infusions.
ARTRA plans to continue  to seek such  alternative  sources of funds to meet its
future operating expenditures.

ARTRA,  through its  wholly-owned  subsidiary,  Bagcraft  Corporation of America
("Bagcraft"),  currently  operates in one industry  segment as a manufacturer of
packaging products principally serving the food industry. Prior to September 28,
1995, ARTRA's then majority owned subsidiary,  COMFORCE Corporation ("COMFORCE",
formerly The Lori Corporation "Lori"), operated as a designer and distributor of
popular-priced  fashion  costume  jewelry and  accessories.  In  September  1995
COMFORCE adopted a plan to discontinue its jewelry business.

On October 17,  1995,  COMFORCE  acquired  all of the capital  stock of COMFORCE
Global Inc.  ("Global"),  formerly  Spectrum Global  Services,  Inc. d/b/a YIELD
Global.  Global  provides  telecommunications  and computer  technical  staffing
services  worldwide to Fortune 500 companies and maintains an extensive,  global
database of technical  specialists  with an emphasis on wireless  communications
capability.

Effective July 4, 1995, COMFORCE and ARTRA entered into employment or consulting
services  agreements  with certain  individuals  to manage Lori's entry into and
development of the  telecommunications  and computer technical staffing services
business. As additional  compensation,  the agreements provided for the issuance
in aggregate of a 35% common stock  interest in COMFORCE.  After the issuance of
the COMFORCE common shares,  plus the effects of the issuance of COMFORCE common
shares sold by private  placements  and other  COMFORCE  common shares issued in
conjunction with the Global acquisition, ARTRA's common stock ownership interest
in COMFORCE common stock was reduced to approximately  25% at December 28, 1995.
Accordingly,  in October 1995,  the accounts of COMFORCE and its  majority-owned
subsidiaries were deconsolidated from ARTRA's consolidated  financial statements
and ARTRA's  investment  in COMFORCE was  accounted  for under the equity method
through the end of fiscal  1995.  At  September  26, 1996  ARTRA's  common stock
ownership  interest in COMFORCE common stock was reduced to  approximately  19%.
See Notes 2 and 5 for a further discussion of ARTRA's investment in COMFORCE.

Effective October 26, 1995,  Bagcraft completed the sale of the business assets,
subject to the buyer's  assumption of certain  liabilities,  of its wholly-owned
subsidiary,   Arcar  Graphics,   Inc.  ("Arcar"),   for  cash  of  approximately
$20,300,000.  The net  proceeds,  after  extinguishment  of  certain  Arcar debt
obligations,  of  approximately  $10,400,000,  were used to reduce Bagcraft debt
obligations.

In February  1996, a bank agreed to discharge  all amounts under its ARTRA notes
($12,063,000 plus accrued interest and fees) and certain  obligations of ARTRA's
president,  Peter R. Harvey,  resulting  in a gain to ARTRA on the  discharge of
<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)


this  indebtedness  of $9,424,000 in the first quarter of 1996. The cash payment
due the bank was funded  principally  with  proceeds  received from a short-term
loan  agreement  along with proceeds  received  from the Bagcraft  subsidiary in
conjunction  with the  issuance  of BCA  Holdings,  Inc.  ("BCA"  the  parent of
Bagcraft)  preferred  stock.  See Notes 6, 7 and 10 for further  discussions  of
these transactions.

ARTRA intends to continue to negotiate with its creditors to extend due dates to
allow  ARTRA to  maximize  value  from  possible  sale of assets  and to explore
various other sources of funding to meet its future operating  expenditures.  If
ARTRA is unable to negotiate  extensions with its creditors and complete certain
transactions,  ARTRA could suffer severe adverse consequences,  and as a result,
ARTRA may be forced to  liquidate  its assets or file for  protection  under the
Bankruptcy Code.

These condensed  consolidated  financial  statements are presented in accordance
with the  requirements  of Form 10-Q and  consequently  do not  include  all the
disclosures  required in the Company's annual report on Form 10-K.  

Reported  interim results of operations are based in part on estimates which may
be subject to year-end  adjustments.  In addition,  these  quarterly  results of
operations are not necessarily indicative of those expected for the year.

The Company  has  adopted a 52/53 week  fiscal year ending the last  Thursday of
December.


2.       CHANGE OF BUSINESS

         Arcar Graphics, Inc.

Effective  April 8, 1994,  Bagcraft  purchased the business  assets,  subject to
buyer's  assumption  of  certain  liabilities,  of  Arcar,  a  manufacturer  and
distributor of waterbase  inks.  Effective  October 26, 1995,  Bagcraft sold the
business assets,  subject to the buyer's assumption of certain  liabilities,  of
Arcar  for  cash  of  approximately  $20,300,000,  resulting  in a net  gain  of
$8,483,000.  The net  proceeds,  after  extinguishment  of  certain  Arcar  debt
obligations,  of  approximately  $10,400,000,  were used to reduce Bagcraft debt
obligations.


         COMFORCE

In September,  1995, COMFORCE adopted a plan to discontinue its jewelry business
and recorded a provision of $1,000,000  for the estimated  costs to complete the
disposal of its jewelry business.

Effective  October 17,  1995,  COMFORCE  acquired  all of the  capital  stock of
COMFORCE Global, Inc. ("Global"),  formerly Spectrum Global Services, Inc. d/b/a
YIELD Global,  for  consideration  of  approximately  $6.4 million,  net of cash
acquired.  This  consideration  consisted of cash to the seller of approximately
$5.1 million, fees of approximately  $700,000,  including a fee of $500,000 to a
related party,  and 500,000  shares of COMFORCE  common stock valued at $843,000
(at a price per share of $1.68)  issued as  consideration  for various  fees and
guarantees  associated  with the  transaction.  The  500,000  shares of COMFORCE
common stock  consisted of (i) 100,000  shares issued to an unrelated  party for
guaranteeing  the purchase  price to the seller,  (ii) 100,000  shares issued to
ARTRA,  then the majority  stockholder of the Company,  in  consideration of its
guaranteeing  the  purchase  price to the seller and  agreeing to enter into the
Assumption Agreement,  as discussed below, (iii) 150,000 issued to two unrelated
parties for  advisory  services in  connection  with the  acquisition,  and (iv)
150,000 shares issued to Peter R. Harvey,  then a Vice President and director of
COMFORCE for guaranteeing the
<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)



payment of the $6.4  million  purchase  price to the  seller.  Additionally,  in
conjunction  with the  Global  acquisition,  ARTRA  entered  into an  Assumption
Agreement  whereby  it agreed  to assume  substantially  all  pre-existing  Lori
liabilities  and indemnify  COMFORCE in the event any future  liabilities  arise
concerning  pre-existing  environmental matters and business related litigation.
Accordingly,   at  September  26,  1996,  $764,000  of  such  pre-existing  Lori
liabilities were classified in ARTRA's condensed consolidated balance as current
liabilities of discontinued operations.

Global provides  telecommunications  and computer  technical  staffing  services
worldwide to Fortune 500 companies and maintains an extensive,  global  database
of technical specialists with an emphasis on wireless communications capability.

Effective  July 4, 1995,  Lori's  management  agreed to issue up to a 35% common
stock  interest in COMFORCE to certain  individuals to manage  COMFORCE's  entry
into the telecommunications  and computer technical staffing business.  COMFORCE
recognized  a  non-recurring  charge of  $3,425,000  related to this stock since
these stock  awards were 100% vested when issued,  and were neither  conditioned
upon these individuals' service to the Company as employees nor the consummation
of the COMFORCE Global  acquisition.  Accordingly,  this compensation charge was
fully  recognized  in 1995.  The  shares  of  COMFORCE  common  stock  issued in
accordance with the above  agreements were valued at $.93 per share.  COMFORCE's
management valued COMFORCE based on its discussions with market makers and other
advisors,  taking  into  account  (i)  that  the  Jewelry  Business,  which  was
discontinued  at the end of the second quarter of 1995, had a negligible  value,
and (ii) the value of COMFORCE was principally  related to the potential  effect
that a purchase of COMFORCE Global, if successfully concluded, would have market
value of COMFORCE  common stock.  COMFORCE's  management  believes this value of
$.93  per  share  to be a fair  and  appropriate  value  based  upon  COMFORCE's
financial  condition  as of the date  COMFORCE  became  obligated to issue these
shares.  After the issuance of the COMFORCE  common shares,  plus the effects of
other  transactions,  ARTRA's common stock ownership interest in COMFORCE common
stock  was  reduced  to  approximately  19% and 25% at  September  26,  1996 and
December 28, 1995, respectively.  Accordingly,  in October 1995, the accounts of
COMFORCE and its majority-owned  subsidiaries were  deconsolidated  from ARTRA's
consolidated  financial  statements.  See Note 5 for a further discussion of the
accounting treatment of ARTRA's investment in COMFORCE.

A disagreement has arisen between ARTRA and COMFORCE  regarding  interpretations
of the July 4, 1995  agreement,  as amended,  to issue up to a 35% common  stock
interest in COMFORCE to certain  individuals to manage COMFORCE's entry into the
telecommunications   and  computer  technical  staffing  business;   the  Global
acquisition  agreement;  and the  Assumption  Agreement  whereby ARTRA agreed to
assume substantially all pre-existing Lori liabilities and indemnify COMFORCE in
the event any future  liabilities  arise concerning  pre-existing  environmental
matters and business  related  litigation.  The disputed  issues include (i) the
number of  COMFORCE  common  shares  issued to the above  individuals  to manage
COMFORCE's entry into the  telecommunications  and computer  technical  staffing
business. Accordingly, ARTRA voted against ratification of the issuance of these
shares at COMFORCE's  Annual Meeting of  Stockholders  held on October 28, 1996;
(ii) the number of COMFORCE  common stock options  issued to COMFORCE's  current
management  group subsequent to the Global  acquisition;  (iii) 100,000 COMFORCE
common shares to be issued to ARTRA in  consideration  of its  guaranteeing  the
Global purchase price to the seller and agreeing to assume certain  pre-existing
Lori  liabilities;  (iv) 150,000 COMFORCE common shares to be issued to Peter R.
Harvey for  guaranteeing the payment of the Global purchase price to the seller,
and (vi) certain  stock options  granted in 1993 under  provisions of COMFORCE's
Long-Term Stock Investment Plan. As a result of the above  disagreements,  ARTRA
has not exchanged its Lori Series C preferred stock with a liquidation  value of
$19.5 million for 100,000 COMFORCE common shares,  as required by the Assumption
Agreement,  and will not  consummate  the exchange until all of the disputes are
resolved.  ARTRA's financial  statements have reflected the exchange of the Lori
Series C preferred  stock for 100,000  COMFORCE common shares in accordance with
the  Assumption  Agreement.  Based  on the  above  disputed  matters,  ARTRA  is
withholding delivery of the Lori Series C preferred shares and is seeking


<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)


appropriate   resolution  in  conformity  with  the  Assumption   Agreement  and
resolution of the other obligations owed by COMFORCE to ARTRA and its employees,
or ARTRA  will  seek to  rescind  this  aspect of the  agreement.  Additionally,
ARTRA's  financial  statements  have reflected the issuance of 100,000  COMFORCE
common shares to ARTRA as  compensation  for  guaranteeing  the Global  purchase
price to the seller and  entering  into the  Assumption  Agreement.  COMFORCE is
withholding  issuance  of such  shares  to ARTRA,  in  violation  of the  Global
acquisition  agreement.  ARTRA has aggressively attempted to resolve its dispute
with  COMFORCE  without  success  and at this  point,  ARTRA can not predict the
ultimate   resolution,   nor  whether  such  dispute  can  be  resolved  without
litigation.


The Company's consolidated financial statements have been reclassified to report
separately  the  results  of  operations  of Arcar and  COMFORCE's  discontinued
jewelry business prior to the deconsolidation of COMFORCE and its majority-owned
subsidiaries  effective  October 1995.  The operating  results (in thousands) of
Bagcraft's  discontinued  Arcar subsidiary and COMFORCE's  discontinued  jewelry
business  and the  provision  for loss on  disposal of  COMFORCE's  discontinued
jewelry  business for the nine months ended September 28, 1995 consist
of:


    Net sales                                         $ 16,932
                                                      ========

    Loss from discontinued operations
      before income taxes                             $ (8,151)

    (Provision) credit for income taxes                     (5)
                                                      -------- 
    Loss from operations                              $ (8,156)
                                                      ======== 

    Provision for disposal of COMFORCE's
      jewelry business                                  (1,000)

    Provision for income taxes                             --  
                                                      -------- 
    Provision for disposal of  business                 (1,000)
                                                      -------- 
    Loss from discontinued operations                 $ (9,156)
                                                    ========== 

3.       CONCENTRATION OF RISK

The accounts  receivable of the Company's  Bagcraft  subsidiary at September 26,
1996 consist primarily of amounts due from companies in the food industry.  As a
result, the collectibility of these receivables is dependent, to an extent, upon
the economic condition and financial stability of the food industry. Credit risk
is minimized as a result of the large  number and diverse  nature of  Bagcraft's
customer base.  Bagcraft's major customers include some of the largest companies
in the food  industry.  At September  26, 1996,  Bagcraft had 10 customers  with
accounts receivable balances that aggregated  approximately 29% of the Company's
total  trade  accounts  receivable.  In  fiscal  year  1995 no  single  customer
accounted for 10% or more of Bagcraft's sales.


<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)



4.       INVENTORIES

Inventories at September 26, 1996, (in thousands) consist of:
                                               

     Raw materials and supplies                   $ 5,762       
     Work in process                                  302       
     Finished goods                                 9,147       
                                                  -------       
                                                  $15,211       
                                                  =======       

5.            INVESTMENT IN COMFORCE CORPORATION

In prior years and until October 1995, COMFORCE was a majority-owned  subsidiary
of ARTRA and,  accordingly,  the  accounts  of COMFORCE  and its  majority-owned
subsidiaries were included in the consolidated financial statements of ARTRA. As
discussed in Note 2, primarily due to the issuances of COMFORCE common shares in
conjunction  with the  acquisition of Global,  ARTRA's common stock ownership in
COMFORCE was reduced to approximately 25% at December 28, 1995. Accordingly,  in
October 1995, the accounts of COMFORCE and its majority-owned  subsidiaries were
deconsolidated  from  ARTRA's  consolidated  financial  statements  and  ARTRA's
investment in COMFORCE was accounted for under the  requirements  of APB Opinion
No. 18 "The Equity Method of Accounting for Investments in Common Stock" through
the end of fiscal 1995.

Effective  December 28, 1995, John Harvey and Peter R. Harvey,  ARTRA's chairman
and  president,  respectively,  resigned as  directors  of COMFORCE and Peter R.
Harvey  resigned as a vice president of COMFORCE.  Due to such factors as a lack
of board of directors  representation and participation in policy formulation by
ARTRA, as well as a lack of interchange of managerial personnel, ARTRA no longer
was able to exercise any influence over the operating and financial  policies of
COMFORCE.  Additionally,  assuming contemplated additional issuances of COMFORCE
common shares, on a fully diluted basis ARTRA's  ownership  interest in COMFORCE
at December 28, 1995 would have been reduced to less than 20%. In the opinion of
the Company,  effective December 28, 1995, ARTRA's investment in COMFORCE ceased
to conform to the requirements of APB Opinion No. 18. Accordingly, ARTRA adopted
SFAS No. 115 "Accounting for Certain Investments in Debt and Equity Securities."
Under this statement,  at December 28, 1995,  ARTRA's investment in COMFORCE was
reclassified as available for sale and was stated at fair value. The adoption of
SFAS No. 115  resulted  in an  increase  to  shareholders'  equity in the fourth
quarter of 1995 of $21,047,000.

In January 1996, the Company's  Board of Directors  approved the sale of 200,000
of  ARTRA's  COMFORCE  common  shares to  certain  officers,  directors  and key
employees of ARTRA for non-interest bearing notes totaling $400,000.  The notes,
collateralized by the 200,000 COMFORCE common shares sold, are not payable until
the earlier of the registration of these shares under the Securities Act of 1993
or the expiration of the applicable  resale waiting period under  Securities Act
Rule 144.  Additionally,  the  noteholders  have the right to put their COMFORCE
shares back to ARTRA in full payment of the balance of their  notes.  Based upon
the preceding factors,  the Company has concluded that, for reporting  purposes,
it has effectively sold options to certain officers, directors and key employees
to acquire 200,000 of ARTRA's COMFORCE common shares. Accordingly, these 200,000
COMFORCE  common  shares  have been  removed  from the  Company's  portfolio  of
"Available-for-sale  securities"  and are classified in the Company's  condensed
consolidated balance sheet at September 26, 1996 as other current assets with an
aggregate value of $400,000, based upon the value of proceeds to be



<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)


received upon future  exercise of the options.  The disposition of these 200,000
COMFORCE  common  shares will result in a gain which has been  deferred and will
not be  recognized in the Company's  financial  statements  until the options to
purchase these 200,000 COMFORCE common shares are exercised. As of September 26,
1996, no options to acquire any of the 200,000  COMFORCE  common shares had been
exercised.

As additional consideration for a February 1996 short-term loan (see Notes 6 and
7) a lender received 25,000 COMFORCE common shares held by ARTRA. In March 1996,
ARTRA  sold  93,000  COMFORCE  shares  in  the  market,  with  the  proceeds  of
approximately  $630,000 used for working  capital.  The above mentioned  118,000
COMFORCE  common shares were  classified in the Company's  consolidated  balance
sheet at December 28, 1995 in current assets as "Available-for-sale securities."
The disposition of these 118,000  COMFORCE shares during the quarter ended March
28, 1996  resulted in realized  gains of  $1,043,000,  with cost  determined  by
average cost.

In June  1996,  ARTRA  sold  100,000  COMFORCE  shares in the  market,  with the
proceeds  of  approximately   $3,100,000  used  principally  to  pay  down  debt
obligations. As additional consideration for two short-term loans, in April 1996
the  lenders   received  20,000  COMFORCE  common  shares  held  by  ARTRA.  The
disposition of these 120,000  COMFORCE  shares during the quarter ended June 27,
1996 resulted in additional  realized gains of $3,452,000,  with cost determined
by average cost.

As additional  consideration for a short-term loan, in September 1996 the lender
received  50,000 COMFORCE common shares held by ARTRA resulting in an additional
realized gain of $328,000, with cost determined by average cost.

At  September  26, 1996  ARTRA's  remaining  investment  in COMFORCE  (1,813,036
shares,  currently a common stock ownership  interest of approximately  19%) was
classified in the Company's condensed  consolidated  balance sheet in noncurrent
assets as  "Available-for-sale  securities."  At  September  26,  1996 the gross
unrealized  gain  relating to ARTRA's  investment  in  COMFORCE,  reflected as a
separate component of shareholders' equity, was $34,960,000.

As  discussed in Note 7, at September  26,  1996,  1,175,000  shares of COMFORCE
common stock owned by the  Company's  Fill-Mor  subsidiary  have been pledged as
collateral for various short-term borrowings.


6.       EXTRAORDINARY GAINS

         ARTRA Debt Restructuring

In February  1996, a bank agreed to discharge  all amounts under its ARTRA notes
($12,063,000 plus accrued interest and fees) and certain  obligations of ARTRA's
president,  Peter R. Harvey for consideration consisting of ARTRA's cash payment
of $5,050,000, Mr. Harvey's cash payment of $100,000 and Mr. Harvey's $3,000,000
note  payable  to the  bank  (the  "Harvey  Note").  The bank  assigned  ARTRA a
$2,150,000  interest in the Harvey  Note,  subordinated  to the bank's  $850,000
interest in the Harvey Note.  ARTRA then  discharged  $2,150,000 of Mr. Harvey's
prior  advances  in  exchange  for  its  $2,150,000  interest  in  Mr.  Harvey's
$3,000,000  note payable to the bank. The amount of the $5,050,000  cash payment
to the bank  applicable to Peter R. Harvey  ($1,089,000)  was charged to amounts
due from Peter R.  Harvey.  ARTRA  recognized  a gain on the  discharge  of this
indebtedness  of $9,424,000  ($1.23 per share) in the first quarter of 1996. The
cash payment due the bank was funded principally with proceeds received from the
Bagcraft  subsidiary  in  conjunction  with the  issuance  of BCA (the parent of
Bagcraft)  preferred  stock along with proceeds  received from a short-term loan
agreement with an unaffiliated company that was subsequently repaid. See Notes 7
and 10 for further discussions of these transactions. As additional compensation
for its loan and for  participating  in the above discharge of indebtedness  the
unaffiliated  company received 150,000 shares of ARTRA common stock (with a then
fair market value of $661,000 after a discount for restricted marketability) and
25,000  shares of COMFORCE  common  stock held by ARTRA (with a then fair market
value of $200,000).
<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)



The  extraordinary  gain resulting from the discharge of bank debt is calculated
(in thousands) as follows:


     Amounts due the bank:
       ARTRA notes                                               $  12,063
       Accrued interest                                              2,656
                                                                  --------
                                                                    14,719
     Cash payment to  the bank                       $   5,050
     Less amount applicable to 
       Peter R. Harvey indebtedness                     (1,089)
                                                      --------
                                                                    (3,961)
                                                                  -------- 
     Bank debt discharged                                           10,758
     Less fair market value of ARTRA 
       common stock issued as consideration
       for a loan used in par to fund  
       the discharge of bank debt                                     (661)
     Less fair market value of COMFORCE 
       common stock issued as  consideration
       for a loan used in par to fund  
       the discharge of bank debt                                     (200)
     Other fees and expenses                                          (473)
                                                                  --------
              Net extraordinary gain                             $   9,424
                                                                  ======== 


         COMFORCE Debt Restructuring

Per terms of a debt settlement  agreement,  borrowings due a bank under the loan
agreements  of COMFORCE  and its  discontinued  jewelry  business  and  Fill-Mor
(approximately  $25,000,000 as of December 23, 1994),  plus amounts due the bank
for accrued  interest and fees were reduced to $10,500,000 (of which  $7,855,000
pertained  to  COMFORCE's  obligation  to the bank and  $2,645,000  pertained to
Fill-Mor's  obligation to the bank). As a result of the reduction of amounts due
the bank, in December  1994,  the Company  recognized an  extraordinary  gain of
$8,965,000 ($1.57 per share) in December 1994.

On March 31, 1995, the bank was paid $750,000 and the remaining  indebtedness of
COMFORCE and Fill-Mor was discharged,  resulting in an additional  extraordinary
gain to the  Company of  $9,113,000  ($1.35  per share) in the first  quarter of
1995.


<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)



7.       NOTES PAYABLE


     Notes payable at September 26, 1996, (in thousands) consist of:


         ARTRA bank notes payable,
           at various interest rates                $  2,500    
                                                                
         
         ARTRA 12% secured promissory notes            7,575    
         
         ARTRA 12% convertible  
           subordinated promissory notes                  -     
         
         Amounts due to related parties, 
           interest principally at 10%                 3,600    
           
         Other, interest from 10% to 20%               1,843    
                                                    --------    
                                                    $ 15,518    
                                                    ========    

         Bank Notes Payable

On August 15, 1996, ARTRA and its 100% owned Fill-Mor  subsidiary entered into a
$2,500,000 term loan agreement with a bank. The loan,  payable by Fill-Mor in 90
days, bears interest,  payable  monthly,  at the bank's reference rate (8.25% at
September 26, 1996). Fill-Mor has an option to extend the loan for an additional
90 days. The loan,  guaranteed by ARTRA, is  collateralized by 800,000 shares of
COMFORCE  common stock owned by Fill-Mor.  If an Event of Default (as defined in
the loan  agreement)  shall  occur,  the  bank has the  right to sell all of its
rights and interest in the loan to an  unaffiliated  individual for an aggregate
price  equal to the  outstanding  principal  balance  of the loan  plus  accrued
interest. The proceeds of the loan were used for working capital.

At December 28, 1995,  $12,063,000  of ARTRA  notes,  plus accrued  interest and
fees, were payable to a bank. The notes provided for interest at the prime rate.
These bank notes were  collateralized by, among other things, 100% of the common
stock of ARTRA's BCA subsidiary, the parent of Bagcraft, a secondary position on
the assets of BCA and any and all net proceeds  arising from its lawsuit against
Salomon  Brothers,  Inc.,  Salomon Brothers Holding Company Inc.  (collectively,
"Salomon") D.P. Kelly & Associates,  L.P.  ("Kelly") and all of the directors of
Emerald  Acquisition  Corporation  ("Emerald") for breaches of fiduciary duty by
the directors of Emerald,  induced by Salomon and Kelly,  in connection with the
reorganization  of Envirodyne  Industries,  Inc.  ("Envirodyne") as discussed in
Note 13.  Additionally,  the bank  notes  were  collateralized  by a  $5,500,000
personal guaranty of a private investor. As additional compensation, the private
investor received 1,833 shares of ARTRA common stock for each month the guaranty
was  outstanding.  Among other things,  the bank notes prohibited the payment of
cash dividends by ARTRA.

In February  1996, a bank agreed to discharge  all amounts under its ARTRA notes
($12,063,000 plus accrued interest and fees) and certain  obligations of ARTRA's
president,  Peter R. Harvey for consideration consisting of ARTRA's cash payment
of $5,050,000, Mr. Harvey's cash payment of $100,000 and Mr. Harvey's $3,000,000
note  payable  to the  bank  (the  "Harvey  Note").  The bank  assigned  ARTRA a
$2,150,000  interest in the Harvey  Note,  subordinated  to the bank's  $850,000
interest in the Harvey Note,  and ARTRA  discharged  $2,150,000 of Mr.  Harvey's
prior advances. ARTRA recognized a gain on the discharge of this indebtedness of
$9,424,000  ($1.23  per  share)  in the first  quarter  of 1996 and  recorded  a
receivable for Mr.  Harvey's  prorata share  ($1,089,000)  of the debt discharge
funded by the Company. The cash


<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)



payment due the bank was funded  principally  with  proceeds  received  from the
Bagcraft  subsidiary  in  conjunction  with the  issuance  of BCA (the parent of
Bagcraft)  preferred  stock (see Note 10) along with  proceeds  received  from a
short-term loan agreement with an unaffiliated  company.  As collateral for this
advance and other previous  advances (see Note 14), Mr. Harvey  provided ARTRA a
$2,150,000 security interest in certain real estate,  subordinated to the bank's
$850,000 security interest in this real estate.


         Secured Promissory Notes

In April 1996, ARTRA commenced a private  placement of $7,575,000 of 12% secured
promissory notes due April 15, 1997. As additional consideration the noteholders
received  warrants to purchase an aggregate of 413,750  ARTRA common shares at a
price of $6.00 per share.  The warrants expire April 15, 1999.  These promissory
notes are  collateralized  by ARTRA's interest in all of the common stock of BCA
(the parent of Bagcraft). The proceeds from the private placement,  completed in
July 1996, were used principally to pay down other debt obligations.


         Convertible Subordinated Promissory Notes

In December  1995,  ARTRA  completed a private  placement of  $2,500,000  of 12%
convertible  subordinated  promissory  notes due March 21, 1996.  As  additional
consideration  the  noteholders  received  15,000 ARTRA  common  shares per each
$100,000 of notes issued,  or an aggregate of 375,000 ARTRA common  shares.  The
ARTRA common shares were valued at $1,266,000  ($3.375 per share) based upon the
closing market value of ARTRA common stock on the date of issue,  discounted for
restricted  marketability.  The  proceeds  from the private  placement,  held in
escrow at December 28,  1995,  were used to pay down other debt  obligations  in
January,  1996. In March and April 1996 the notes were repaid,  principally with
proceeds from the private  placement of the secured  promissory  notes discussed
above.


         Amounts Due To Related Parties

At September 26, 1996 and December 28, 1995, ARTRA had outstanding borrowings of
$3,000,000 from an unaffiliated  company currently  holding  approximately 7% of
ARTRA's   outstanding  common  stock.  The  loans  are  evidenced  by  unsecured
short-term  notes bearing  interest at 10%. As additional  compensation  for the
above loans, the lender received five year warrants expiring in 1998 to purchase
an aggregate of 86,250 ARTRA common shares at prices ranging from $6.00 to $7.00
per share. In December 1995 the unaffiliated  company received 126,222 shares of
ARTRA common in payment of past due interest through October 31, 1995.

In May, 1996, ARTRA borrowed $100,000 from a private  investor,  evidenced by an
unsecured  short-term  note,  due  August 7, 1996  renewed  to  January 6, 1997,
bearing interest at 10%. At the Company's  annual meeting of shareholders,  held
August 29,  1996,  the private  investor was elected to the  Company's  board of
directors. At September 26, 1996, the $100,000 loan was outstanding.

In August, 1996, ARTRA borrowed $500,000 from a private investor, evidenced by a
short-term  note,  due December 23, 1996,  bearing  interest at 10%. The loan is
collateralized by 125,000 shares of COMFORCE common stock owned by the Company's
Fill-Mor  subsidiary.  As  additional  compensation  for the  loan,  the  lender
received a warrant,  expiring in 2001, to purchase 25,000 ARTRA common shares at
a price of $5.00 per share.  At the Company's  annual  meeting of  shareholders,
held August 29, 1996, the private investor was elected to the Company's board of
directors. At September 26, 1996, the $500,000 loan was outstanding.

At December 28, 1995, the Company had outstanding  borrowings from its Chairman,
John Harvey, of $175,000.  John Harvey's  borrowings were evidenced by unsecured
short-term notes bearing interest at 12%. As additional compensation


<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)



the loans provided for the issuance of warrants to purchase ARTRA common shares,
the  number  of which  was  determined  by the  number  of days the  loans  were
outstanding.  The  warrants  expire five years from the date of  issuance.  John
Harvey  received  warrants to purchase an  aggregate  of 66,045  shares of ARTRA
common  stock at prices  ranging  from $3.75 to $6.125  per share as  additional
compensation  for his loans to ARTRA.  In May 1996,  ARTRA repaid all borrowings
from John Harvey.

On March 31,  1994,  ARTRA  entered  into a series of  agreements  with its bank
lender and with a private  corporation  that had  guaranteed  $2,500,000  of the
ARTRA bank notes discharged in February 1996 as noted above. A major shareholder
and executive officer of the private corporation is an ARTRA director. Per terms
of the agreements,  the private corporation  purchased $2,500,000 of ARTRA notes
from  ARTRA's  bank and the  bank  released  the  private  corporation  from its
$2,500,000 loan guaranty.  As consideration  for purchasing  $2,500,000 of ARTRA
bank notes,  the private  corporation  received a  $2,500,000  note payable from
ARTRA bearing interest at the prime rate.

As additional  consideration,  the private corporation received an option to put
back to ARTRA the 49,980 shares of ARTRA common stock  received as  compensation
for its former  $2,500,000  ARTRA loan  guaranty at a price of $15.00 per share.
The put option is exercisable  on the later of the day that the $2,500,000  note
payable to the private  corporation becomes due or the date the ARTRA bank notes
have been paid in full.  The option price  increases by $2.25 per share annually
($20.063 per share at September 26, 1996).  The  $2,500,000  note payable to the
private  corporation  was  reflected  in the above table at December 28, 1995 as
amounts due to related parties. During the first quarter of 1996, the $2,500,000
note and related  accrued  interest was paid in full  principally  with proceeds
from additional short-term borrowings.


         Other

In  conjunction  with the discharge of bank debt  discussed  above,  the Company
entered into a $1,900,000  short-term loan agreement,  due May 26, 1996, with an
unaffiliated  company.  The loan, with interest at 12%, was  collateralized  by,
among other things,  the common stock of ARTRA's BCA  subsidiary.  As additional
compensation  for its loan  and for  participating  in the  above  discharge  of
indebtedness  the  unaffiliated  company received 150,000 shares of ARTRA common
stock (with a then fair market value of $661,000 after a discount for restricted
marketability)  and 25,000 shares of COMFORCE common stock held by ARTRA (with a
then  fair  market  value  of  $200,000).  Additionally,  for  consideration  of
$500,000,  the  lender  purchased  an option to  acquire up to 40% of the common
stock  of  Bagcraft  for  nominal  consideration.   The  borrowings  under  this
short-term loan agreement were repaid in April,  1996 and, per terms of the loan
agreement, ARTRA repurchased the option for a cash payment of $550,000.

In October  1996 the Company and its Fill-Mor  subsidiary  entered into a margin
loan agreement with a financial  institution under which provided for borrowings
of $600,000,  with interest  approximating the prime rate.  Borrowings under the
loan agreement are  collateralized  by 125,000  shares of COMFORCE  common stock
owned by the Company's Fill-Mor subsidiary.

At  September  26, 1996 and  December 28,  1995,  other notes  payable  includes
short-term borrowings of $1,843,000 and $5,062,000,  respectively, payable under
various  short-term  loan  agreements  with  unaffiliated  companies and private
investors.  These loans bear interest at varying rates from 10% to 20%.  Certain
of these loans,  aggregating  $500,000 in  outstanding,  are  collateralized  by
125,000  shares  of  COMFORCE  common  stock  owned  by the  Company's  Fill-Mor
subsidiary.



<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)



8.       LONG-TERM DEBT

         Long-term debt at September 26, 1996, (in thousands) consists of:

                                               
   Bagcraft Credit Agreement:
       Term loan A, 
         interest at the prime rate plus 1.75%      $ 12,000   
       Term loan B, 
         interest at the prime rate plus 3%            2,800   
       Revolving credit loan,
         interest at the prime rate plus 1.5%         12,311   
       Unamortized discount                             (847)  
   Bagcraft
       City of Baxter Springs, 
         Kansas loan agreements,
         interest at varying rates                    10,684   
                                                    --------   
                                                      36,948   
   Current scheduled maturities                      (2,407)   
                                                    --------   
                                                    $ 34,541   
                                                    ========   


         Bagcraft

Bagcraft's  Credit  Agreement that provides for a revolving  credit loan and two
separate term loans. The term loans are separate  facilities  initially totaling
$12,000,000  (Term Loan A) and $8,000,000 (Term Loan B), bearing interest at the
lender's  index rate plus 1.75% and 3%,  respectively.  At  September  26, 1996,
interest rates on Term Loan A and Term Loan B were 10 % and 11.25% respectively.

The amount available to Bagcraft under the revolving credit loan is subject to a
borrowing base, as defined in the agreement, up to a maximum of $18,000,000.  At
September  26,  1996,  approximately  $1,900,000  was  available  and  unused by
Bagcraft under the revolving credit loan.  Borrowings under the revolving credit
loan bear  interest at the  lender's  index rate plus 1.5% and are payable  upon
maturity of the Credit Agreement,  unless  accelerated under terms of the Credit
Agreement.  At September 26, 1996 the interest rate on the revolving credit loan
was 9.75%.

Effective  February 1, 1996,  the Credit  Agreement was amended  whereby,  among
other  things,  the maturity  date of the Credit  Agreement  was extended  until
September 30, 1997, certain loan covenants were amended.  The principal payments
under Term Loan B were modified to include  twenty-three monthly installments of
$200,000  from  November 15, 1995 to  September  30,  1997,  with the  remaining
balance payable at maturity (September 30, 1997).  Additionally,  in conjunction
with a preferred stock exchange  agreement between BCA (the parent of Bagcraft),
Bagcraft and the holder of  Bagcraft's  13.5%  cumulative  redeemable  preferred
stock,  the lender  consented to an advance to Bagcraft of $4,135,000  under the
revolving credit loan to be transferred to ARTRA as a dividend (see Note 10).

As additional compensation for borrowings under the Credit Agreement, the lender
received a detachable warrant, expiring in December 1998, allowing the holder to
purchase up to 10% of the fully diluted common equity of Bagcraft at a nominal
<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)



value. Under certain  conditions  Bagcraft is required to repurchase the warrant
from the lender.  The determination of the repurchase price of the warrant is to
be based on the warrant's pro rata share of the highest of book value, appraised
value or market  value of  Bagcraft.  In  connection  with the  February 1, 1996
amendment to the Credit  Agreement,  the warrant agreement was amended to permit
the holder to purchase 13% of the fully diluted common equity of Bagcraft at the
original  nominal  purchase price and to extend the expiration  date to December
17, 1999.

Borrowings under the Credit Agreement are collateralized by substantially all of
the assets of  Bagcraft.  The Credit  Agreement,  as amended,  contains  various
restrictive  covenants,  that among  other  restrictions,  require  Bagcraft  to
maintain minimum levels of tangible net worth and liquidity  levels,  and limits
capital  expenditures  and restricts  additional  loans,  dividend  payments and
payments to related parties. In addition, the Credit Agreement prohibits changes
in ownership of Bagcraft.  At September 26, 1996 Bagcraft was in compliance with
the provisions of its Credit Agreement.

In March,  1994  Bagcraft  and the City of Baxter  Springs,  Kansas  completed a
$12,500,000  financing package associated with the construction of a new 265,000
sq. ft. production  facility in Baxter Springs,  Kansas.  The financing package,
funded by a  combination  of  Federal,  state and local  funds,  consists of the
following  loan  agreements  payable by Bagcraft  directly to the City of Baxter
Springs:

         A $7,000,000  promissory  note payable in ten  installments of $700,000
         due annually on July 21 of each year beginning in 1995 through maturity
         on July 21,  2004.  Interest,  at varying  rates from 4.6% to 6.6%,  is
         payable semi-annually.  At September 26, 1996, Bagcraft had outstanding
         borrowings of $5,600,000 under this loan agreement.

         A $5,000,000 subordinated promissory note payable as follows:  $150,000
         due in 1996;  $2,425,000  due in 1998;  and $2,425,000 due in 1999. The
         subordinated  promissory  note  is  non-interest  bearing,  subject  to
         certain repayment  provisions as defined in the agreement (as amended).
         At  September  26,  1996,   Bagcraft  had  outstanding   borrowings  of
         $4,850,000 under this loan agreement.

         Two separate $250,000 subordinated  promissory notes payable in varying
         installments  through  January 20, 2025.  The  subordinated  promissory
         notes are non-interest bearing, subject to certain repayment provisions
         as defined in the  agreement.  At  September  26,  1996,  Bagcraft  had
         outstanding borrowings of $234,000 under this loan agreement.


Borrowings under the above loan agreements are collateralized by a first lien on
the land and building at the Baxter Springs, Kansas production facility and by a
second lien on certain  machinery and  equipment.  Under certain  circumstances,
repayment of the borrowings  under the above loan  agreements is subordinated to
the repayment of obligations under Bagcraft's Credit Agreement.  At December 28,
1995, $552,000 of borrowings from the above loan agreements was reflected in the
condensed  consolidated  balance sheet in current assets as restricted  cash and
equivalents.  These funds,  invested in interest  bearing cash  equivalents  and
restricted for expenditures  associated with the Baxter Springs,  Kansas project
were expended during the first quarter of 1996.

9.       REDEEMABLE COMMON STOCK

ARTRA has entered  into  various  agreements  under which it has sold its common
shares along with options that require ARTRA to  repurchase  these shares at the
option of the holder, principally one year after the date of each agreement. The
difference  between the option price and the net proceeds  received is amortized
over the life of the options by a charge to retained earnings.

At September  26, 1996 and December 28, 1995 options are  outstanding  that,  if
exercised, would require ARTRA to


<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)



repurchase 98,734 and 283,965 shares of its common stock for an aggregate amount
of $3,565,000  and  $4,774,000,  respectively.  In September  1996,  the Company
settled an obligation that would have required ARTRA to repurchase 66,113 common
shares for a total of $897,000.  The option  holder  received  cash  payments of
$510,000  and  retained the 66,113  ARTRA  common  shares in  settlement  of all
obligations  due under the option  agreement.  Additionally,  during  1996,  the
holder of 100,000  ARTRA common  shares with an option that would have  required
the Company to  repurchase  these  shares for  $500,000  sold these  shares in a
private  transaction.  Accordingly,  these 166,113  shares of ARTRA common stock
were removed from  redeemable  common stock and  reclassified  to  shareholders'
equity.


10.      REDEEMABLE PREFERRED STOCK

         ARTRA

Effective  September 26, 1996, in payment of principal and interest due on ARTRA
notes,  the  noteholder  received  2,250  shares  of ARTRA  Series E  redeemable
preferred stock ($1,000 par value, 10% cumulative,  liquidation preference equal
to $1,000 or 200 shares of common stock per share, plus accrued dividends). Each
share of the Series E redeemable preferred stock is convertible, at the holder's
option, into 200 shares of ARTRA common stock.

On September 27, 1989,  ARTRA received a proposal to purchase BCA, the parent of
Bagcraft,  from Sage Group, Inc.  ("Sage"),  a privately-owned  corporation that
owned 100% of the outstanding common stock of BCA. Sage was merged with and into
Ozite  Corporation  ("Ozite")  on August  24,  1990.  Peter R.  Harvey,  ARTRA's
President, and John Harvey, ARTRA's Chairman of the Board of Directors, were the
principal  shareholders  of Sage and are the  principal  shareholders  of Ozite.
Effective  March 3, 1990, a  wholly-owned  subsidiary of ARTRA  acquired 100% of
BCA's issued and  outstanding  common shares for  consideration  of  $5,451,000,
which  included  772,000 shares of ARTRA common stock and 3,750 shares of $1,000
par value junior non-convertible  payment-in-kind  redeemable Series A Preferred
Stock with an estimated fair value of $1,012,000, net of unamortized discount of
$2,738,000. The Series A Preferred Stock accrues dividends at the rate of 6% per
annum and is redeemable by ARTRA on March 1, 2000 at a price of $1,000 per share
plus accrued  dividends.  Accumulated  dividends of  $1,756,000  were accrued at
September 26, 1996.

         Bagcraft/BCA Holdings

In 1987,  Bagcraft  obtained  financing  from a subsidiary  of Ozite through the
issuance of a $5,000,000  unsecured  subordinated note, due June 1, 1997. During
1992, per agreement with the noteholder,  the interest payments were remitted to
ARTRA and the  noteholder  received  675 shares of BCA Series A preferred  stock
($1.00 par value,  6% cumulative with a liquidation  preference  equal to $1,000
per  share)  with a  liquidation  value of  $675,000.  In  December,  1993,  the
unsecured  subordinated note and accrued interest thereon were paid in full from
proceeds of Bagcraft's Credit Agreement. Per agreement with the noteholder,  the
accrued interest outstanding on the note of $3,000,000 was remitted to ARTRA and
the noteholder  received an additional 3,000 shares BCA preferred stock having a
liquidation value of $3,000,000.  Accumulated dividends of $633,000 were accrued
at September 26, 1996.

In 1987,  Bagcraft issued to a subsidiary of Ozite $5,000,000 of preferred stock
(50,000  shares  of  13.5%  cumulative,   redeemable   preferred  stock  with  a
liquidation  preference equal to $100 per share)  redeemable by Bagcraft in 1997
at a price of $100 per share plus accrued dividends. Dividends, which accrue and
are payable semiannually on June 1 and December 1 of each year, are reflected in
the  Company's  condensed  consolidated  statement  of  operations  as  minority
interest.  The  holder has agreed to forego  dividend  payments  as long as such
payments  are  prohibited  by  Bagcraft's  lenders.   Accumulated  dividends  of
$5,794000  were  accrued  at  December  28,  1995.  After  giving  effect to the
preferred stock exchange  discussed below,  8,650 shares of Bagcraft  redeemable
preferred stock with  accumulated  dividends of $1,113,000  were  outstanding at
September 26, 1996.


<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)



Effective  February 15, 1996, BCA,  Bagcraft and Ozite entered into an agreement
to exchange  certain  preferred  stock between the  Companies.  Per terms of the
exchange  agreement  BCA issued  8,135  shares of BCA Series B  preferred  stock
(13.5%  cumulative,  redeemable  preferred  stock with a liquidation  preference
equal to $1,000 per share,  or a total carrying value of $8,135,000) to Ozite in
exchange  for 41,350  shares of  Bagcraft  redeemable  preferred  stock  (with a
liquidation  preference  equal to $100 per share plus  accumulated  dividends of
$4,838,000,  or a total  carrying  value of  $8,973,000).  The  preferred  stock
exchange  resulted in a gain of $838,000  which was  reflected in the  Company's
condensed consolidated statement of operations as minority interest.

The BCA Series B  preferred  stock is  redeemable  on June 1, 1997.  Accumulated
dividends of $683,000 were accrued at September 26, 1996.

In conjunction with the preferred stock exchange  agreement,  Bagcraft's  lender
consented  to advance of  $4,135,000  under  Bagcraft's  revolving  credit to be
transferred to ARTRA as a dividend. ARTRA used the funds from this dividend plus
funds from a short-term  loan  agreement to fund a payment to its bank lender in
accordance with provisions of its debt discharge agreement as discussed in Notes
6 and 7.


11.      INCOME TAXES

The 1996 and 1995  extraordinary  credits  represent net gains from discharge of
indebtedness.  No income tax expense is  reflected  in the  Company's  financial
statements resulting from the extraordinary  credits and from the Company's 1996
earnings  from  continuing  operations  due  to  the  utilization  of  tax  loss
carryforwards.

At September 26, 1996, the Company and its  subsidiaries  had Federal income tax
loss carryforwards of approximately  $33,000,000 available to be applied against
future taxable income,  if any. ARTRA's tax loss  carryforwards of approximately
$22,000,000   expire   principally  in  2003  -  2010.   Additionally,   ARTRA's
discontinued  Ultrasonix  and Ratex  subsidiaries  had  Federal  income tax loss
carryforwards  of  approximately  $11,000,000  available  to be applied  against
future taxable income, if any. In recent years, the Company has issued shares of
its  common  stock to repay  various  debt  obligations,  as  consideration  for
acquisitions,  to fund working  capital  obligations  and as  consideration  for
various  other  transactions.  Section 382 of the Internal  Revenue Code of 1986
limits a corporation's  utilization of its Federal income tax loss carryforwards
when certain changes in the ownership of a corporation's common stock occurs. In
the  opinion  of  management,  the  Company  is not  currently  subject  to such
limitations   regarding  the   utilization   of  its  Federal  income  tax  loss
carryforwards.  Should the  Company  continue to issue a  significant  number of
shares of its common stock,  it could trigger a limitation that would prevent it
from   utilizing  a  substantial   portion  of  its  Federal   income  tax  loss
carryforwards.


12.      EARNINGS PER SHARE

Earnings  (loss) per share is computed by dividing  net  earnings  (loss),  less
dividends  applicable to redeemable  preferred stock and redeemable common stock
accretion  by the weighted  average  number of shares of common stock and common
stock equivalents (redeemable common stock, stock options and warrants),  unless
anti-dilutive,  outstanding during each period. Fully diluted earnings per share
are not presented since the result is equivalent to primary earnings per share.


13.      LITIGATION

The Company and its subsidiaries are the defendants in various  business-related
litigation  and  environmental  matters.  At September 26, 1996, the Company had
accrued   $1,900,000   for   business-related   litigation   and   environmental
liabilities. While these litigation and environmental matters involve wide


<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)



ranges of potential liability,  management does not believe the outcome of these
matters  will  have  a  material  adverse  effect  on  the  Company's  financial
statements.  However,  ARTRA  may not have  available  funds to pay  liabilities
arising out of these  business-related  litigation and environmental matters or,
in certain instances, to provide for its legal defense.

In  November  1993,  ARTRA  filed suit in the  Circuit  Court of the  Eighteenth
Judicial  Circuit for the State of Illinois (the "State Court  Action")  against
Salomon  Brothers,  Inc.,  Salomon Brothers Holding  Company,  Inc.,  Charles K.
Bobrinskoy,  Michael J. Zimmerman  (collectively,  "Salomon  Defendants"),  D.P.
Kelly & Associates, L.P. ("DPK"), Donald P. Kelly ("Kelly Defendants" along with
DPK),  James F.  Massey and  William  Rifkind  relating  to the  acquisition  of
Envirodyne in 1989. Envirodyne  subsequently filed a Chapter 11 bankruptcy which
provided ARTRA with no value in  Envirodyne's  parent's  stock.  On November 22,
1993, ARTRA filed a First Amended Complaint.  The defendants removed the case to
the Bankruptcy  Court in which the Emerald  Chapter 11 case is pending.  On July
15,  1994 all but two of ARTRA's  causes of action  were  remanded  to the state
court. The Bankruptcy Court retained  jurisdiction of ARTRA's claims against the
defendants  for  breaching  their  fiduciary  duty as  directors  of  Emerald to
Emerald's  creditors and interference  with ARTRA's  contractual  relations with
Emerald.  On April 7, 1995, the Company's appeal of the Bankruptcy Court's order
retaining  jurisdiction  over two  claims  was  denied.  On July 26,  1995,  the
Bankruptcy Court entered an order  dismissing  these claims.  On August 4, 1995,
ARTRA appealed from the Bankruptcy Court's dismissal order. That appeal is still
pending.

On July 18, 1995,  ARTRA filed a Fourth Amended  Counterclaim in the State Court
Action for breach of fiduciary  duty,  fraudulent  misrepresentation,  negligent
misrepresentation, breach of contract and promissory estopel. In the State Court
Action, ARTRA seeks compensatory damages of $136.2 million,  punitive damages of
$408.6 million and approximately $33 million in fees paid to Salomon. The causes
of action for breach of the fiduciary duty of due care were repleaded to reserve
ARTRA's right to appeal the State  Court's  dismissal of the causes of action in
the Third  Amended  Complaint.  Defendant  Kelly was  dismissed  with  prejudice
pursuant to a stipulation between ARTRA and the Kelly Defendants.

On or about  March 1, 1996,  DPK  brought a motion for  summary  judgment  as to
ARTRA's claims for breach of contract and promissory  estoppel.  DPK's motion is
currently pending.

Effective  December  31,  1989,  ARTRA  completed  the  disposal  of its  former
scientific  products  segment  with the sale of its Welch  subsidiary,  formerly
Sargent-Welch   Scientific  Company,  to  a  privately  held  corporation  whose
president and sole  shareholder was a vice president of Welch prior to the sale.
The  consideration  received by ARTRA  consisted of cash at closing,  $2,625,000
payable June 30, 1997, with interest at 10% beginning June 30, 1990, under terms
of a noncompetition agreement and the buyer's subordinated note in the principal
amount of $2,500,000.

In December,  1991 Welch filed a lawsuit  against  ARTRA  alleging  that certain
representations, warranties and covenants made by ARTRA, which were contained in
the  parties'  Stock  Purchase   Agreement,   were  false.   Welch  was  seeking
compensatory damages in the amount of $3,800,000.  Subsequently, ARTRA had filed
a  counterclaim  predicated  upon  Welch's  breach of the  payment  terms of the
parties' Non-Competition  Agreement and the Subordinated Note executed by Welch.
ARTRA was seeking damages in the amount of approximately $5,300,000 plus accrued
interest. On November 23, 1994, the Circuit Court of Cook County Law Division in
Chicago  granted a judgment  in favor of ARTRA  affirming  the  validity  of the
amounts due under the  Non-Competition  Agreement and the  Subordinated  Note of
$2,625,000 and $2,500,000, respectively.

In June 1995 ARTRA  entered  into an  agreement  to settle  amounts due ARTRA by
Welch under terms of the noncompetition agreement and the subordinated security.
Per terms of the settlement  agreement,  ARTRA received cash of $3,000,000 and a
subordinated  note in the principal amount of $640,000 payable June 30, 2001. In
June 1996 the note was paid in accordance with terms of the settlement agreement
at its present value and ARTRA received proceeds of $342,000.



<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)



In January,  1985 the United  States  Environmental  Protection  Agency  ("EPA")
notified the Company's Bagcraft subsidiary that it was a potentially responsible
party under the  Comprehensive  Environmental  Responsibility  Compensation  and
Liability  Act  ("CERCLA")  for alleged  release of hazardous  substances at the
Cross  Brothers  site near  Kankakee,  Illinois.  Although  Bagcraft  has denied
liability for the site, it has entered into a settlement agreement with the EPA,
along with the other third party  defendants,  to resolve all claims  associated
with the site except for state claims.  In May, 1994 Bagcraft paid $850,000 plus
accrued interest of $29,000 to formally extinguish the EPA claim. Bagcraft filed
suit in 1993 in the United States  District  Court for the Northern  District of
Illinois, against its insurers to recover its liability costs in connection with
the Cross Brothers case.  Bagcraft was  subsequently  reimbursed by its insurers
for its liability costs incurred in connection  with the EPA claim.  With regard
to the state action,  Bagcraft is participating  in settlement  discussions with
the State and thirteen other potential responsible parties to resolve all claims
associated  with the State.  The  maximum  state  claim is $1.1  million for all
participants.  Bagcraft has accrued  $120,000 related to the State action in the
Company's condensed  consolidated financial statements at September 26, 1996.

Bagcraft  was  listed  as a de  minimis  contributor  at the  American  Chemical
Services,  Inc. off-site  disposal  location in Griffith,  Indiana and the Duane
Marine off-site  disposal  location in Perth Amboy, New Jersey.  These sites are
included in the EPA's National  Priorities List. Bagcraft is presently unable to
determine its liability, if any, with respect to this site.

Bagcraft has been notified by the EPA that it is a potentially responsible party
for the  disposal  of  hazardous  substances  at the Ninth  Avenue site in Gary,
Indiana.  This site is listed on the EPA's National  Priorities list. A group of
defendant PRPs, known as the Ninth Avenue Remedial Group, settled with the USEPA
and agreed to remediate the site.  This Group  subsequently  sued numerous third
party defendants,  including Bagcraft, alleged also to be responsible parties at
the site. The plaintiffs have produced only limited testamentary  evidence,  and
no  documentary  evidence,  linking  Bagcraft to this site,  and the Company has
neither discovered any records which indicate, nor located any current or former
employees who have advised,  that Bagcraft deposited hazardous substances at the
site. Based on the foregoing, management of the Company does not believe that it
is  probable  that the  Company  will  have any  liability  for the costs of the
clean-up of this site. The Company  intends to vigorously  defend itself in this
case.

Bagcraft   is   presently   undertaking   a   soil   remediation   project   for
solvent-contaminated   soil  at  its   Chicago   manufacturing   facility.   The
environmental  firm responsible for implementing the remediation has recommended
that a soil vapor extraction  process be used, at an estimated cost of $175,000.
Although there can be no assurances that remediation  costs will not exceed this
estimate,  in the  opinion  of  management,  no  material  additional  costs are
anticipated.

In  April  1994,  the  EPA  notified  the  Company  that  it  was a  potentially
responsible party for the disposal of hazardous  substances  (principally  waste
oil) at a disposal site in Palmer,  Massachusetts  generated by a  manufacturing
facility formerly operated by the Clearshield Plastics Division  ("Clearshield")
of Harvel Industries,  Inc. ("Harvel"), a majority owned subsidiary of ARTRA. In
1985,  Harvel was merged into ARTRA's  Fill-Mor  subsidiary.  This site has been
included on the EPA's National  Priorities  List. In February 1983,  Harvel sold
the assets of Clearshield to Envirodyne.  The alleged waste disposal occurred in
1977 and 1978, at which time Harvel was a majority-owned subsidiary of ARTRA. In
May 1994,  Envirodyne and its Clearshield  National,  Inc. subsidiary sued ARTRA
for indemnification in connection with this proceeding.  The cost of clean-up at
the Palmer, Massachusetts site has been estimated to be approximately $7 million
according  to proofs of claim  filed in the  adversary  proceeding.  A committee
formed by the named potentially  responsible parties has estimated the liability
respecting the activities of Clearshield to be $400,000.  ARTRA has not made any
independent  investigation  of the  amount  of its  potential  liability  and no
assurances can be given that it will not substantially exceed $400,000.

In a case titled Sherwin-Williams Company v. ARTRA GROUP Incorporated,  filed in
1991 in the United States District Court for Maryland,  Sherwin-Williams Company
("Sherwin-Williams")  brought  suit against  ARTRA and other former  owners of a
paint  manufacturing  facility in  Baltimore,  Maryland for recovery of costs of
investigation and clean-up of


<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)



hazardous  substances  which were stored,  disposed of or otherwise  released at
this  manufacturing  facility.  This  facility was owned by Baltimore  Paint and
Chemical   Company,   formerly  a  subsidiary   of  ARTRA  from  1968  to  1980.
Sherwin-William's current projection of the cost of clean-up is approximately $5
to $6 million. The Company has filed counterclaims against  Sherwin-Williams and
cross claims  against other former  owners of the property.  The Company also is
vigorously  defending this action and has raised numerous  defenses.  Currently,
the case is in its early stages of discovery  and the Company  cannot  determine
what, if any, its liability may be in this matter.

ARTRA was named as a defendant  in United  States v.  Chevron  Chemical  Company
brought  in the  United  States  District  Court  for the  Central  District  of
California  respecting  Operating  Industries,   Inc.  site  in  Monterey  Park,
California. This site is included on the EPA's National Priorities List. ARTRA's
involvement  stemmed from the alleged  disposal of hazardous  substances  by The
Synkoloid  Company  ("Synkoloid")  subsidiary  of  Baltimore  Paint and Chemical
Company,  which was formerly owned by ARTRA.  Synkoloid  manufactured  spackling
paste, wall coatings and related products,  certain of which generated hazardous
substances as a by-product of the manufacturing process.

ARTRA  entered  into a  consent  decree  with the EPA in which it  agreed to pay
$85,000  for one phase of the  clean-up  costs  for this  site;  however,  ARTRA
defaulted on its payment  obligation.  ARTRA is presently unable to estimate the
total  potential  liability for clean-up  costs at this site,  which clean-up is
expected to continue for a number of years.  The consent decree,  even if it had
been honored by ARTRA,  was not  intended to release  ARTRA from  liability  for
costs  associated with other phases of the clean-up at this site. The Company is
presently  unable determine what, if any,  additional  liability it may incur in
this matter.

In a case  titled  City of  Chicago  v. NL  Industries,  Inc.  and  ARTRA  GROUP
Incorporated,  filed in the Circuit Court of Cook County,  Illinois, the City of
Chicago  alleged that ARTRA (and NL  Industries,  Inc.) had  improperly  stored,
discarded and disposed of hazardous  substances  at the subject  site,  and that
ARTRA had conveyed the site to Goodwill  Industries to avoid clean-up  costs. At
the time the suit was  filed,  the  City of  Chicago  claimed  to have  expended
$1,000,000 in clean-up costs.

ARTRA and NL Industries,  Inc. have counter sued each other and have filed third
party actions against the subsequent owners of the property. The City of Chicago
has made an offer to settle the matter for $350,000 for all parties. The parties
are currently conducting discovery. The Company is presently unable to determine
ARTRA's liability, if any, in connection with this case.

In a case titled  Illinois  Environmental  Protection  Agency v. NL  Industries,
Inc., ARTRA GROUP  Incorporated,  et al, the Illinois  Environmental  Protection
Agency filed suit alleging all former owners contributed to the contamination of
the site. The suit was dismissed, but subject to possible appeal. The Company is
presently unable to determine ARTRA's liability, if any, in connection with this
case.

The EPA has identified  ARTRA GROUP  Incorporated  as a potentially  responsible
party in an action  involving  the  former  manufacturing  facility.  The EPA is
currently   investigating   the  site  to  determine  the  extent  and  type  of
contamination,  if any.  The Company is presently  unable to  determine  ARTRA's
liability, if any, in connection with this case.



<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)



14.      RELATED PARTY TRANSACTIONS

At  September  26,  1996,  advances  to  Peter  R.  Harvey,  ARTRA's  president,
classified in the condensed  consolidated balance sheet as a reduction of common
shareholders' equity, (in thousands) consist of:

                                                                 
    Total advances, including accrued interest       $   7,232   
    Less interest for the period 
      January 1, 1993 to date, 
      accrued and fully reserved                        (1,371)  
                                                      --------   
          Net advances                               $   5,861   
                                                      ========   

ARTRA has total  advances  due from its  president,  Peter R.  Harvey,  of which
$7,232,000,  including accrued interest,  remained  outstanding at September 26,
1996.  The advances bear interest at the prime rate plus 2% (10.25% at September
26). This  receivable from Peter R. Harvey has been classified as a reduction of
common  shareholders'  equity. See Note 6 for an additional 1996 advance for Mr.
Harvey's  prorata share of debt discharged by a bank funded by ARTRA.  Per terms
of the debt  discharge  agreement,  as  partial  consideration,  the  bank  also
received Mr.  Harvey's  $3,000,000  note payable to the bank.  The bank assigned
ARTRA a $2,150,000 interest in the Mr. Harvey's note, subordinated to the bank's
$850,000  interest in Mr. Harvey's note, and ARTRA discharged  $2,150,000 of Mr.
Harvey's prior advances.

In June 1996,  Peter R. Harvey loaned the Company 100,000 shares of ARTRA common
stock with (a then fair  market  value of  $587,000).  The  Company  principally
issued these common shares to certain  lenders as additional  consideration  for
short-term loans. In September 1996, after the Company's  shareholders  approved
an increase in the number of authorized  common shares,  the Company repaid this
loan. At Peter R. Harvey's direction, the 100,000 shares of the Company's common
stock  were  issued  in blocks of  25,000  shares to the four  daughters  of the
Company's  Chairman of the Board,  John Harvey.  John Harvey and Peter R. Harvey
are brothers.

In May 1991,  ARTRA's Fill-Mor  subsidiary made advances to Peter R. Harvey. The
advances,  made out of a portion  of the  proceeds  of a  short-term  bank loan,
provided for interest at the prime rate plus 2%. The amount of these advances at
March 30,  1995 was  $1,540,000  (including  $398,000 of accrued  interest).  In
April, 1995, these advances from ARTRA's Fill-Mor  subsidiary to Peter R. Harvey
were transferred to ARTRA as a dividend.

Commencing January 1, 1993 to date,  interest on the advances to Peter R. Harvey
has been accrued and fully reserved.  Interest accrued and fully reserved on the
advances  to Peter R. Harvey for the nine months  ended  September  26, 1996 and
September 28, 1995 totaled $320,000 and $325,000, respectively.

Peter R.  Harvey  has not  received  other  than  nominal  compensation  for his
services  as an officer or director  of ARTRA or any of its  subsidiaries  since
October of 1990 and Mr. Harvey has agreed not to accept any compensation for his
services as an officer or director of ARTRA or any of its subsidiaries until his
obligations to ARTRA, described above, are fully satisfied.  Additionally, since
December 31, 1986, Peter R. Harvey has guaranteed  approximately  $40,000,000 of
ARTRA obligations to private and  institutional  lenders (John Harvey also was a
co-guarantor of a $26,700,000  loan included in that total with Peter R. Harvey)
and has  also  hypothecated  personal  assets  as  security  for  certain  ARTRA
obligations.


<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)



Under  Pennsylvania  Business  Corporation  Law of 1988,  ARTRA (a  Pennsylvania
corporation)  is  permitted to make loans to officers  and  directors.  Further,
under the Delaware General Corporation Law, Fill-Mor (a Delaware corporation) is
permitted  to make  loans to an officer  (including  any  officer  who is also a
director,  as in the case of Peter R. Harvey),  whenever, in the judgment of the
directors,  the loan can  reasonably  be  expected to benefit  Fill-Mor.  At the
September 19, 1991 meeting,  ARTRA's Board of Directors  discussed,  but did not
act on a proposal to ratify the advances  made by ARTRA to Peter R. Harvey.  The
1992  advances  made by ARTRA to Mr.  Harvey were  ratified by ARTRA's  Board of
Directors.  In the case of the loan made by Fill-Mor to Mr. Harvey, the Board of
Directors of Fill-Mor  approved the borrowing of funds from Fill-Mor's bank loan
agreement, a condition of which was the application of a portion of the proceeds
thereof to the payment of certain of Mr. Harvey's loan  obligations to the bank.
However,  the  resolutions did not acknowledge the use of such proceeds for this
purpose  and the  formal  loan  documents  with the bank did not set forth  this
condition (though in fact, the proceeds were so applied by the bank).

As collateral for amounts due from Peter R. Harvey, the Company has received the
pledge of 1,523 shares of ARTRA  redeemable  preferred stock (with a liquidation
value of $1,523,000,  plus accrued  dividends) which are owned by Mr. Harvey. In
addition,  Mr.  Harvey has pledged a 25%  interest in  Industrial  Communication
Company (a private  company).  Such interest is valued by Mr. Harvey at $800,000
to $1,000,000. During 1995, Peter R. Harvey entered into a pledge agreement with
ARTRA  whereby Mr. Harvey  pledged  additional  collateral  consisting of 42,067
shares of ARTRA  common  stock and  707,281  shares of Pure Tech  International,
Inc., a publicly traded  corporation.  Per terms of a February discharge of bank
indebtedness (see Note 6), ARTRA received additional  collateral from Mr. Harvey
consisting   of  a  $2,150,000   security   interest  in  certain  real  estate,
subordinated to the bank's $850,000 security interest in this real estate.

In  conjunction  with Lori's  October 1995  acquisition  of Global (see Note 2),
ARTRA agreed to assume  substantially  all  pre-existing  Lori  liabilities  and
indemnify  COMFORCE  in  the  event  any  future  liabilities  arise  concerning
pre-existing environmental matters and business related litigation. Accordingly,
at  September  26,  1996 and  December  28,  1995,  respectively,  $764,000  and
$4,500,000 of such  pre-existing  Lori  liabilities  were  classified in ARTRA's
condensed  consolidated  balance  at  as  current  liabilities  of  discontinued
operations.

For a discussion of certain other related party debt obligations see Note 7.


<PAGE>


                        REPORT OF INDEPENDENT ACCOUNTANTS


To the Shareholders and Board of Directors
ARTRA GROUP Incorporated
Northfield, Illinois

We have audited the consolidated  balance sheets of ARTRA GROUP Incorporated and
Subsidiaries  as of December 28, 1995 and  December  29,  1994,  and the related
consolidated statements of operations, changes in shareholders' equity, and cash
flows for each of the three years in the period ended December 28, 1995. We also
have audited the financial  statement schedules listed in the index of this Form
S-1.  These  financial  statements  and  financial  statement  schedules are the
responsibility of ARTRA GROUP Incorporated's  management.  Our responsibility is
to express an opinion on these  financial  statements  and  financial  statement
schedules based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the consolidated  financial position of ARTRA
GROUP  Incorporated  and  Subsidiaries  as of December 28, 1995 and December 29,
1994, and the consolidated  results of their operations and their cash flows for
each of the  three  fiscal  years  in the  period  ended  December  28,  1995 in
conformity with generally accepted accounting  principles.  In addition,  in our
opinion, the financial statement schedules referred to above, when considered in
relation to the basic financial  statements taken as a whole, present fairly, in
all material respects, the information required to be included therein.

The accompanying  consolidated  financial statements have been prepared assuming
the Company  will  continue as a going  concern.  As  discussed in Note 1 to the
consolidated  financial  statements,  the Company has suffered  recurring losses
from operations and has a net capital deficiency.  As a result of these factors,
the Company has  experienced  difficulty  in  obtaining  adequate  financing  to
replace its current  credit  arrangements,  certain of which are in default,  to
fund its debt  service and to satisfy  liquidity  requirements  for 1996.  These
factors raise  substantial  doubt about the  Company's  ability to continue as a
going concern.  Management's plans in regard to these matters are also described
in Note 1. The financial  statements do not include any  adjustments  that might
result from the outcome of this uncertainty.





COOPERS & LYBRAND L.L.P.


Chicago, Illinois
November 26, 1996
<PAGE>
                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                 (In thousands, except share and per share data)




                                                       December 28, December 29,
                                                            1995         1994
                                                          --------     --------

                                     ASSETS
Current assets:
   Cash and equivalents                                     $2,347      $2,070
   Restricted cash and equivalents                             552       1,324
   Receivables, less allowance for doubtful accounts
      and markdowns of $250 in 1995 and $1,654 in 1994      10,897      13,707
   Inventories                                              16,634      20,268
   Available -for-sale securities                            1,427           -
   Other                                                       324       1,148
                                                           --------    --------
               Total current assets                         32,181      38,517
                                                           --------    --------

Property, plant and equipment
    Land                                                       930         930
    Buildings                                               11,679      10,584
    Improvements to land and leaseholds                          -         187
    Machinery and equipment                                 30,547      33,756
    Construction in in progress                              1,117       2,693
                                                           --------    --------
                                                            44,273      48,150
Less accumulated depreciation and amortization              17,335      17,110
                                                           --------    --------
                                                            26,938      31,040
                                                           --------    --------

Other assets:
   Available -for-sale securities                           15,519           -
   Excess of cost over net assets acquired,
      net of accumulated amortization of 
      $2,022 in1995 and $7,934 in 1994                       3,258      19,076
   Other                                                        53       4,796
                                                           --------    --------
                                                            18,830      23,872
                                                           --------    --------
                                                           $77,949     $93,429
                                                           ========    ========



The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.

<PAGE>

                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                 (In thousands, except share and per share data)



                                                       December 28, December 29,
                                                            1995         1994
                                                          --------     --------

                                   LIABILITIES
Current liabilities:
   Notes payable, including amounts due to 
      related parties of $5,675 in 1995 
      and $5,669 in 1994                                   $25,300     $28,053
   Current maturities of long-term debt                      3,512      37,521
   Accounts payable, including amounts due 
      to a related party of $399 in 1995                    10,925      16,788
   Accrued expenses                                         14,106      16,533
   Income taxes                                                203          94
   Liabilities of discontinued operations                    4,500           -
                                                           --------     -------
               Total current liabilities                    58,546       98,989
                                                           --------     -------

Long-term debt                                              34,113       19,673
Debt subsequently discharged                                     -        9,750
Other noncurrent liabilities                                   650        1,463
Commitments and contingencies

Redeemable common stock,
   issued 283,965 shares in 1995 and 
   279,679 shares in 1994                                    4,774        4,144
ARTRA redeemable preferred stock payable
   to a related party, $1,000 par value;
   Series A, 6% cumulative payment-in-kind,
   including  accumulated dividends, net of 
   unamortized discount  of $1,575 in 1995 
   and $1,842 in 1994; redeemable March 1, 2000
   at $1,000 per share plus accrued dividends;
   authorized 2,000,000 shares all series; 
   issued 3,750 shares                                       3,694        3,129
Bagcraft redeemable preferred stock payable to 
   a related party, cumulative $.01 par value, 
   13.5%; including accumulated dividends;
   redeemable in 1997 with a liquidation 
   preference equal to $100 per share;
   50,000 shares authorized and issued                      10,794       10,119
BCA Holdings preferred stock payable to a 
   related party, $1.00 par value, Series A,
   6% cumulative; including accumulated dividends;  
   liquidation preference of
   $1,000 per share; 10,000 shares authorized; 
   issued 3,675 shares                                       4,143        3,922

                         SHAREHOLDERS' EQUITY (DEFICIT)
Common stock, no par value; authorized 
   7,500,000 shares; issued 7,102,979 shares 
   in 1995 and 6,455,602 shares in 1994                      5,540        5,052
Additional paid-in capital                                  38,526       36,613
Unrealized appreciation of investments                      21,047            -
Receivable from related party, 
   including accrued interest                               (4,318)      (4,100)
Accumulated deficit                                        (98,755)     (94,520)
                                                           --------     --------
                                                           (37,960)     (56,955)
Less treasury stock (57,038 shares), at cost                   805          805
                                                           --------     --------
                                                           (38,765)     (57,760)
                                                           --------     --------
                                                           $77,949      $93,429
                                                           ========     ========


The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.
<PAGE>
                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (In thousands, except per share data)


<TABLE>
<CAPTION>
                                                                Fiscal Year
                                                     ---------------------------------
                                                       1995        1994*       1993*
                                                     ---------    --------  ----------
<S>                                                  <C>         <C>         <C>

Net sales                                            $121,879    $111,837    $113,584
                                                     ---------   ---------   ---------

Costs and expenses:
   Cost of goods sold, exclusive of 
     depreciation and amortization                    102,508      94,766      93,461
   Selling, general and administrative                 19,131      16,760      15,537
   Depreciation and amortization                        4,330       4,337       4,385
   Write-down of idle machinery and equipment           1,503           -           -
   Restructuring costs                                      -           -       1,175
                                                     ---------   ---------   ---------
                                                      127,472     115,863     114,558
                                                     ---------   ---------   ---------

Operating loss                                         (5,593)     (4,026)       (974)
                                                     ---------   ---------   ---------

Other income (expense):
   Interest expense                                    (9,782)     (8,618)     (6,551)
   Equity in loss of COMFORCE                            (533)          -           -
   Other income (expense), net                            (88)         13         (87)
                                                     ---------   ---------   ---------
                                                      (10,403)     (8,605)     (6,638)
                                                     ---------   ---------   ---------

Loss from continuing operations before 
   income taxes and minority interest                 (15,996)    (12,631)     (7,612)
Provision for income taxes                                (51)         (9)         (7)
Minority interest                                        (896)       (889)       (708)
                                                     ---------   ---------   ---------
Loss from continuing operations                       (16,943)    (13,529)     (8,327)
Earnings (loss) from 
   discontinued operations                                 10     (15,906)       (216)
                                                     ---------   ---------   ---------
Loss before extraordinary credit                      (16,933)    (29,435)     (8,543)
Extraordinary credit, 
   net discharge of indebtedness                       14,030       8,965      22,057
                                                     ---------   ---------   ---------
Net earnings (loss)                                    (2,903)    (20,470)     13,514
Dividends applicable to 
   redeemable preferred stock                            (565)       (516)       (471)
Reduction of retained earnings 
   applicable to redeemable common stock                 (767)       (309)       (243)
                                                     ---------   ---------   ---------
Earnings (loss) applicable to common shares           ($4,235)   ($21,295)    $12,800
                                                     =========   =========   =========

Earnings (loss) per share:
   Continuing operations                               ($2.69)     ($2.56)     ($1.84)
   Discontinued operations                                  -       (2.74)      (0.04)
                                                     ---------   ---------   ---------
   Loss before extraordinary credit                     (2.69)      (5.30)      (1.88)
   Extraordinary credit                                  2.06        1.57        4.49
                                                    ---------   ---------   ---------
               Net earnings (loss)                     ($0.63)     ($3.73)      $2.61
                                                    =========   =========   =========

Weighted average number of shares of common stock
    and common stock equivalents outstanding            6,776       5,702       4,908
                                                    =========   =========   =========

<FN>
The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.
</FN>
</TABLE>

_______________________________________________
*  As reclassified for discontinued operations.

<PAGE>
                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES
      CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
                        (In thousands, except share data)

<TABLE>
<CAPTION>
 
                                                                 Unrealized  Receivable                                   Total   
                                    Common Stock    Additional  Appreciation    From                   Treasury Stock  Shareholders'
                                 -----------------    Paid-in        of        Related  Accumulated   ----------------   Equity
                                 Shares     Dollars   Capital   Investments     Party    (Deficit)     Shares  Dollars  (Deficit)
                                ----------  -------   -------   ------------  ---------  ----------   -------  -------  -------- 
<S>                              <C>         <C>      <C>            <C>        <C>        <C>         <C>       <C>    <C>
Balance at December 31, 1992     4,542,592   $3,587   $29,034                   $(5,885)   $(86,025)   57,038    $(805) $(60,094)
 Net earnings                            -        -         -                         -      13,514         -        -    13,514
 Redeemable common 
   stock accretion                       -        -         -                         -        (243)        -        -      (243)
 Common stock issued 
   to pay liabilities              292,996      224     1,412                         -           -         -        -     1,636
 Exercise of stock options          74,700       56       294                         -           -         -        -       350
 Net decrease in receivable 
   from related party                    -        -         -                     2,042           -         -        -     2,042
 Redeemable preferred 
    stock dividends                      -        -         -                         -        (471)        -        -      (471)
 Common stock issued 
    as compensation                 73,320       55       302                         -           -         -        -       357
                                 ---------   ------  --------                   -------  ----------   -------   ------  -------- 
Balance at December 30, 1993     4,983,608    3,922    31,042                    (3,843)    (73,225)   57,038     (805)  (42,909)
 Net loss                                -        -         -                         -     (20,470)        -        -   (20,470)
 Redeemable common 
    stock accretion                      -        -         -                         -        (309)        -        -      (309)
 Common stock sold 
    through private placements     855,000      641     2,484                         -           -         -        -     3,125
 Common stock issued for Lori
    debt settlement agreement      400,000      300     2,200                         -           -         -        -     2,500
 Common stock issued to 
    pay liabilities                142,635      107       684                         -           -         -        -       791
 Sale and reclassification of 
    redeemable common stock        (34,266)       -      (282)                        -           -         -        -      (282)
 Common stock contributed 
    to ESOP                         65,000       49       292                         -           -         -        -       341
 Exercise of stock options          25,300       19       116                         -           -         -        -       135
 Net increase in receivable 
    from related party                   -        -         -                      (257)          -         -        -      (257)
 Redeemable preferred
    stock dividends                      -        -         -                         -        (516)        -        -      (516)
 Common stock issued
    as compensation                 18,325       14        77                         -           -         -        -        91
                                 ---------   ------  --------                   -------    --------   -------   ------  -------- 
Balance at December 29, 1994     6,455,602    5,052    36,613                    (4,100)    (94,520)   57,038     (805)  (57,760)
 Net loss                                -        -         -                         -      (2,903)        -        -    (2,903)
 Reclassification of redeemable
    common stock                  (100,000)       -      (500)                        -           -         -        -      (500)
 Common stock issued to 
    pay liabilities                243,915      183       857                         -           -         -        -     1,040
 Common stock as additional 
    consideration for private
    placement of ARTRA notes       375,000      281       985                         -           -         -        -     1,266
 Net increase in receivable
    from related party,
    including accrued interest           -        -         -                      (218)          -         -        -      (218)
 Redeemable common stock 
    put option exercised                (8)       8         -              -          -           -         -        -         -
 Sale and reclassification of
    redeemable common stock         85,714                399                         -                                      399
 Unrealized appreciation 
    of investments                       -        -         -        $21,047          -           -         -        -    21,047
 Common stock contributed
    to ESOP                         23,750       18        95              -          -           -         -        -       113
 Exercise of stock options          12,100        9        39              -          -           -         -        -        48
 Redeemable common 
    stock accretion                      -        -         -              -          -        (767)        -        -      (767)
 Redeemable preferred 
    stock dividends                      -        -         -              -          -        (565)        -        -      (565)
 Common stock issued
    as compensation                  6,898        5        30              -          -           -         -        -        35
                                 ---------   ------  --------        -------   --------   ---------   -------   ------  -------- 
Balance at December 28, 1995     7,102,979   $5,540   $38,526        $21,047    ($4,318)   ($98,755)   57,038    ($805) ($38,765)
                                 =========   ======  ========        =======   ========   =========   =======   ======  ======== 


<FN>
The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.
</FN>
</TABLE>
<PAGE>
                            ARTRA GROUP INCORPORATED
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (In thousands of dollars)


<TABLE>
<CAPTION>


                                                                                             Fiscal Year
                                                                                ----------------------------------- 
                                                                                   1995          1994        1993
                                                                                ---------    ----------    --------
<S>                                                                              <C>          <C>          <C>
Cash flows from operating activities:
   Net earnings (loss)                                                           ($2,903)     ($20,470)    $13,514
      Adjustments to reconcile net earnings (loss)
            to cash flows from operating activities:
         Extraordinary gain from net discharge of indebtedness                   (14,030)       (8,965)    (22,057)
         Gain on disposal of discontinued operations                              (8,183)            -          -
         Depreciation of property, plant and equipment                             4,120         4,252       4,283
         Amortization of excess of cost over net assets acquired                     837         1,693       1,623
         Impairment of goodwill                                                    6,430        10,800           -
         Amortization of other assets                                                689           963         216
         Inventory valuation reserve                                                 290             -           -
         Gain on sale of property, plant and equipment                                 -           (59)       (284)
         Write-down of idle equipment and machinery                                1,503             -           -
         Equity in loss of COMFORCE                                                  533             -           -
         Minority interest                                                           896           889         708
         Contribution to ARTRA  ESOP                                                  42            77         423
         Other, principally common issued as compensation                          1,300           485         389
     Changes in assets and liabilities, net of effects of
        businesses acquired and discontinued:
          Increase in receivables                                                   (184)       (1,923)       (348)
          (Increase) decrease in inventories                                         453          (727)      2,453
          (Increase) decrease in other current and noncurrent assets               1,421         1,068      (1,031)
          Increase in payables and accrued expenses                                  611         4,675         804
          Increase (decrease) in other current and noncurrent liabilities            450          (763)        170
          (Increase) decrease  in receivable from related party,
              including accrued interest                                            (218)         (257)         42
                                                                                ---------    ----------    --------
Net cash flows from (used by) operating activities                                (5,943)       (8,262)        905
                                                                                ---------    ----------    --------

Cash flows from investing activities:
   Proceeds from sale of property, plant and equipment                                 -         2,251       1,401
   Additions to property, plant and equipment                                     (2,820)      (11,881)     (3,156)
   Retail fixtures                                                                  (631)         (665)       (951)
   Acquisition of Arcar                                                                -        (2,264)          -
   Proceeds from sale of Arcar                                                    20,318             -           -
   Proceeds from collection of Welch notes                                         3,000             -           -
   Decrease in restricted cash                                                       772             -           -
   Other                                                                               -           101           -
                                                                                ---------    ----------    --------
Net cash flows from (used by) investing activities                                20,639       (12,458)     (2,706)
                                                                                ---------    ----------    --------



<FN>
The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.
</FN>
</TABLE>
<PAGE>

                            ARTRA GROUP INCORPORATED
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (In thousands of dollars)


<TABLE>
<CAPTION>

  
                                                                                             Fiscal Year
                                                                                ----------------------------------- 
                                                                                   1995         1994         1993
                                                                                ---------    ---------    ---------
<S>                                                                              <C>          <C>          <C>
Cash flows from financing activities:
   Net increase in short-term debt                                                 5,488         1,920           54
   Proceeds from long-term borrowings                                            136,756       116,775      123,743
   Reduction of long-term debt                                                   156,641)     (100,131)    (124,759)
   Proceeds from private placements of ARTRA common stock                              -         3,230            -
   Proceeds from exercise of stock options                                            48            30          129
   Proceeds from sale of BCA Holdings preferred stock                                  -             -        3,000
   Exercise of redeemable common stock put options                                     -           (50)           -
   Other                                                                             (70)          (44)        (187)
                                                                                --------    ----------    ---------
Net cash flows from (used by) financing activities                               (14,419)       21,730        1,980
                                                                                --------    ----------    ---------

Increase in cash and cash equivalents                                                277         1,010          179
Cash and equivalents, beginning of year                                            2,070         1,060          881
                                                                                ========    ==========    =========
Cash and equivalents, end of year                                                 $2,347        $2,070       $1,060
                                                                                ========    ==========    =========



Supplemental cash flow information:
 Cash paid during the year for:
  Interest                                                                       $5,847        $8,811       $7,333
  Income taxes paid (refunded), net                                                 (15)           59         (108)


Supplemental schedule of noncash investing and financing activities:
    Issue common stock and redeemable common stock
       to pay down current liabilities                                           $1,040          $756       $1,636
    Notes issued to sellers as consideration for Arcar acquisition                    -         8,000            -
    ARTRA common stock issued to Lori's bank lender as partial
       consideration for discharge of indebtedness                                    -         2,500            -
    Transfer New Dimensions assets, net of cash of $674,
       to Lori's bank lender under terms of the debt settlement agreement             -         6,475            -
    Debt refinanced                                                                   -             -       36,609


<FN>
The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.
</FN>
</TABLE>
<PAGE>

                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1.       Basis of Presentation and Financial Restructuring

ARTRA Group  Incorporated's  ("ARTRA" or the "Company")  consolidated  financial
statements  are  presented on a going  concern  basis,  which  contemplates  the
realization of assets and the  satisfaction  of liabilities in the normal course
of  business.   The  consolidated   financial  statements  do  not  include  any
adjustments  relating to  recoverability  and  classification  of recorded asset
amounts or the amount and  classification  of liabilities  or other  adjustments
that might be necessary should ARTRA be unable to continue as a going concern.

The Company has suffered  recurring losses from operations and has a net capital
deficiency. As a result of these factors, the Company has experienced difficulty
in obtaining adequate financing to replace certain current credit  arrangements,
certain of which are in  default,  and to fund its debt  service  and  liquidity
requirements in 1996. These factors raise  substantial doubt about the Company's
ability to continue as a going concern.  The financial statements do not include
any adjustments that might result from the outcome of this uncertainty. See Note
9, Notes  Payable,  and Note 10, Long Term Debt,  for further  discussion of the
status of credit  arrangements  and  restrictions  on the  ability of  operating
subsidiaries to fund ARTRA corporate obligations.  Due to its limited ability to
receive operating funds from its operating subsidiaries,  ARTRA has historically
met its operating expenditures with funds generated by alternative sources, such
as private  placements  of ARTRA common  stock and notes,  sales of ARTRA common
stock with put options, loans from  officers/directors and private investors, as
well as through  sales of assets and/or other equity  infusions.  ARTRA plans to
continue to seek such alternative  sources of funds to meet its future operating
expenditures.

ARTRA,  through its  wholly-owned  subsidiary,  Bagcraft  Corporation of America
("Bagcraft"),  currently  operates in one industry  segment as a manufacturer of
packaging products principally serving the food industry. Prior to September 28,
1995,  ARTRA's  then 62.9%  owned  subsidiary,  The Lori  Corporation  ("Lori"),
operated as a designer and distributor of popular-priced fashion costume jewelry
and accessories.  In recent years, Lori's fashion costume jewelry operations had
experienced a pattern of significantly  lower sales levels and related operating
losses  primarily due to a shift in the buying  patterns of its major  customers
(i.e. certain mass  merchandisers)  from participation in Lori's service program
to purchases of costume jewelry and accessories  directly from manufacturers and
due to a continued  unfavorable retail environment.  Accordingly,  in September,
1995, Lori adopted a plan to discontinue its fashion costume jewelry business as
discussed in Note 3.

As  discussed in Note 3, on September  11,  1995,  Lori signed a stock  purchase
agreement  to  participate  in the  acquisition  of one  hundred  percent of the
capital  stock of COMFORCE  Global Inc.  ("Global"),  formerly  Spectrum  Global
Services,  Inc.  d/b/a  YIELD  Global,  a wholly  owned  subsidiary  of Spectrum
Information Technologies,  Inc. Global provides  telecommunications and computer
technical  staffing and consulting  services  worldwide to Fortune 500 companies
and maintains an extensive,  global database of technical  specialists,  with an
emphasis on  wireless  communications  capability.  On October  17,  1995,  Lori
completed the acquisition of one hundred percent of the capital stock of Global.
In  connection  with the  re-focus  of its  business  Lori  changed  its name to
COMFORCE Corporation ("COMFORCE").

Effective  July 4, 1995,  Lori and ARTRA  entered into  employment or consulting
services  agreements  with certain  individuals  to manage Lori's entry into and
development of the  telecommunications  and computer technical staffing services
business. As additional  compensation,  the agreements provided for the issuance
in aggregate of a 35% common stock  interest in Lori.  After the issuance of the
Lori common shares,  plus the effects of the issuance of Lori common shares sold
by private  placements and other Lori common shares issued in  conjunction  with
the Global  acquisition,  ARTRA's  common stock  ownership  interest in COMFORCE
common stock was reduced to approximately 25% at December 28, 1995. Accordingly,
in October 1995,  the accounts of COMFORCE and its  majority-owned  subsidiaries
were deconsolidated from ARTRA's  consolidated  financial statements and ARTRA's
investment in COMFORCE was accounted for under the equity method through the end
of fiscal 1995. See Notes 3 and 6 for a further discussion of ARTRA's investment
in COMFORCE.
<PAGE>

                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



Effective October 26, 1995,  Bagcraft completed the sale of the business assets,
subject to the buyer's  assumption of certain  liabilities,  of its wholly-owned
subsidiary,   Arcar  Graphics,   Inc.  ("Arcar"),   for  cash  of  approximately
$20,300,000.  The net  proceeds,  after  extinguishment  of  certain  Arcar debt
obligations,  of  approximately  $10,400,000,  were used to reduce Bagcraft debt
obligations.

In October,  1995 the Company  recognized  an  extraordinary  gain of $4,917,000
($.71 per share) as a result of a  settlement  agreement  with a bank  whereby a
$3,600,000  note  payable  due  December  31,  1990  plus  accrued  interest  of
$1,467,000 were discharged for a cash payment of $150,000.

As  discussed  in  Note 8,  the  Company  recognized  an  extraordinary  gain of
$9,113,000  ($1.35  per  share) in March  1995 as a result of the  discharge  of
amounts due a bank under the loan  agreements  of Lori and its parent,  Fill-Mor
Holding, Inc. ("Fill-Mor").

In June 1995 ARTRA entered into an agreement to settle  amounts due ARTRA by the
former  Welch  Vacuum   Technology   ("Welch")   subsidiary  under  terms  of  a
noncompetition  agreement and a  subordinated  note in the  principal  amount of
$2,500,000  received  by ARTRA  as part of the  proceeds  from the 1989  sale of
Welch. Per terms of the settlement agreement,  ARTRA received cash of $3,000,000
and a  subordinated  note in the principal  amount of $640,000  payable June 30,
2001.  The cash proceeds were used for a $2,500,000  reduction of amounts due on
certain  ARTRA bank  notes,  with the  remainder  used for working  capital.  In
conjunction  with this  transaction,  ARTRA entered into a letter agreement with
the bank  whereby the bank agreed not to exercise any of its rights and remedies
with  respect  to amounts  due the bank  under its ARTRA  notes (see Note 9) and
certain obligations of ARTRA's president, Peter R. Harvey.

In February 1996, the bank agreed to discharge all amounts under its ARTRA notes
($12,063,000  plus  accrued  interest and fees) and certain  obligations  of Mr.
Harvey.  ARTRA will  recognize a gain on the discharge of this  indebtedness  of
approximately $10,000,000 in the first quarter of 1996. The cash payment due the
bank was funded  principally  with  proceeds  received  from a  short-term  loan
agreement  along  with  proceeds  received  from  the  Bagcraft   subsidiary  as
consideration  for the  issuance of BCA  Holdings,  Inc.  ("BCA",  the parent of
Bagcraft) preferred stock, see Note 12.

ARTRA intends to continue to negotiate with its creditors to extend due dates to
allow  ARTRA to  maximize  value  from  possible  sale of assets  and to explore
various other sources of funding to meet its future operating  expenditures.  If
ARTRA is unable to  negotiate  extensions  with its  creditors  and complete the
above mentioned  transactions,  ARTRA could suffer severe adverse  consequences,
and as a  result,  ARTRA  may be  forced  to  liquidate  its  assets or file for
protection under the Bankruptcy Code.

The Company  has  adopted a 52/53 week  fiscal year ending the last  Thursday of
December.


2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


A.   Principles of Consolidation

The consolidated  financial  statements  include the accounts of the Company and
its  majority-owned  subsidiaries.  Intercompany  accounts and  transactions are
eliminated.


B.    Cash Equivalents

Short-term  investments  with an initial  maturity  of less than ninety days are
considered cash equivalents.
<PAGE>

                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)




C.    Inventories

Inventories are stated at the lower of cost or market. Cost is determined by the
first-in, first-out (FIFO) method.


D.    Property, Plant and Equipment

Property,  plant and equipment are stated at cost.  Expenditures for maintenance
and repairs are charged to  operations  as incurred and  expenditures  for major
renovations are capitalized.  Depreciation is computed on the basis of estimated
useful lives  principally  by the straight line method for  financial  statement
purposes and  principally  by  accelerated  methods for tax purposes.  Leasehold
improvements  are amortized over the shorter of the estimated useful life of the
asset or the period covered by the lease.

The costs of property  retired or otherwise  disposed of are applied against the
related accumulated  depreciation to the extent thereof,  and any profit or loss
on the disposition is recognized in earnings.


E.    Investments in Equity Securities

In 1995,  the  Company  adopted  Statement  of  Financial  Accounting  Standards
("SFAS")  No.  115  "Accounting  for  Certain  Investments  in Debt  and  Equity
Securities."  Under  this  statement,   at  December  28,  1995,  the  Company's
investment  in COMFORCE  (see Note 6) is classified as available for sale and is
stated at fair value.  The  adoption of SFAS No. 115  resulted in an increase to
shareholders'  equity in the  fourth  quarter of 1995 of  $21,047,000.  In prior
years and, until October 1995, COMFORCE was a majority-owned subsidiary included
in the consolidated financial statements of the Company.


F.    Intangible Assets

The net assets of a purchased  business  are recorded at their fair value at the
date of  acquisition.  The excess of  purchase  price over the fair value of net
assets acquired  (goodwill) is reflected as intangible assets and amortized on a
straight-line basis principally over 40 years.

The Company assesses the  recoverability of this intangible asset by determining
whether the  amortization of the goodwill balance over its remaining life can be
recovered through forecasted future operations.


G.   Revenue Recognition

Sales to  customers  are  recorded  at the  time of  shipment  net of  estimated
markdowns and merchandise credits.


H.   Income Taxes

Income  taxes  are  accounted  for  as  prescribed  in  Statement  of  Financial
Accounting  Standards No. 109 - Accounting for Income Taxes. Under the asset and
liability  method of  Statement  No. 109, the Company  recognizes  the amount of
income taxes payable. Deferred tax assets and liabilities are recognized for the
future tax  consequences  attributable  to  differences  between  the  financial
statement  carrying  amounts  of  existing  assets  and  liabilities,  and their
respective  tax bases.  Deferred tax assets and  liabilities  are measured using
enacted  tax rates  expected  to apply to  taxable  income  in the  years  those
temporary differences are expected to recovered or settled.
<PAGE>

                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



I.       Use of Estimates In Preparation of Financial Statements

The  preparation  of the  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
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.


J.     Recently Issued Accounting Pronouncements

         Impairment of Long-Lived Assets

SFAS No.  121,  "Accounting  for the  Impairment  of  Long-Lived  Assets and for
Long-Lived  Assets to be  Disposed  Of",  requires  that  long-lived  assets and
certain  identifiable  intangibles  to be held and used by an entity be reviewed
for impairment  whenever  events or changes in  circumstances  indicate that the
carrying amount of an asset may not be  recoverable.  Impairment is evaluated by
comparing future cash flows (undiscounted and without interest charges) expected
to result from the use or sale of the asset and its eventual disposition, to the
carrying amount of the asset. This new accounting principle is effective for the
Company's  fiscal year ending  December  26,  1996.  The Company  believes  that
adoption will not have a material impact on its financial statements.


         Stock-Based Compensation

SFAS No. 123, "Accounting for Stock-Based  Compensation",  encourages,  but does
not require,  companies to recognize  compensation  expense for grants of stock,
stock options, and other equity instruments to employees based on new fair value
accounting  rules.   Although  expense  recognition  for  employee  stock  based
compensation is not mandatory,  the pronouncement requires companies that choose
not to adopt the new fair value accounting, to disclose the pro-forma net income
and earnings per share under the new method.  This new  accounting  principle is
effective for the Company's  fiscal year ending  December 26, 1996.  The Company
believes  that  adoption  will  not  have a  material  impact  on its  financial
statements  as the  Company  will not adopt the new fair value  accounting,  but
instead comply with the disclosure requirements.


3.       CHANGE OF BUSINESS

         Arcar Graphics, Inc.

Effective  April 8, 1994,  Bagcraft  purchased the business  assets,  subject to
buyer's  assumption  of  certain  liabilities,  of  Arcar,  a  manufacturer  and
distributor of waterbase inks, for  consideration  of $10,264,000  consisting of
cash of $2,264,000 and subordinated  promissory notes totaling  $8,000,000.  The
acquisition of Arcar was accounted for by the purchase method and,  accordingly,
the  assets  and  liabilities  of  Arcar  were  included  in  ARTRA's  financial
statements at their estimated fair market value at the date of acquisition.

Effective  October 26, 1995,  Bagcraft sold the business assets,  subject to the
buyer's  assumption of certain  liabilities,  of Arcar for cash of approximately
$20,300,000,  resulting in a net gain of  $8,483,000.  The net  proceeds,  after
extinguishment of certain Arcar debt obligations,  of approximately $10,400,000,
were used to reduce Bagcraft debt  obligations.  At December 29, 1994, the total
assets and liabilities of Arcar were approximately  $13,157,000 and $11,914,000,
respectively.
<PAGE>

                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



         Lori/COMFORCE

In  September,  1995,  Lori adopted a plan to  discontinue  its fashion  costume
jewelry  business and recorded a provision of $1,000,000 for the estimated costs
to complete the disposal of the fashion  costume jewelry  business.  At December
29,  1994,  the total  assets and  liabilities  of Lori's  discontinued  fashion
costume  jewelry  business  were  approximately   $17,460,000  and  $11,914,000,
respectively.

Effective  October 17,  1995,  COMFORCE  acquired  all of the  capital  stock of
COMFORCE Global, Inc. ("Global"),  formerly Spectrum Global Services, Inc. d/b/a
YIELD Global,  for  consideration  of  approximately  $6.4 million,  net of cash
acquired.  This  consideration  consisted of cash to the seller of approximately
$5.1 million, fees of approximately  $700,000,  including a fee of $500,000 to a
related party,  and 500,000  shares of COMFORCE  Common Stock valued at $843,000
(at a price per share of $1.68)  issued as  consideration  for various  fees and
guarantees  associated  with the  transaction.  The  500,000  shares of COMFORCE
Common Stock  consisted of (i) 100,000  shares issued to an unrelated  party for
guaranteeing  the purchase  price to the seller,  (ii) 100,000  shares issued to
ARTRA,  then the majority  stockholder of the Company,  in  consideration of its
guaranteeing  the  purchase  price to the seller and  agreeing to enter into the
Assumption Agreement, (iii) 150,000 issued to two unrelated parties for advisory
services in connection with the  acquisition,  and (iv) 150,000 shares issued to
Peter R. Harvey, then a Vice President and director of COMFORCE for guaranteeing
the payment of the $6.4 million purchase price to the seller.  The shares issued
to Peter  R.  Harvey  and  ARTRA  are  subject  to  ratification  by  COMFORCE's
stockholders.  Such shares have the same rights and  privileges  as other common
stock shareholders. While the shareholders of these new shares will vote on this
issue,  the vote is a ratification  of the  transaction.  Failure to ratify this
transaction  would  have  no  impact  on  the  outcome  of  the  transaction  as
ratification  is  being  performed  to  meet  American  Stock  Exchange  listing
requirements.  These  transactions  have been  approved  by  COMFORCE's  current
management personnel and ARTRA, which together own a majority of the outstanding
shares of COMFORCE's Common Stock and, therefore, such ratification is expected.

Global provides  telecommunications  and computer  technical  staffing  services
worldwide to Fortune 500 companies and maintains an extensive,  global  database
of  technical   specialists,   with  an  emphasis  on  wireless   communications
capability.  The  acquisition  of  Global  was  funded  principally  by  private
placements of  approximately  1,950,000 shares of Lori common stock at $3.00 per
share (total proceeds of approximately  $5,800,000) plus detachable  warrants to
purchase  approximately  970,000 shares of Lori common stock at $3.375 per share
that expire five years from the date of issue.  In connection  with the re-focus
of its business, Lori changed its name to COMFORCE Corporation. Additionally, in
conjunction with the Global  acquisition,  ARTRA agreed to assume  substantially
all pre-existing Lori liabilities and indemnify COMFORCE in the event any future
liabilities  arise concerning  pre-existing  environmental  matters and business
related   litigation.   Accordingly,   ARTRA  has  accrued  $4,500,000  of  Lori
liabilities  classified  in its  consolidated  balance at  December  28, 1995 as
current liabilities of discontinued operations.

Effective  July 4, 1995,  Lori's  management  agreed to issue up to a 35% common
stock interest in the COMFORCE to certain individuals to manage COMFORCE's entry
into the telecommunications  and computer technical staffing business.  COMFORCE
recognized  a  non-recurring  charge of  $3,425,000  related to this stock since
these stock  awards were 100% vested when issued,  and were neither  conditioned
upon these individuals'  service to the Company as employees nor the consumation
of the COMFORCE Global  acquisition.  Accordingly,  this compensation charge was
fully  recognized  in 1995.  The  shares  of  COMFORCE  common  stock  issued in
accordance with the above  agreements were valued at $.93 per share.  COMFORCE's
management valued COMFORCE based on its discussions with market makers and other
advisors,  taking  into  account  (i)  that  the  Jewelry  Business,  which  was
discontinued  at the end of the second quarter of 1995, had a negligible  value,
and (ii) the value of COMFORCE was principally  related to the potential  effect
that a purchase of COMFORCE Global, if successfully concluded, would have market
value of COMFORCE  common stock.  COMFORCE's  management  believes this value of
$.93  per  share  to be a fair  and  appropriate  value  based  upon  COMFORCE's
financial  condition  as of the date  COMFORCE  became  obligated to issue these
shares.  After the issuance of the Lori common  shares,  plus the effects of the
issuance of Lori common shares sold by private  placements and other Lori common
shares issued in conjunction with the Global  acquisition,  ARTRA's common stock
ownership  interest in COMFORCE common stock was reduced to  approximately  25%.
Accordingly,  in October 1995,  the accounts of COMFORCE and its  majority-owned
subsidiaries were deconsolidated from ARTRA's consolidated  financial statements
and ARTRA's  investment  in COMFORCE was  accounted  for under the equity method
through the end of fiscal 1995.  See Note 6 for a further  discussion of and the
accounting  treatment of the  Company's  investment  in COMFORCE at December 28,
1995.
<PAGE>

                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



         Other

During 1995 the Company was dismissed as party to certain litigation relating to
the former  Welch  subsidiary.  Accordingly,  the Company  reversed  $700,000 of
excess liability accruals  originally  provided in 1989 to complete the disposal
of Welch.

The Company's consolidated financial statements have been reclassified to report
separately  the  results  of  operations  of Arcar and  COMFORCE's  discontinued
fashion costume jewelry  business prior to the  deconsolidation  of Lori and its
majority-owned  subsidiaries  effective  October 1995.  The 1995,  1994 and 1993
operating results (in thousands) of Bagcraft's discontinued Arcar subsidiary and
COMFORCE's  discontinued  fashion  costume  jewelry  business  and  net  gain on
disposal of discontinued operations consist of:

                                                                       
                                            1995        1994         1993 
                                          --------    --------    --------- 

     Net sales                            $ 16,932    $ 40,278    $  46,054
                                          ========    ========    =========

     
     Loss from operations        
       before income taxes                $ (8,156)   $(15,832)   $    (183
     Provision for income taxes                (17)        (74)         (33)
                                          --------    --------    ---------  
     Loss from operations                   (8,173)    (15,906)        (216)
                                          --------    --------    ---------


     Gain on sale of Arcar subsidiary        8,483          --           --
                                         
     Provision for disposal of business       (300)      
                                             
     Provision for income taxes                --           --           --
                                          --------    --------    ---------
     Gain on disposal of businesses          8,183          --           --
                                          --------    --------    ---------
     Earnings (loss) from
          discontinued operations         $     10    $(15,906)   $    (216)
                                          ========    ========    =========


4.       CONCENTRATION OF RISK

The accounts  receivable  of the Company's  Bagcraft  subsidiary at December 28,
1995 consist primarily of amounts due from companies in the food industry.  As a
result, the collectibility of these receivables is dependent, to an extent, upon
the economic condition and financial stability of the food industry. Credit risk
is minimized as a result of the large  number and diverse  nature of  Bagcraft's
customer base.  Bagcraft's major customers include some of the largest companies
in the food  industry.  At December  28, 1995,  Bagcraft  had 10 customers  with
accounts receivable balances that aggregated  approximately 40% of the Company's
total trade accounts receivable. No single customer accounted for 10% or more of
Bagcraft's 1995 sales.
<PAGE>
                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



5.       INVENTORIES

Inventories consist of:
  
                                          December 28,      December 29,
                                              1995              1994
                                            --------          --------
                                                 (in  thousands)

     Raw materials and supplies             $  5,645          $  7,041
     Work in process                              40               877
     Finished goods                           10,949            12,350
                                            --------          --------
                                            $ 16,634          $ 20,268
                                            ========          ========


6.            INVESTMENT IN COMFORCE (formerly LORI) CORPORATION

As  discussed  in Note 3, due to the  issuances  of  COMFORCE  common  shares in
conjunction  with the  acquisition of Global,  ARTRA's common stock ownership in
COMFORCE was reduced to  approximately  25%.  Accordingly,  in October 1995, the
accounts of COMFORCE and its  majority-owned  subsidiaries  were  deconsolidated
from  ARTRA's  consolidated  financial  statements  and  ARTRA's  investment  in
COMFORCE was  accounted  for under the  requirements  of APB Opinion No. 18 "The
Equity Method of Accounting for  Investments in Common Stock" through the end of
fiscal 1995.

Effective  December 28, 1995, John Harvey and Peter R. Harvey,  ARTRA's chairman
and  president,  respectively,  resigned as directors  of COMFORCE.  Due to such
factors as a lack of board of  directors  representation  and  participation  in
policy  formulation  by ARTRA,  as well as a lack of  interchange  of managerial
personnel,  ARTRA  is not  able  to  exercise  significant  influence  over  the
operating   and   financial   policies  of  COMFORCE.   Additionally,   assuming
contemplated  additional issuances of COMFORCE common shares, on a fully diluted
basis ARTRA's  ownership  interest in COMFORCE will be reduced to less than 20%.
In the opinion of the Company,  effective  December 28, 1995,  the investment in
COMFORCE  ceased  to  conform  to  the  requirements  of  APB  Opinion  No.  18.
Accordingly,   the  Company   adopted  SFAS  No.  115  "Accounting  for  Certain
Investments in Debt and Equity  Securities."  Under this statement,  at December
28, 1995,  the  Company's  investment in COMFORCE is classified as available for
sale and is stated at fair value.  The  adoption of SFAS No. 115  resulted in an
increase to  shareholders'  equity in the fourth quarter of 1995 of $21,047,000.
In prior years and, until October 1995, COMFORCE was a majority-owned subsidiary
included in the consolidated financial statements of the Company.

In January 1996, the Company's  Board of Directors  approved the sale of 200,000
of  ARTRA's  COMFORCE  common  shares to  certain  officers,  directors  and key
employees of ARTRA for non-interest bearing notes totaling $400,000.  The notes,
collateralized by the 200,000 COMFORCE common shares sold, are not payable until
the earlier of the registration of these shares under the Securities Act of 1993
or the expiration of the applicable  resale waiting period under  Securities Act
Rule 144.  Additionally,  the  noteholders  have the right to put their COMFORCE
shares back to ARTRA in full payment of the balance of their  notes.  Based upon
the preceding factors,  the Company has concluded that, for reporting  purposes,
it has effectively sold options to certain officers, directors and key employees
to acquire  200,000 of ARTRA's  COMFORCE  common shares.  Accordingly,  in 1996,
these  200,000  COMFORCE  common  shares  will be  removed  from  the  Company's
portfolio  of  "Available-for-sale   securities"  and  will  classified  in  the
Company's  consolidated  balance sheet as other current assets with an aggregate
value of $400,000,  based upon the value of proceeds to be received  upon future
exercise of the options. The disposition of these 200,000 COMFORCE common shares
will result in a gain which will not be recognized  in the  Company's  financial
statements  until the options to purchase these 200,000  COMFORCE  common shares
are exercised.

As additional consideration for a February 1996 short-term loan (see Note 9) the
lender has received  to-date  37,500  COMFORCE  common shares held by ARTRA.  In
March 1996,  ARTRA sold 93,000 COMFORCE shares in the market,  with the proceeds
used for working  capital.  The above  mentioned  330,500  COMFORCE  shares were
classified in the Company's  consolidated  balance sheet at December 28, 1995 in
<PAGE>

                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



current assets as "Available-for-sale  securities." ARTRA's remaining investment
in COMFORCE  (1,970,536  shares) was  classified in the  Company's  consolidated
balance sheet at December 28, 1995 in noncurrent  assets as  "Available-for-sale
securities.


7.   INVESTMENT IN EMERALD ACQUISITION CORPORATION / ENVIRODYNE INDUSTRIES, INC.

In  March,  1989,  Envirodyne  Industries,   Inc.   ("Envirodyne")  and  Emerald
Acquisition  Corporation  ("Emerald") entered into a definitive  agreement for a
subsidiary  of Emerald to acquire  all of the issued and  outstanding  shares of
Envirodyne  common stock.  Pursuant to the terms of certain  letter  agreements,
ARTRA agreed to participate in the transaction and received Envirodyne's consent
to sell its then  4,830,000  Envirodyne  common  shares  (a 26.3%  interest)  to
Emerald.  On May  3,  1989  the  transaction  was  consummated.  ARTRA  received
consideration  consisting of cash of $75,000,000,  a 27.5% common stock interest
in Emerald and Emerald junior debentures.

On January 6, 1993, a group of  bondholders  filed an  involuntary  petition for
reorganization  of Envirodyne  under Chapter 11 of the U.S.  Bankruptcy Code. On
January 7, 1993, Envirodyne and certain of its subsidiaries (the "Debtor") filed
petitions  under  Chapter 11 of the U.S.  Bankruptcy  Code in the United  States
Bankruptcy  Court for the  Northern  District  of  Illinois,  Eastern  Division.
Subsequently,  Emerald  filed  a  voluntary  petition  under  Chapter  11 of the
Bankruptcy Code in the same court.

Envirodyne's  plan of  reorganization  did not provide for any  distribution  or
value to Emerald and Emerald,  therefore,  is without assets to provide value to
ARTRA  for  ARTRA's  investment  in  Emerald  common  stock and  Emerald  Junior
Debentures.  See  discussion  below and in Note 20 Litigation for remedies being
pursued by ARTRA as  damages  for the lost  value of its  investment  in Emerald
common stock and Emerald Junior Debentures.

On November 2, 1993,  ARTRA  filed suit in the Circuit  Court of the  Eighteenth
Judicial  Circuit for the state of Illinois (the "State Court  Action")  against
Salomon  Brothers,  Inc.,  Salomon Brothers Holding  Company,  Inc.,  Charles K.
Bobrinskoy,  Michael J. Zimmerman  (collectively,  "Salomon  Defendants"),  D.P.
Kelly & Associates, L.P. ("DPK"), Donald P. Kelly ("Kelly Defendants" along with
DPK), James F. Massey and William  Rifkind.  On November 22, 1993, ARTRA filed a
First Amended Complaint. The defendants removed the case to the Bankruptcy Court
in which the Emerald Chapter 11 case is pending. On July 15, 1994 all but two of
ARTRA's causes of action were remanded to the state court.  The Bankruptcy Court
retained  jurisdiction  of ARTRA's  claims  against the defendants for breaching
their  fiduciary  duty as  directors  of  Emerald  to  Emerald's  creditors  and
interference with ARTRA's contractual  relations with Emerald. On April 7, 1995,
the Company's appeal of the Bankruptcy Court's order retaining jurisdiction over
two claims was denied.  On July 26, 1995, the Bankruptcy  Court entered an order
dismissing  these claims.  On August 4, 1995, ARTRA appealed from the Bankruptcy
Court's  dismissal  order.  That  appeal is still pending.

On July 18, 1995,  ARTRA filed a Fourth Amended  Counterclaim in the State Court
Action for breach of fiduciary  duty,  fraudulent  misrepresentation,  negligent
misrepresentation, breach of contract and promissory estopel. In the State Court
Action, ARTRA seeks compensatory damages of $136.2 million,  punitive damages of
$408.6 million and approximately $33 million in fees paid to Salomon. The causes
of action for breach of the fiduciary duty of due care were repleaded to reserve
ARTRA's right to appeal the State  Court's  dismissal of the causes of action in
the Third  Amended  Complaint.  Defendant  Kelly was  dismissed  with  prejudice
pursuant to a stipulation between ARTRA and the Kelly Defendants.

         On or about March 1, 1996, DPK brought a motion for summary judgment as
to ARTRA's claims for breach of contract and promissory  estoppel.  DPK's motion
is currently pending.
<PAGE>

                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



8.       EXTRAORDINARY GAINS

         ARTRA Debt Restructuring

In October,  1995 the Company  recognized  an  extraordinary  gain of $4,917,000
($.71 per share) as a result of a  settlement  agreement  with a bank  whereby a
$3,600,000  note  payable  due  December  31,  1990  plus  accrued  interest  of
$1,467,000 were discharged for a cash payment of $150,000.


         Lori Debt Restructuring

Per terms of a debt settlement  agreement,  borrowings due a bank under the loan
agreements of Lori and its  discontinued  fashion costume  jewelry  subsidiaries
(including the former New Dimensions ("New Dimensions") subsidiary, which ceased
operations  in December  1994) and  Fill-Mor  (approximately  $25,000,000  as of
December 23, 1994), plus amounts due the bank for accrued interest and fees were
reduced to $10,500,000 (of which  $7,855,000  pertained to Lori's  obligation to
the bank and $2,645,000  pertained to Fill-Mor's  obligation to the bank).  Upon
the satisfaction of certain conditions of the debt settlement agreement in 1995,
as discussed below, the balance of this indebtedness was discharged.

In  conjunction  with  the  debt  settlement  agreement,  ARTRA  entered  into a
$1,850,000  short-term  loan agreement with a  non-affiliated  corporation,  the
proceeds of which were used to fund amounts due the bank as discussed below. The
loan,  due  June  30,  1995,   with  interest   payable   monthly  at  10%,  was
collateralized by 100,000 shares of Lori common stock. These 100,000 Lori common
shares were  originally  issued to the bank under  terms of the debt  settlement
agreement.  In August,  1995 the loan was extended until  September 15, 1995 and
the  lender  received  the  above  mentioned   100,000  Lori  common  shares  as
consideration for the loan extension.  The loan was repaid by ARTRA in February,
1996.

The Company  recognized an extraordinary gain of $8,965,000 ($1.57 per share) in
December  1994 as a result of the  reduction  of amounts  due the bank under the
loan   agreements  of  Lori  and  its   discontinued   fashion  costume  jewelry
subsidiaries  and  Fill-Mor to  $10,500,000  (of which  $7,855,000  pertained to
Lori's obligation to the bank and $2,645,000 pertained to Fill-Mor's  obligation
to the bank) as of December 23, 1994 calculated (in thousands) as follows:

    Amounts due the bank under loan agreements                  
        of Lori and its operating subsidiaries and Fill-Mor      $  25,394
    Less amounts due the bank at December 29, 1994                 (10,500)
                                                                 ---------
    Bank debt discharged                                            14,894
    Accrued interest and fees discharged                             3,635
    Other liabilities discharged                                     1,985
    Less consideration to the bank per terms of the
        amended settlement agreement
             Cash                                                   (1,900)
             ARTRA common stock                                     (2,500)
             New Dimensions assets assigned to the bank
             at estimated fair market value                         (7,149)
                                                                 --------- 
                   Net extraordinary gain                        $   8,965
                                                                 =========
<PAGE>

                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



On March 31, 1995, the bank was paid $750,000 and the remaining  indebtedness of
Lori and Fill-Mor was discharged,  resulting in an additional extraordinary gain
to the Company of $9,113,000 ($1.35 per share) in the first quarter of 1995. The
$750,000 payment was funded with the proceeds of a $850,000 short-term loan from
a  former  director  of  Lori.  As  consideration  for  assisting  in  the  debt
restructuring,  the former director received 150,000 shares of Lori common stock
valued at $337,500  ($2.25 per share) based upon Lori's  closing market value on
March 30, 1995.  The first quarter 1995  extraordinary  gain was  calculated (in
thousands) as follows:

    Amounts due the bank under loan agreements                
       of Lori and its operating subsidiaries and Fill-mor       $  10,500
    Less amounts due the bank                                         (750)
                                                                 ---------
    Bank debt discharged                                             9,750
    Less fair market value of  Lori common stock
        issued as consideration for the debt restructuring            (337)
    Other fees and expenses                                           (300)
                                                                 ---------
             Net extraordinary gain                              $   9,113
                                                                 =========


         New Dimensions 1993 Restructuring

The  reorganization of New Dimensions  resulted in a 1993  extraordinary gain of
$22,057,000  ($4.49 per share) from a net discharge of  indebtedness  calculated
(in thousands) as follows:

     Amount due on New Dimensions' 12.75% Senior Notes,
        including accrued interest                               $  22,822
    Trade liabilities and accrued expenses                           3,231
                                                                 ---------
             Total unsecured claims                                 26,053
    Less present value of payments due to unsecured creditors       (2,725)
    Less present value of  bank restructuring loan fee              (1,271)
                                                                 ---------
             Net extraordinary gain                              $  22,057
                                                                 =========



9.       NOTES PAYABLE

Notes payable (in thousands) consist of:
                                                 December 28,  December 29,
                                                     1995          1994
                                                   --------      -------- 

      ARTRA bank notes payable, 
        at various interest rates                  $ 12,063      $ 18,507
      Amounts due to related parties, 
        interest from 8% to 12%                       5,675         5,669
      ARTRA 12% convertible subordinated 
        promissory notes                              2,500             -
      Other, interest from 8% to 20%                  5,062         3,877
                                                   --------      -------- 
                                                   $ 25,300      $ 28,053
                                                   ========      ========
<PAGE>

                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



         Bank Notes Payable

At December 31,  1993,  $17,063,000  in ARTRA notes,  plus related loan fees and
accrued  interest were payable to a bank. The notes provided for interest at the
prime rate. These bank notes were collateralized by, among other things, 100% of
the common  stock of ARTRA's  BCA  subsidiary,  the  parent of  Bagcraft,  and a
secondary  position on the assets of BCA,  payments  due under a  noncompetition
agreement with the Company's former Welch subsidiary and by a subordinated  note
in the principal amount of $2,500,000  received by ARTRA as part of the proceeds
from the sale of Welch.  Additionally,  the bank notes are  collateralized  by a
$5,500,000  personal guaranty of a private investor and, prior to March 31, 1994
as discussed below, the bank notes were  collateralized by a $2,500,000 guaranty
of a private  corporation.  A major  shareholder  and  executive  officer of the
private  corporation  is an ARTRA  director.  As  additional  compensation,  the
private  investor is receiving 1,833 shares of ARTRA common stock for each month
the guaranty is outstanding and the private  corporation  received 833 shares of
ARTRA  common stock for each month the  guaranty  was  outstanding.  Among other
things, the bank notes prohibit the payment of cash dividends by ARTRA.

On March 31,  1994,  ARTRA  entered  into a series of  agreements  with its bank
lender  and  with the  private  corporation  noted  above  that  had  guaranteed
$2,500,000  of ARTRA's  bank  notes.  Per terms of the  agreements,  the private
corporation  purchased  $2,500,000  of ARTRA  notes from  ARTRA's  bank  thereby
reducing the outstanding  principal on ARTRA's bank notes to $12,063,000 and the
bank released the private  corporation  from its $2,500,000  loan guaranty.  The
ARTRA bank notes and  related  loan fees were  payable on  September  30,  1994.
Interest on the bank notes continues to accrue at the prime rate (8.75% and 8.5%
at  September  28, 1995 and  December  29,  1994,  respectively)  and is payable
quarterly.  Interest  on the bank  notes has been paid  through  June 14,  1994.
Effective March 31, 1994, ARTRA pledged,  as additional  collateral for its bank
notes,  any and all net  proceeds  arising  from  its  lawsuit  against  Salomon
Brothers, Inc., Salomon Brothers Holding Company Inc. (collectively,  "Salomon")
D.P. Kelly & Associates,  L.P. ("Kelly") and all of the directors of Emerald for
breaches of fiduciary  duty by the directors of Emerald,  induced by Salomon and
Kelly, in connection with the  reorganization of Envirodyne as discussed in Note
7. As consideration  for purchasing  $2,500,000 of ARTRA bank notes, the private
corporation  received a $2,500,000  note payable from ARTRA bearing  interest at
the prime rate.

As additional  consideration,  the private corporation has received an option to
put  back to  ARTRA  the  49,980  shares  of  ARTRA  common  stock  received  as
compensation for its former  $2,500,000 ARTRA loan guaranty at a price of $15.00
per  share.  The put  option  is  exercisable  on the  later of the day that the
$2,500,000 note payable to the private  corporation  becomes due or the date the
ARTRA bank notes have been paid in full. The option price increases by $2.25 per
share annually  ($18.938 per share at December 28, 1995).  The  $2,500,000  note
payable to the private  corporation  is  reflected in the above table as amounts
due to related  parties.  During the first quarter of 1996, the $2,500,000  note
and related  accrued  interest was paid in full  principally  with proceeds from
additional short-term borrowings.

In June 1995 ARTRA entered into an agreement to settle  amounts due ARTRA by the
former  Welch  subsidiary  under  terms  of a  noncompetition  agreement  and  a
subordinated  note in the principal  amount of  $2,500,000  received by ARTRA as
part of the proceeds  from the 1989 sale of Welch.  Per terms of the  settlement
agreement,  ARTRA  received cash of $3,000,000  and a  subordinated  note in the
principal  amount of $640,000 payable June 30, 2001. The cash proceeds were used
for a $2,500,000  reduction of amounts due on certain ARTRA bank notes, with the
remainder used for working capital. In conjunction with this transaction,  ARTRA
entered  into a letter  agreement  with the bank  whereby the bank agreed not to
exercise  any of its rights and  remedies  with  respect to amounts due the bank
under its ARTRA notes and certain  obligations  of ARTRA's  president,  Peter R.
Harvey through at least September 28, 1995.

In February  1996, a bank agreed to discharge  all amounts under its ARTRA notes
($12,063,000 plus accrued interest and fees) and certain  obligations of ARTRA's
president,  Peter R. Harvey for consideration consisting of ARTRA's cash payment
of $5,050,000, Mr. Harvey's cash payment of $100,000 and Mr. Harvey's $3,000,000
note  payable  to the  bank  (the  "Harvey  Note").  The bank  assigned  ARTRA a
$2,150,000  interest in the Harvey  Note,  subordinated  to the bank's  $850,000
interest in the Harvey Note.  ARTRA then  discharged  $2,150,000 of Mr. Harvey's
prior  advances  in  exchange  for  its  $2,150,000  interest  in  Mr.  Harvey's
$3,000,000  note  payable  to the  bank.  ARTRA  will  recognize  a gain  on the
discharge of its bank  indebtedness  of  approximately  $10,000,000 in the first
quarter of 1996 and will record a receivable for Mr.  Harvey's  prorata share of
the debt discharge funded by the Company.
<PAGE>

                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



In  conjunction  with the February 1996 discharge of  indebtedness,  the Company
entered  into a  $1,900,000  short-term  loan  agreement  with  an  unaffiliated
company.  The loan, due May 26, 1996, with interest at 12% is collateralized by,
among other things,  the common stock of ARTRA's BCA  subsidiary.  As additional
compensation  for the loan  and for  participating  in the  above  discharge  of
indebtedness,  the lender has received,  to-date, 150,000 shares of ARTRA common
stock and 37,500  shares of COMFORCE  common stock held by ARTRA.  Additionally,
for a cash  payment of  $500,000  to ARTRA,  the lender  purchased  an option to
acquire up to 40% of the common stock of Bagcraft for nominal consideration.  If
the borrowings  under the loan  agreement are repaid by May 26, 1996,  ARTRA can
repurchase the option for a cash payment of $550,000.  If the  borrowings  under
the loan agreement are repaid  subsequent to May 26, 1996, the percentage of the
warrant ARTRA can repurchase  declines on a sliding scale through July 25, 1996.
The proceeds  from this loan  agreement  along with  proceeds  received from the
Bagcraft  subsidiary as  consideration  for the issuance of BCA preferred  stock
(see  Note 12) were  used to fund the  cash  payment  to the bank for the  above
discharge of indebtedness.

Effective May 14, 1991,  ARTRA,  through its wholly-owned  Fill-Mor  subsidiary,
entered into a loan  agreement  with a bank  providing  for  borrowings of up to
$2,500,000  with  interest  at the prime rate plus 2%, of which  $2,200,000  was
outstanding  at  December  29,  1994.  The loan was  collateralized  by  ARTRA's
interest in Lori common  stock and  preferred  stock,  by the  proceeds of a tax
sharing  agreement  between  ARTRA and its  Bagcraft  subsidiary  and by ARTRA's
interest in Fill-Mor's  common stock.  At December 29, 1994,  borrowings on this
note were  reclassified  as amounts due under the debt  restructuring  agreement
discussed in Note 8. In March,  1995,  borrowings  due under this loan agreement
were discharged.

At  December  29,  1994 an  ARTRA  bank  note  with  outstanding  borrowings  of
$3,600,000  had been past due since  December  31, 1990.  Effective  October 30,
1995,  the  Company   settled  this  bank  obligation   totaling   approximately
$5,000,000, including accrued interest, for a cash payment of $150,000. The gain
on  this  debt  extinguishment  was  reflected  in  the  Company's  consolidated
financial  statements in the fourth  quarter of 1995. In October,  1995 the bank
agreed to discharge the $3,600,000 note plus accrued  interest of $1,467,000 for
a cash payment of $150,000,  resulting in an  extraordinary  gain of  $4,917,000
($.71 per share) in the fourth quarter of 1995.

An ARTRA bank note with outstanding  borrowings of $345,000 at December 29, 1994
was guaranteed by a private company.  Interest on the note was at the prime rate
plus 2%. In October, 1995 all amounts due on this bank note were paid in full.


         Amounts Due To Related Parties

At December  28,  1995 and  December  29,  1994,  the  Company  had  outstanding
borrowings   from  its   Chairman,   John  Harvey,   of  $175,000  and  $42,000,
respectively.  Since January, 1995, John Harvey's borrowings have been evidenced
by unsecured short-term notes bearing interest at 8%. As additional compensation
the loans  provide for the issuance of warrants to purchase  ARTRA common shares
at prices  equal to the  market  value of  ARTRA's  common  stock at the date of
issuance. The warrants expire five years from the date of issuance. Terms of the
note provide for the issuance of  additional  warrants to purchase  ARTRA common
shares,  as determined by the number of days the loans are outstanding.  Through
February 29, 1996, John Harvey has received warrants to purchase an aggregate of
58,007  shares of ARTRA common stock at prices  ranging from $3.75 to $6.125 per
share as additional compensation for his loans to ARTRA.

At March 30, 1995, amounts due to related parties included a $850,000 short-term
loan from a then  director of  COMFORCE.  The loan  provided for interest at the
prime rate plus 1%. As consideration for assisting with the debt  restructuring,
the former  director  received  150,000  Lori common  shares  valued at $337,500
($2.25 per share) based upon  COMFORCE  closing  market value on March 30, 1995.
The principal  amount of the loan was reduced to $750,000 at July 31, 1995.  The
remaining  loan  principal  was not repaid on its  scheduled to maturity date of
July 31, 1995. Per terms of the loan agreement,  the former director received an
additional 50,000 COMFORCE common shares as compensation for the
<PAGE>

                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


non-payment of the loan at its originally scheduled maturity.  The maturity date
of the loan was  subsequently  extended to September 30, 1995.  The Company then
entered into  discussions  with the director to extend the maturity  date of the
loan and, as  additional  consideration  for the  non-payment  of the loan,  the
former director received an additional 25,000 shares of COMFORCE common stock in
January 1996. In March 1996, the loan was repaid in full by ARTRA.

At December 29, 1994, amounts due to related parties also included borrowings of
$127,000, respectively, from the above mentioned former director of COMFORCE. As
additional compensation the former director has received warrants to purchase an
aggregate of 236,315 ARTRA common shares at prices  ranging from $3.75 to $6.375
per share  based upon the market  value of ARTRA's  common  stock at the date of
issuance. The warrants expire five years from the date of issuance. Terms of the
note provide for the issuance of  additional  warrants to purchase  ARTRA common
shares as determined by the number of days the loan is outstanding.  In December
1995,  amounts due  pursuant to this loan were repaid by the  issuance of 33,000
shares of ARTRA common stock.

On December 31, 1993, a religious organization,  currently holding approximately
7% of ARTRA's outstanding common stock, loaned the Company $2,000,000  evidenced
by a  short-term  note  bearing  interest at 10%. The proceeds of this loan were
remitted to ARTRA's bank to pay  principal and interest on ARTRA's bank notes as
discussed above. In January, 1994 the religious  organization made an additional
$1,000,000  short-term  loan to the  Company  also  with  interest  at  10%.  As
additional  compensation  for the above loans,  the lender received  warrants to
purchase an aggregate of 86,250 ARTRA common shares at prices ranging from $6.00
to $7.00 per share based upon the market of ARTRA's  common stock at the date of
issuance.  The warrants expire in 1998, five years from the date of issuance. In
July, 1994 ARTRA made a $2,000,000  payment  against the amounts  outstanding on
the above loans and the  religious  organization  subsequently  loaned  ARTRA an
additional $2,000,000. At December 28, 1995 and December 29, 1994 borrowings due
the  religious  organization  totaled  $3,000,000.  In December,  the  religious
organization  received  126,222  shares of ARTRA  common in  payment of past due
interest through October 31, 1995.


         Convertible Subordinated Promissory Notes

In December  1995,  ARTRA  completed a private  placement of  $2,500,000  of 12%
convertible  subordinated  promissory  notes due March 21, 1996.  As  additional
consideration  the  noteholders  received  15,000 ARTRA  common  shares per each
$100,000 of notes issued,  or an aggregate of 375,000 ARTRA common  shares.  The
ARTRA common shares were valued at $1,266,000  ($3.375 per share) based upon the
closing market value of ARTRA common stock on the date of issue,  discounted for
restricted marketability. In the event the notes and all accrued interest is not
paid in full at maturity,  the  noteholders  have the option to convert all or a
portion of the amount due into shares of ARTRA common at a  conversion  price of
$3.00 per share.  The  proceeds  from the private  placement,  held in escrow at
December  28,  1995,  were used to pay down other debt  obligations  in January,
1996. The notes were repaid in April,  1996,  substantially with proceeds from a
new private placement of ARTRA notes.


         Other

In conjunction  with the debt  settlement  agreement  discussed in Note 8, ARTRA
entered  into a  $1,850,000  short-term  loan  agreement  with a  non-affiliated
corporation,  the  proceeds  of which were used to fund  amounts due the bank as
discussed  below.  The loan, due June 30, 1995, with interest payable monthly at
10%, was  collateralized  by 100,000 shares of Lori common stock.  These 100,000
COMFORCE  common  shares were  originally  issued to the bank under terms of the
August 18, 1994  Settlement  Agreement.  In August,  1995 the loan was  extended
until  September 15, 1995 and the lender  received the above  mentioned  100,000
COMFORCE common shares as  consideration  for the loan  extension.  The loan was
repaid by ARTRA in February, 1996.
<PAGE>

                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



10.      LONG-TERM DEBT
   Long-term debt (in thousands) consists of:

                                                      December 28,  December 29,
                                                          1995          1994
                                                        --------     --------

   Bagcraft Credit Agreement,
     Term loans,
       interest at the prime rate plus 1.75% to 3%      $ 16,600     $ 17,000
     Revolving credit loan,
       interest at the prime rate plus 1.5%                9,231       16,672
     Unamortized discount                                      -         (315)
   Bagcraft, City of Baxter Springs, 
     Kansas loan agreements,
     interest, at varying rates                           11,794       12,310
   Arcar subordinated promissory notes 
     due to seller,
     interest at the prime rate                                -        8,000
   Arcar bank term loan,
     interest at the prime rate plus .75%                      -        2,750
   Amounts due a bank term under terms of
     a debt settlement agreement                               -       10,500
   Other, at various interest rates,
     due in varying amounts through 1995                       -           27
                                                        --------     --------
                                                          37,625       66,944
   Current scheduled maturities                           (3,512)     (37,521)
   Debt subsequently discharged                                -       (9,750)
                                                        --------     --------
                                                        $ 34,113     $ 19,673
                                                        ========     ========


         Bagcraft

Effective December 17, 1993,  Bagcraft refinanced its bank debt by entering into
a Credit  Agreement  that provides for a revolving  credit loan and two separate
term loans. The term loans were separate two-year facilities  initially totaling
$12,000,000  (Term Loan A) and $8,000,000 (Term Loan B), bearing interest at the
lender's index rate plus 1.75% and 3%,  respectively.  The principal  under Term
Loan A is payable at  maturity,  unless  accelerated  under  terms of the Credit
Agreement.   The  principal   under  Term  Loan  B  ($4,600,000  and  $5,000,000
outstanding  at December  28, 1995 and  December  29,  1994,  respectively)  was
scheduled to be payable in  twenty-four  monthly  installments  of $250,000 from
January  1, 1994 to  December  1, 1995,  with the  remaining  principal  balance
payable at maturity,  unless accelerated under terms of the Credit Agreement. At
December 28, 1995, interest rates on Term Loan A and Term Loan B were 10.25% and
11.5% respectively.

The amount available to Bagcraft under the revolving credit loan is subject to a
borrowing base, as defined in the agreement, up to a maximum of $18,000,000.  At
December 28, 1995 and December 29, 1994, approximately $6,600,000 and
<PAGE>

                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)



$800,000, respectively, was available and unused by Bagcraft under the revolving
credit loan.  Borrowings  under the  revolving  credit loan bear interest at the
lender's  index  rate plus 1.5% and are  payable  upon  maturity  of the  Credit
Agreement,  unless accelerated under terms of the Credit Agreement.  At December
28, 1995 the interest rate on the revolving credit loan was 10%.

Borrowings under the Credit Agreement are collateralized by substantially all of
the assets of  Bagcraft.  The Credit  Agreement,  as amended,  contains  various
restrictive  covenants,  that among  other  restrictions,  require  Bagcraft  to
maintain minimum levels of tangible net worth and liquidity  levels,  and limits
capital  expenditures  and restricts  additional  loans,  dividend  payments and
payments to related parties. In addition, the Credit Agreement prohibits changes
in ownership of Bagcraft.

In October,  1995 the Credit Agreement was amended whereby,  among other things,
the maturity  date of the Credit  Agreement  was extended  until March 31, 1996,
certain loan covenant  violations were resolved and the principal payments under
Term Loan B were modified to include five monthly  installments of $200,000 from
November  15, 1995 to March 31,  1996,  with the  remaining  balance  payable at
maturity (March 31, 1996) .

Effective  February 1, 1996,  the Credit  Agreement was amended  whereby,  among
other  things,  the maturity  date of the Credit  Agreement  was extended  until
September 30, 1997, certain loan covenants were amended.  The principal payments
under Term Loan B were modified to include  twenty-three monthly installments of
$200,000  from  November 15, 1995 to  September  30,  1997,  with the  remaining
balance  payable at maturity  (September  30, 1997) .  Additionally,  the lender
consented to the use of $4,135,000  advanced under the revolving  credit loan to
fund a preferred stock exchange  agreement between BCA (the parent of Bagcraft),
Bagcraft and the holder of Bagcraft's  13.5%  cumulative,  redeemable  preferred
stock (see Note 12).

As additional compensation for borrowings under the Credit Agreement, the lender
received a detachable warrant, expiring in December 1998, allowing the holder to
purchase up to 10% of the fully  diluted  common equity of Bagcraft at a nominal
value. Under certain  conditions  Bagcraft is required to repurchase the warrant
from the lender.  The determination of the repurchase price of the warrant is to
be based on the warrant's pro rata share of the highest of book value, appraised
value or market value of Bagcraft.

In connection with the February 1, 1996 amendment to the Credit  Agreement,  the
warrant  agreement was amended to permit the holder to purchase 13% of the fully
diluted common equity of Bagcraft at the original  nominal purchase price and to
extend the expiration date to December 17, 1999.

In March,  1994  Bagcraft  and the City of Baxter  Springs,  Kansas  completed a
$12,500,000  financing package associated with the construction of a new 265,000
sq. ft. production  facility in Baxter Springs,  Kansas.  The financing package,
funded by a  combination  of  Federal,  state and local  funds,  consists of the
following  loan  agreements  payable by Bagcraft  directly to the City of Baxter
Springs:

         A $7,000,000  promissory  note payable in ten  installments of $700,000
         due annually on July 21 of each year beginning in 1995 through maturity
         on July 21,  2004.  Interest,  at varying  rates from 4.6% to 6.6%,  is
         payable  semi-annually.  At December  28, 1995 and  December  29, 1994,
         Bagcraft had  outstanding  borrowings  of  $6,300,000  and  $7,000,000,
         respectively, under this loan agreement.

         A $5,000,000 subordinated promissory note payable as follows:  $150,000
         due in 1996;  $2,425,000  due in 1998;  and $2,425,000 due in 1999. The
         subordinated  promissory  note  is  non-interest  bearing,  subject  to
         certain repayment  provisions as defined in the agreement (as amended).
         At December 28, 1995 and December  29, 1994,  Bagcraft had  outstanding
         borrowings of $5,000,000 and $4,810,000,  respectively, under this loan
         agreement.
<PAGE>

                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)



         Two separate $250,000 subordinated  promissory notes payable in varying
         installments  through  January 20, 2025.  The  subordinated  promissory
         notes are non-interest bearing, subject to certain repayment provisions
         as defined in the  agreement.  At December  28, 1995 and  December  29,
         1994,  Bagcraft had  outstanding  borrowings  of $493,000 and $500,000,
         respectively, under this loan agreement.


Borrowings under the above loan agreements are collateralized by a first lien on
the land and building at the Baxter Springs, Kansas production facility and by a
second lien on certain  machinery and  equipment.  Under certain  circumstances,
repayment of the borrowings  under the above loan  agreements is subordinated to
the repayment of obligations under Bagcraft's Credit Agreement.  At December 28,
1995 and December 29, 1994, $552,000 and $774,000,  respectively,  of borrowings
from the above loan agreements is reflected in the consolidated balance sheet in
current  assets as restricted  cash and  equivalents.  These funds,  invested in
interest bearing cash  equivalents,  are restricted for expenditures  associated
with the Baxter Springs, Kansas project.


         Arcar

On April 8, 1994,  Bagcraft completed the acquisition of Arcar for consideration
consisting of cash of $2,264,000  and  subordinated  promissory  notes  totaling
$8,000,000  ($5,500,000  and  $8,000,000  outstanding  at September 28, 1995 and
December 29, 1994, respectively). The subordinated promissory notes provided for
interest payable  quarterly at the prime rate (as defined in the agreement).  At
September 28, 1995, the remaining outstanding promissory notes were scheduled to
mature as follows:  $2,500,000 payable March 15, 1996;  $2,500,000 payable March
15, 1997; $500,000 payable March 15, 1998. The seller also received a warrant to
purchase  177,778 ARTRA common shares at a price of $5.625 per share, the market
value at the date of grant.  Exercise of the warrant was payable  only through a
reduction  of the  subordinated  promissory  notes and accrued  interest due the
seller under terms of the purchase agreement.  The subordinated promissory notes
were paid in full in  October,  1995 with  proceeds  from the sale of Arcar (see
Note 3).

Effective April 8, 1994,  Arcar entered into a Loan and Security  Agreement (the
"Agreement")  with a bank that  provided for a revolving  credit loan and a term
loan. The term loan, in the original  principal  amount of $2,750,000,  provided
for interest at the prime rate plus .75%.  Borrowings  under the Agreement  were
collateralized  by  substantially  all of the  assets  of Arcar.  The  Agreement
contained various restrictive covenants, that among other restrictions,  require
Arcar to maintain  minimum  levels of net worth and  liquidity  levels and limit
additional  loans,  dividend  payments,  capital  expenditures  and  payments to
related  parties.  All  borrowings  under  the  Agreement  were  paid in full in
October, 1995 with proceeds from the sale of Arcar (see Note 3).


         Lori

As discussed in Note 8, effective August 18, 1994, as amended effective December
23, 1994, ARTRA, Fill-Mor,  Lori and Lori's fashion costume jewelry subsidiaries
entered into an agreement with Lori's bank lender to settle  obligations due the
bank under terms of the bank loan  agreements  of Lori and its  fashion  costume
jewelry  subsidiaries  and  Fill-Mor.  Borrowings  due the bank  under  the loan
agreements of Lori and its operating  subsidiaries and Lori's parent,  Fill-Mor,
plus  amounts  due the bank  for  accrued  interest  and fees  were  reduced  to
$10,500,000  as of December  23, 1994 (of which  $7,855,000  pertained to Lori's
obligation to the bank and $2,645,000 pertained to Fill-Mor's  obligation to the
bank). As partial  consideration for the Amended  Settlement  Agreement the bank
received a $750,000 Lori note payable due March 31, 1995.

In  March,  1995 the  $750,000  note  due the  bank  was paid and the  remaining
indebtedness  of Lori and Fill-Mor was  discharged,  resulting in an  additional
extraordinary gain to Lori and Fill-Mor of $9,113,000 in 1995 (See Note 8).
<PAGE>

                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)



The common stock and virtually all the assets of ARTRA's  subsidiaries have been
pledged as  collateral  for  ARTRA's  and its  subsidiaries'  borrowings.  Under
certain  debt  agreements  the Company is limited in the amounts it can withdraw
from its  operating  subsidiaries.  At December  28, 1995 and December 29, 1994,
substantially  all cash and  equivalents on the Company's  consolidated  balance
sheet are restricted to use by and for the Company's operating subsidiaries.

At December  28, 1995 the  aggregate  amount of yearly  maturities  of long-term
debt, exclusive of debt discharged,  is: 1996,  $3,512,000;  1997,  $24,143,000;
1998, $3,137,000; 1999, $3,137,000; 2000, $712,000; thereafter, $2,983,000.


11.   REDEEMABLE COMMON STOCK

ARTRA has entered  into  various  agreements  under which it has sold its common
shares along with options that require ARTRA to  repurchase  these shares at the
option of the holder, principally one year after the date of each agreement. The
difference  between the option price and the net proceeds  received is amortized
over the life of the options by a charge to retained  earnings.  ARTRA agreed to
register  100,000 ARTRA common shares issued to a bank as partial  consideration
for a 1994 debt settlement agreement on or before July 31, 1995, after which the
bank has the  right  to put the  100,000  common  shares  back to  ARTRA  for an
exercise  price of $500,000.  As of March 31, 1996 the ARTRA common  shares have
not been  registered and the bank has not exercised the put option.  At December
28, 1995 and December 29, 1994 options are outstanding that, if exercised, would
require ARTRA to repurchase  283,965 and 279,679  shares of its common stock for
an aggregate amount of $4,774,000 and $4,144,000, respectively.


12.   REDEEMABLE PREFERRED STOCK

On September 27, 1989,  ARTRA received a proposal to purchase BCA, the parent of
Bagcraft,  from Sage Group, Inc.  ("Sage"),  a privately-owned  corporation that
owned 100% of the outstanding common stock of BCA. Sage was merged with and into
Ozite  Corporation  ("Ozite")  on August  24,  1990.  Peter R.  Harvey,  ARTRA's
President, and John Harvey, ARTRA's Chairman of the Board of Directors, were the
principal  shareholders  of Sage and are the  principal  shareholders  of Ozite.
Effective  March 3, 1990, a  wholly-owned  subsidiary of ARTRA  acquired 100% of
BCA's issued and  outstanding  common shares for  consideration  of  $5,451,000,
which  included  772,000 shares of ARTRA common stock and 3,750 shares of $1,000
par value junior non-convertible  payment-in-kind  redeemable Series A Preferred
Stock with an estimated fair value of $1,012,000, net of unamortized discount of
$2,738,000. The Series A Preferred Stock accrues dividends at the rate of 6% per
annum and is redeemable by ARTRA on March 1, 2000 at a price of $1,000 per share
plus accrued dividends.  Accumulated dividends of $1,519,000 and $1,221,000 were
accrued at December 28, 1995 and December 29, 1994, respectively.

In 1987,  Bagcraft issued to a subsidiary of Ozite $5,000,000 of preferred stock
(50,000  shares  of  13.5%  cumulative,   redeemable   preferred  stock  with  a
liquidation  preference equal to $100 per share)  redeemable by Bagcraft in 1997
at a price of $100 per share plus accrued dividends. Dividends, which accrue and
are payable semiannually on June 1 and December 1 of each year, are reflected in
the Company's  consolidated  statement of operations as minority  interest.  The
holder has  agreed to forego  dividend  payments  as long as such  payments  are
prohibited  by  Bagcraft's  lenders.  Accumulated  dividends  of  $5,794000  and
$5,119,000   were   accrued  at  December   28,  1995  and  December  29,  1994,
respectively.

In 1987,  Bagcraft  obtained  financing  from a subsidiary  of Ozite through the
issuance of a $5,000,000  unsecured  subordinated note, due June 1, 1997. During
1992, per agreement with the noteholder,  the interest payments were remitted to
ARTRA and the  noteholder  received  675 shares of BCA Series A preferred  stock
($1.00 par value,  6% cumulative with a liquidation  preference  equal to $1,000
per  share)  with a  liquidation  value of  $675,000.  In  December,  1993,  the
unsecured  subordinated note and accrued interest thereon were paid in full from
proceeds of Bagcraft's Credit Agreement. Per agreement with the noteholder,  the
accrued interest outstanding on the note of $3,000,000 was remitted to ARTRA and
the noteholder  received an additional 3,000 shares BCA preferred stock having a
liquidation value of $3,000,000.
<PAGE>

                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)



Effective February 1, 1996, BCA, Bagcraft and Ozite entered into an agreement to
exchange certain  preferred stock between the Companies.  In connection with the
agreement,  BCA issued to Bagcraft 8,135 shares of BCA Series B preferred  stock
(with  a  liquidation  preference  equal  to  $1,000  per  share)  for  cash  of
$4,135,000.  Bagcraft in turn  exchanged  the BCA Series B  preferred  stock for
Bagcraft  redeemable  preferred stock (82.7% of 50,000 shares, or 41,350 shares)
held by Ozite.  Funds for the transaction  were obtained by Bagcraft  through an
advance under its revolving  credit.  BCA then  upstreamed the proceeds to ARTRA
for working capital purposes.

As a result of the preferred  stock  exchange  agreement,  17.3% of the original
Bagcraft  redeemable  preferred stock and the prorata share of dividends  remain
outstanding  February  1, 1996.  Dividends  related to the  Bagcraft  redeemable
preferred  stock  exchanged have been forgiven in accordance with the agreement.
The  dividend  forgiveness  will  be  reflected  in the  Company's  consolidated
financial statements in the first quarter of 1996.


13.   STOCK OPTIONS AND WARRANTS

         Stock Option Plan

In July, 1985,  ARTRA's  shareholders  approved a stock option plan (the "Plan")
for certain officers and key employees of the Company and its subsidiaries.  The
Plan, as amended,  reserved  1,000,000  shares of the Company's common stock and
authorized  the granting of options on or before  February 1, 1995. The purchase
price of such  options  was to be not less than the market  value at the date of
grant for incentive  stock options  ("ISO") and not less than 110% of the market
value on the date of grant for an ISO granted to a  shareholder  possessing  10%
more of the voting stock of the Company. Non-qualified options may be granted at
such price and amount as the Company determines at the date of grant.

During 1994,  the Company  issued a former  officer of Bagcraft a  non-qualified
option to purchase  20,000  shares of ARTRA  common  stock at $5.75 per share as
additional compensation for short-term loans to ARTRA.

Effective January 8, 1993, the Company issued certain officers and key employees
of ARTRA options to purchase  148,100  shares of ARTRA common stock at $3.75 per
share. The options expire ten years from the date of grant.

During 1993,  the Company  issued to a then officer of Bagcraft a  non-qualified
option to purchase  50,000  shares of ARTRA  common  stock at $3.75 per share as
additional  compensation  for  short-term  loans  to  ARTRA.  The  options  were
exercised  during  1993.  The  exercise of these  options was  principally  paid
through a reduction of the then Bagcraft officer's loans to ARTRA.
<PAGE>

                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



A summary of stock option  transactions  for the three years in the period ended
December 28, 1995 is as follows:
                                             1995          1994       1993
                                           --------     --------    --------

   Outstanding at beginning of year:
    
       Shares                               445,460      450,760     340,360

                                            $  3.75      $  3.75     $  5.25
       Prices                                    to           to          to
                                            $ 20.50      $ 20.50     $ 20.50

   Options granted:
       Shares                                             20,000     198,100
       Prices                                            $  5.75     $  3.75

   Options exercised:
       Shares
                                            (12,100)     (25,300)    (74,700)
     
                                                                     $  3.75
       Prices                               $  4.00       $ 5.25          to
                                                                     $  5.25
   Options canceled:
       Shares                                (1,860)                 (13,000)

                                                                     $  5.25
       Prices                               $ 20.50                       to
                                                                     $  5.75
   Outstanding at end of year:
       Shares                               431,500      445,460     450,760
                                           ========     ========    ========

                                            $  3.65      $  3.75     $  3.75
       Prices                                    to           to          to
                                            $ 10.00      $ 20.50     $ 20.50

   Options exercisable at end of year       431,500      445,460     450,760
                                           ========     ========    ========
   Options available for future grant
       at end of year                         -          390,814     410,814
                                           ========     ========    ========
<PAGE>

                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



         Warrants

At December 28, 1995, warrants were outstanding to purchase a total of 1,148,548
common  shares at prices  ranging from $3.50 per share to $10.50 per share.  The
warrants,  exercisable  from the date of issue,  expire at various dates through
2003.

During 1995, ARTRA issued warrants to purchase an aggregate of 140,507 shares of
its  common  stock at prices  ranging  from $3.75 per share to $6.125 per share,
principally to certain lenders as additional  compensation for short-term loans.
The warrants expire at various dates in 2000. Warrants to purchase 48,331 shares
of ARTRA  common  stock at prices  ranging  from $6.75 per share to $11.375  per
share expired  unexercised  during 1995.  The warrants were issued as additional
compensation for various short-terms loans.

During 1994, ARTRA issued warrants to purchase an aggregate of 154,719 shares of
its  common  stock at prices  ranging  from $4.50 per share to $6.625 per share,
principally to certain lenders as additional  compensation for short-term loans.
The warrants  expire at various  dates from 1996 and 1999.  Warrants to purchase
9,166 shares of ARTRA  common  stock at prices  ranging from $10.00 per share to
$11.25 per share expired  unexercised  during 1994.  The warrants were issued as
additional compensation for various short-terms loans.

During 1993, ARTRA issued warrants to purchase an aggregate of 326,090 shares of
its  common  stock at prices  ranging  from  $3.50 per share to $7.00 per share,
principally to certain lenders as additional  compensation for short-term loans.
The warrants expire at various dates from 1998 and 2003. Additionally,  warrants
to purchase  76,668  shares of ARTRA common stock at prices  ranging from $18.00
per share to $27.00 per share expired unexercised during 1993. The warrants were
issued as additional compensation for short-term loans in 1988.


14.    RESTRUCTURING COSTS

In December,  1993 the Bagcraft  subsidiary  recorded a charge to  operations of
$1,175,000  representing  equipment and inventory  relocation costs and employee
severance  and  outplacement  costs  relating  to  the  construction  of  a  new
manufacturing facility in Baxter Springs,  Kansas. In September,  1994, Bagcraft
completed  construction of a new 265,000 sq. ft.  production  facility in Baxter
Springs,  Kansas.  This facility replaced  Bagcraft's  production  facilities in
Joplin, Missouri, Carteret, New Jersey and Forest Park, Georgia.


15.   COMMITMENTS AND CONTINGENCIES

The Company and its subsidiaries lease certain buildings and equipment which are
used in its  manufacturing  and distribution  operations.  At December 28, 1995,
future  minimum lease payments  under  operating  leases that have an initial or
remaining noncancellable term of more than one year (in thousands) are:

            Year            
            ----
            1996                       $   944
            1997                           860
            1998                           737
            1999                           719
            2000                           449
            After 2000                     765
                                       -------
                                       $ 4,474
                                       =======
<PAGE>
                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


Rental  expense was $861,000,  $1,116,000  and  $1,240,000 in fiscal years 1995,
1994 and 1993 respectively.

In conjunction with the sale of Arcar (see Note 3), Bagcraft entered into an ink
products  purchase  agreement  with the Arcar  buyer for a period of five years.
Under terms of the agreement,  Bagcraft is required to purchase a minimum supply
of ink based on market  prices in effect at the time of each  purchase.  Minimum
dollar amounts  required for each of the contract  years ending  September 30 is
$4,100,000 in 1996;  $4,300,000 in 1997; $4,500,000 in 1998; $3,375,000 in 1999;
and $2,250,000 in 2000.  Bagcraft has issued a letter of credit of $1,000,000 in
conjunction with this agreement.

The Company and its subsidiaries are the defendants in various  business-related
litigation  and  environmental  matters.  At December  28, 1995 and December 29,
1994,  the Company had accrued  $1,800,000  and  $1,500,000,  respectively,  for
business-related   litigation  and   environmental   liabilities.   While  these
litigation and environmental matters involve wide ranges of potential liability,
management  does not believe the outcome of these  matters  will have a material
adverse effect on the Company's  financial  statements.  However,  ARTRA may not
have available  funds to pay liabilities  arising out of these  business-related
litigation and environmental  matters or, in certain  instances,  to provide for
its legal defense.

In January,  1985 the United  States  Environmental  Protection  Agency  ("EPA")
notified the Company's Bagcraft subsidiary that it was a potentially responsible
party under the  Comprehensive  Environmental  Responsibility  Compensation  and
Liability  Act  ("CERCLA")  for alleged  release of hazardous  substances at the
Cross  Brothers  site near  Kankakee,  Illinois.  Although  Bagcraft  has denied
liability for the site, it has entered into a settlement agreement with the EPA,
along with the other third party  defendants,  to resolve all claims  associated
with the site except for state claims.  In May, 1994 Bagcraft paid $850,000 plus
accrued interest of $29,000 to formally extinguish the EPA claim. Bagcraft filed
suit in 1993 in the United States  District  Court for the Northern  District of
Illinois, against its insurers to recover its liability costs in connection with
the Cross Brothers case.  Bagcraft was  subsequently  reimbursed by its insurers
for its liability costs incurred in connection  with the EPA claim.  With regard
to the state action,  Bagcraft is participating  in settlement  discussions with
the State and thirteen other potential responsible parties to resolve all claims
associated  with the State.  The  maximum  state  claim is $1.1  million for all
participants.  Bagcraft has accrued  $120,000 related to the State action in the
Company's consolidated financial statements at December 28, 1995.

Bagcraft  was  listed  as a de  minimis  contributor  at the  American  Chemical
Services,  Inc. off-site  disposal  location in Griffith,  Indiana and the Duane
Marine off-site  disposal  location in Perth Amboy, New Jersey.  These sites are
included in the EPA's National  Priorities List. Bagcraft is presently unable to
determine its liability, if any, with respect to this site.

Bagcraft has been notified by the EPA that it is a potentially responsible party
for the  disposal  of  hazardous  substances  at the Ninth  Avenue site in Gary,
Indiana.  This site is listed on the EPA's National  Priorities list. A group of
defendant PRPs, known as the Ninth Avenue Remedial Group, settled with the USEPA
and agreed to remediate the site.  This Group  subsequently  sued numerous third
party defendants,  including Bagcraft, alleged also to be responsible parties at
the site. The plaintiffs have produced only limited testamentary  evidence,  and
no  documentary  evidence,  linking  Bagcraft to this site,  and the Company has
neither discovered any records which indicate, nor located any current or former
employees who have advised,  that Bagcraft deposited hazardous substances at the
site. Based on the foregoing, management of the Company does not believe that it
is  probable  that the  Company  will  have any  liability  for the costs of the
clean-up of this site. The Company  intends to vigorously  defend itself in this
case.

Bagcraft   is   presently   undertaking   a   soil   remediation   project   for
solvent-contaminated   soil  at  its   Chicago   manufacturing   facility.   The
environmental  firm responsible for implementing the remediation has recommended
that a soil vapor extraction  process be used, at an estimated cost of $175,000.
Although there can be no assurances that remediation  costs will not exceed this
estimate,  in the  opinion  of  management,  no  material  additional  costs are
anticipated.

In  April  1994,  the  EPA  notified  the  Company  that  it  was a  potentially
responsible party for the disposal of hazardous  substances  (principally  waste
oil) at a disposal site in Palmer,  Massachusetts  generated by a  manufacturing
facility formerly operated by the Clearshield Plastics Division  ("Clearshield")
of Harvel Industries,  Inc. ("Harvel"), a majority owned subsidiary of ARTRA. In
1985,  Harvel was merged into ARTRA's  Fill-Mor  subsidiary.  This site has been
included on the EPA's National  Priorities  List. In February 1983,  Harvel sold
the assets of Clearshield to Envirodyne.  The alleged waste disposal occurred in
1977 and 1978, at which time Harvel was a majority-owned subsidiary of ARTRA. In
May 1994,  Envirodyne and its Clearshield  National,  Inc. subsidiary sued ARTRA
for indemnification in connection with this proceeding.  The cost of clean-up at
the Palmer, Massachusetts site has been estimated to be approximately $7 million
<PAGE>

                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



according  to proofs of claim  filed in the  adversary  proceeding.  A committee
formed by the named potentially  responsible parties has estimated the liability
respecting the activities of Clearshield to be $400,000.  ARTRA has not made any
independent  investigation  of the  amount  of its  potential  liability  and no
assurances can be given that it will not substantially exceed $400,000.

In a case titled Sherwin-Williams Company v. ARTRA GROUP Incorporated,  filed in
1991 in the United States District Court for Maryland,  Sherwin-Williams Company
("Sherwin-Williams")  brought  suit against  ARTRA and other former  owners of a
paint  manufacturing  facility in  Baltimore,  Maryland for recovery of costs of
investigation and clean-up of hazardous  substances which were stored,  disposed
of or otherwise released at this manufacturing facility. This facility was owned
by Baltimore  Paint and Chemical  Company,  formerly a subsidiary  of ARTRA from
1968 to 1980.  Sherwin-William's  current  projection of the cost of clean-up is
approximately  $5 to $6 million.  The Company  has filed  counterclaims  against
Sherwin-Williams  and cross claims  against other former owners of the property.
The Company also is  vigorously  defending  this action and has raised  numerous
defenses.  Currently,  the case is in its  early  stages  of  discovery  and the
Company cannot determine what, if any, its liability may be in this matter.

ARTRA was named as a defendant  in United  States v.  Chevron  Chemical  Company
brought  in the  United  States  District  Court  for the  Central  District  of
California  respecting  Operating  Industries,   Inc.  site  in  Monterey  Park,
California. This site is included on the EPA's National Priorities List. ARTRA's
involvement  stemmed from the alleged  disposal of hazardous  substances  by The
Synkoloid  Company  ("Synkoloid")  subsidiary  of  Baltimore  Paint and Chemical
Company,  which was formerly owned by ARTRA.  Synkoloid  manufactured  spackling
paste, wall coatings and related products,  certain of which generated hazardous
substances as a by-product of the manufacturing process.

ARTRA  entered  into a  consent  decree  with the EPA in which it  agreed to pay
$85,000  for one phase of the  clean-up  costs  for this  site;  however,  ARTRA
defaulted on its payment  obligation.  ARTRA is presently unable to estimate the
total  potential  liability for clean-up  costs at this site,  which clean-up is
expected to continue for a number of years.  The consent decree,  even if it had
been honored by ARTRA,  was not  intended to release  ARTRA from  liability  for
costs  associated with other phases of the clean-up at this site. The Company is
presently  unable determine what, if any,  additional  liability it may incur in
this matter.

In a case  titled  City of  Chicago  v. NL  Industries,  Inc.  and  ARTRA  GROUP
Incorporated,  filed in the Circuit Court of Cook County,  Illinois, the City of
Chicago  alleged that ARTRA (and NL  Industries,  Inc.) had  improperly  stored,
discarded and disposed of hazardous  substances  at the subject  site,  and that
ARTRA had conveyed the site to Goodwill  Industries to avoid clean-up  costs. At
the time the suit was  filed,  the  City of  Chicago  claimed  to have  expended
$1,000,000 in clean-up costs.

ARTRA and NL Industries,  Inc. have counter sued each other and have filed third
party actions against the subsequent owners of the property. The City of Chicago
has made an offer to settle the matter for $350,000 for all parties. The parties
are currently conducting discovery. The Company is presently unable to determine
ARTRA's liability, if any, in connection with this case.

In a case titled  Illinois  Environmental  Protection  Agency v. NL  Industries,
Inc., ARTRA GROUP  Incorporated,  et al, the Illinois  Environmental  Protection
Agency filed suit alleging all former owners contributed to the contamination of
the site. The suit was dismissed, but subject to possible appeal. The Company is
presently unable to determine ARTRA's liability, if any, in connection with this
case.

The EPA has identified  ARTRA GROUP  Incorporated  as a potentially  responsible
party in an action  involving  the  former  manufacturing  facility.  The EPA is
currently   investigating   the  site  to  determine  the  extent  and  type  of
contamination,  if any.  The Company is presently  unable to  determine  ARTRA's
liability, if any, in connection with this case.
<PAGE>

                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



16.    INCOME TAXES

The  provision  (credit)  for income  taxes is  included  in the  statements  of
operations as follows:

                                       1995            1994           1993
                                    ---------       ---------      ---------
                                                 (in  thousands)
    Continuing operations           $      51       $       9      $       7
    Discontinued  operations               17              74             33
                                    ---------       ---------      ---------  
                                    $      68       $      83      $      40
                                    =========       =========      =========


A summary of the provision (credit) for income taxes is as follows:

                                       1995            1994           1993
                                    ---------       ---------      ---------
                                                 (in  thousands)
    Current:
      Federal                       $       -       $       -      $       -
      State                                68              83             40
                                    ---------       ---------      ---------
                                    $      68       $      83      $      40
                                    =========       =========      =========


The 1995, 1994 and 1993 extraordinary credits represent net gains from discharge
of indebtedness.  No income tax expense is reflected in the Company's  financial
statements  resulting from the  extraordinary  credits due to the utilization of
tax loss carryforwards.
<PAGE>

                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



16.    INCOME TAXES, continued

In 1995,  1994 and 1993,  the  effective  tax rates from  operations,  including
discontinued operations were (3.9)%, (.4)% and .3%, respectively, as compared to
the statutory Federal rate, which are reconciled as follows:


                                       1995            1994           1993
                                     ---------      ---------     ---------- 
                                                 (in  thousands)

   Provision (credit) for      
     income taxes
     using statutory rate            $   (600)      $ (6,629)     $    4,992
   State and local taxes,
     net of Federal benefit                 68             73              7
   Current year tax 
     loss not utilized                       -          3,151          1,938
   Amortization of goodwill                155            206            212
   Previously unrecognized 
     benefit from  utilizing 
     tax loss carryforwards             (2,136)             -              -
   Effect of not including 
     all subsidiaries in the 
     consolidated tax return             2,546          3,249         (7,113)
    Other                                   35             33              4
                                     ---------      ---------     ----------    
                                     $      68      $      83     $       40
                                     =========      =========     ==========
<PAGE>

                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



16.    INCOME TAXES, continued

The  types  of  temporary  differences  between  the tax  bases  of  assets  and
liabilities and their financial reporting amounts that give rise to the deferred
tax  liabilities  and  deferred tax assets at December 28, 1995 and December 29,
1994 and their approximate tax effects (in thousands) are as follows:

<TABLE>
<CAPTION>
                                                                  1995                         1994
                                                       ---------------------------- -----------------------------
                                                        Temporary        Tax            Temporary        Tax       
                                                        Difference    Difference        Difference    Difference
                                                        ----------    ----------        ----------    ----------
<S>                                                     <C>           <C>               <C>           <C>        
  Trade accounts receivable                             $      200    $      100        $    1,700    $       700
  Inventories                                                    -             -               400            200
  Investment in Emerald Acquisition Corporation                  -             -            18,600          7,200
  Accrued personnel costs                                    1,800           700             1,900            800
  Restructuring reserve                                        200           100             1,100            400
  Environmental reserve                                        400           200               400            200
  Other                                                      2,900         1,100             2,600          1,000
  Capital loss carryforward                                 11,000         4,300                 -             -
  Net operating loss                                        44,000        17,200            97,000         37,800
                                                                        --------                          -------
            Total deferred tax assets                                     23,700                           48,300
                                                                        --------                          -------

  Inventories                                               (6,700)       (2,600)           (6,100)        (2,400)
  Accumulated depreciation                                  (7,900)       (3,100)           (9,500)        (3,700)
  Other                                                       (800)         (300)             (400)          (200)
                                                                        --------
            Total deferred tax liabilities                                (6,000)                          (6,300)
                                                                        --------                          -------
            Valuation allowance                                          (17,700)                         (42,000)
                                                                        --------                          -------
            Net deferred tax asset                                      $      -                          $     - 
                                                                        ========                          ======= 
                                                                    
</TABLE>

The Company has  recorded a valuation  allowance  with respect to the future tax
benefits and the net operating loss reflected in deferred tax assets as a result
of the uncertainty of their ultimate realization.

At December 28, 1995,  the Company and its  subsidiaries  had Federal income tax
loss carryforwards of approximately  $44,000,000 available to be applied against
future taxable income,  if any. ARTRA's tax loss  carryforwards of approximately
$33,000,000   expire   principally  in  2003  -  2010.   Additionally,   ARTRA's
discontinued  Ultrasonix  and Ratex  subsidiaries  had  Federal  income tax loss
carryforwards  of  approximately  $11,000,000  available  to be applied  against
future taxable income, if any. In recent years, the Company has issued shares of
its  common  stock to repay  various  debt  obligations,  as  consideration  for
acquisitions,  to fund working  capital  obligations  and as  consideration  for
various  other  transactions.  Section 382 of the Internal  Revenue Code of 1986
limits a corporation's  utilization of its Federal income tax loss carryforwards
when certain changes in the ownership of a corporation's common stock occurs. In
the  opinion  of  management,  the  Company  is not  currently  subject  to such
<PAGE>

                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



limitations   regarding  the   utilization   of  its  Federal  income  tax  loss
carryforwards.  Should the  Company  continue to issue a  significant  number of
shares of its common stock,  it could trigger a limitation that would prevent it
from   utilizing  a  substantial   portion  of  its  Federal   income  tax  loss
carryforwards.


17.   EMPLOYEE BENEFIT PLANS

The Company and its subsidiaries have certain  contributory and  noncontributory
benefit  plans  covering   eligible   employees.   Both  employee  and  employer
contributions are generally determined as a percentage of the covered employee's
annual compensation. The total expense charged to continuing operations from all
of these plans  amounted to $477,000,  $333,000  and $450,000 in 1995,  1994 and
1993, respectively.

Effective  June 1, 1990, the Company  adopted an Employee  Stock  Ownership Plan
("ESOP")  which  covers   eligible   employees  of  ARTRA  and  certain  of  its
subsidiaries.  Employer  contributions  to the  Plan  are at the  discretion  of
ARTRA's  Board  of  Directors.   Employee   contributions   are  not  permitted.
Contributions  are  allocated in the same  proportion  that the  percentage of a
participant's  compensation  for the Plan year bears to the  compensation of all
participants  for the Plan year.  ARTRA  contributed  8,750 common shares to the
Plan with a fair  market  value of  $42,000  ($4.75 per share) for the plan year
ending  December 28, 1995.  ARTRA  contributed  15,000 common shares to the Plan
with a fair market  value of $71,250  ($4.75 per share) for the plan year ending
December 29, 1994.  ARTRA  contributed  65,000  common shares to the Plan with a
fair  market  value of  $423,000  ($6.50  per  share)  for the plan year  ending
December 30, 1993. At December 28, 1995,  the ESOP held 271,775  shares of ARTRA
common stock.

Effective  August 1, 1995,  the Company  terminated the ESOP and is currently is
the process of distributing the related Employee accounts to participants.

The Company  typically  does not offer the types of benefit  programs  that fall
under the  guidelines of Statement of Financial  Accounting  Standards No. 106 -
Employers Accounting for Post Retirement Benefits Other Than Pensions.


18.   EARNINGS PER SHARE

Earnings  (loss) per share is computed by dividing  net  earnings  (loss),  less
redeemable  preferred stock dividends and redeemable common stock accretion,  by
the  weighted  average  number  of  shares of  common  stock  and  common  stock
equivalents  (redeemable  common  stock,  stock  options and  warrants),  unless
anti-dilutive,  outstanding during each period. Fully diluted earnings per share
is not presented since the result is equivalent to primary earnings per share.


19.    INDUSTRY SEGMENT INFORMATION

At December 28, 1995, the Company,  through its Bagcraft  subsidiary operates in
one industry segment as a manufacturer of packaging products principally serving
the food industry.

Prior to September  28, 1995 and in prior years,  ARTRA's  then  majority  owned
subsidiary,  Lori,  operated as a designer  and  distributor  of  popular-priced
fashion costume jewelry and accessories. In recent years, Lori's fashion costume
jewelry operations had experienced a pattern of significantly lower sales levels
and related  operating losses primarily due to a shift in the buying patterns of
its major customers (i.e.  certain mass  merchandisers)  from  participation  in
Lori's service program to purchases of costume jewelry and accessories  directly
from  manufacturers  and  due to a  continued  unfavorable  retail  environment.
Accordingly,  in September, 1995, Lori adopted a plan to discontinue its fashion
costume jewelry business as discussed in Note 3.
<PAGE>

                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


As  discussed in Note 3, on September  11,  1995,  Lori signed a stock  purchase
agreement  to  participate  in the  acquisition  of one  hundred  percent of the
capital  stock  of  Global.  Global  provides  telecommunications  and  computer
technical  staffing and consulting  services  worldwide to Fortune 500 companies
and maintains an extensive,  global database of technical  specialists,  with an
emphasis on  wireless  communications  capability.  On October  17,  1995,  Lori
completed the acquisition of one hundred percent of the capital stock of Global.
In  connection  with the  re-focus  of its  business,  Lori  changed its name to
COMFORCE Corporation.

Due to  the  issuances  of  COMFORCE  common  shares  in  conjunction  with  the
acquisition of Global, ARTRA's common stock ownership in COMFORCE was reduced to
approximately  25%.  Accordingly,  in October 1995, the accounts of COMFORCE and
its   majority-owned   subsidiaries   were   deconsolidated   from  the  ARTRA's
consolidated  financial  statements  and  ARTRA's  investment  in  COMFORCE  was
accounted  for under the  equity  method  through  the end of  fiscal  1995.  As
discussed in Note 6, effective  December 28, 1995, the Company  adopted SFAS No.
115 "Accounting for Certain  Investments in Debt and Equity  Securities."  Under
this  statement,  at December 28, 1995, the Company's  investment in COMFORCE is
classified as available for sale and is stated at fair value.

No single  customer  accounted  for more than 10% of  consolidated  net sales in
1995, 1994 and 1993.


20.   LITIGATION

On November 2, 1993,  ARTRA  filed suit in the Circuit  Court of the  Eighteenth
Judicial  Circuit for the state of Illinois (the "State Court  Action")  against
Salomon  Brothers,  Inc.,  Salomon Brothers Holding  Company,  Inc.,  Charles K.
Bobrinskoy,  Michael J. Zimmerman  (collectively,  "Salomon  Defendants"),  D.P.
Kelly & Associates, L.P. ("DPK"), Donald P. Kelly ("Kelly Defendants" along with
DPK), James F. Massey and William  Rifkind.  On November 22, 1993, ARTRA filed a
First Amended Complaint. The defendants removed the case to the Bankruptcy Court
in which the Emerald Chapter 11 case is pending. On July 15, 1994 all but two of
ARTRA's causes of action were remanded to the state court.  The Bankruptcy Court
retained  jurisdiction  of ARTRA's  claims  against the defendants for breaching
their  fiduciary  duty as  directors  of  Emerald  to  Emerald's  creditors  and
interference with ARTRA's contractual  relations with Emerald. On April 7, 1995,
the Company's appeal of the Bankruptcy Court's order retaining jurisdiction over
two claims was denied.  On July 26, 1995, the Bankruptcy  Court entered an order
dismissing  these claims.  On August 4, 1995, ARTRA appealed from the Bankruptcy
Court's  dismissal  order.  That  appeal is still pending.

On July 18, 1995,  ARTRA filed a Fourth Amended  Counterclaim in the State Court
Action for breach of fiduciary  duty,  fraudulent  misrepresentation,  negligent
misrepresentation, breach of contract and promissory estopel. In the State Court
Action, ARTRA seeks compensatory damages of $136.2 million,  punitive damages of
$408.6 million and approximately $33 million in fees paid to Salomon. The causes
of action for breach of the fiduciary duty of due care were repleaded to reserve
ARTRA's right to appeal the State  Court's  dismissal of the causes of action in
the Third  Amended  Complaint.  Defendant  Kelly was  dismissed  with  prejudice
pursuant to a stipulation between ARTRA and the Kelly Defendants.

On or about  March 1, 1996,  DPK  brought a motion for  summary  judgment  as to
ARTRA's claims for breach of contract and promissory  estoppel.  DPK's motion is
currently pending

Effective  December  31,  1989,  ARTRA  completed  the  disposal  of its  former
scientific  products  segment  with the sale of its Welch  subsidiary,  formerly
Sargent-Welch   Scientific  Company,  to  a  privately  held  corporation  whose
president and sole  shareholder was a vice president of Welch prior to the sale.
The  consideration  received by ARTRA  consisted of $2,625,000  payable June 30,
1997,  with  interest  at  10%  beginning  June  30,  1990,  under  terms  of  a
noncompetition  agreement  and the buyer's  subordinated  note in the  principal
amount of  $2,500,000.  The  receivable  due June 30,  1997  under  terms of the
noncompetition agreement was reflected in ARTRA's condensed consolidated balance
sheet at  December  29, 1994 in other  assets at  $2,625,000.  The  subordinated
security, due in 1997, was originally scheduled to be non-interest bearing for a
<PAGE>

                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



period of three years,  after which time interest will accrue at the rate of 10%
per annum.  The note was  discounted  at a rate of 10%  during the  non-interest
bearing  period and was  reflected  in  ARTRA's  consolidated  balance  sheet at
December  29,  1994  in  other  assets  at  $1,375,000,  net  of a  discount  of
$1,125,000.

In December,  1991 Welch filed a lawsuit  against  ARTRA  alleging  that certain
representations, warranties and covenants made by ARTRA, which were contained in
the  parties'  Stock  Purchase   Agreement,   were  false.   Welch  was  seeking
compensatory damages in the amount of $3,800,000.  Subsequently, ARTRA had filed
a  counterclaim  predicated  upon  Welch's  breach of the  payment  terms of the
parties' Non-Competition  Agreement and the Subordinated Note executed by Welch.
ARTRA was seeking damages in the amount of approximately $5,300,000 plus accrued
interest. On November 23, 1994, the Circuit Court of Cook County Law Division in
Chicago  granted a judgment  in favor of ARTRA  affirming  the  validity  of the
amounts due under the  Non-Competition  Agreement and the  Subordinated  Note of
$2,625,000 and $2,500,000, respectively.

In June 1995 ARTRA  entered  into an  agreement  to settle  amounts due ARTRA by
Welch under terms of the noncompetition agreement and the subordinated security.
Per terms of the settlement  agreement,  ARTRA received cash of $3,000,000 and a
subordinated note in the principal amount of $640,000 payable June 30, 2001.

In January,  1985 the United  States  Environmental  Protection  Agency  ("EPA")
notified the Company's Bagcraft subsidiary that it was a potentially responsible
party under the  Comprehensive  Environmental  Responsibility  Compensation  and
Liability  Act  ("CERCLA")  for alleged  release of hazardous  substances at the
Cross  Brothers  site near  Kankakee,  Illinois.  Although  Bagcraft  has denied
liability for the site, it has entered into a settlement agreement with the EPA,
along with the other third party  defendants,  to resolve all claims  associated
with the site except for state claims.  In May, 1994 Bagcraft paid $850,000 plus
accrued interest of $29,000 to formally extinguish the EPA claim. Bagcraft filed
suit in 1993 in the United States  District  Court for the Northern  District of
Illinois, against its insurers to recover its liability costs in connection with
the Cross Brothers case.  Bagcraft was  subsequently  reimbursed by its insurers
for its liability costs incurred in connection  with the EPA claim.  With regard
to the state action,  Bagcraft is participating  in settlement  discussions with
the State and thirteen other potential responsible parties to resolve all claims
associated  with the State.  The  maximum  state  claim is $1.1  million for all
participants.  Bagcraft has accrued  $120,000 related to the State action in the
Company's consolidated financial statements at December 28, 1995.

The  Company  and  its   subsidiaries   are  the  defendants  in  various  other
business-related  litigation and environmental matters (see Note 15). Management
does not  believe  the  outcome of these  matters  will have a material  adverse
effect on the Company's financial statements.
<PAGE>

                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



21.    RELATED PARTY TRANSACTIONS

Advances to Peter R. Harvey,  ARTRA's president,  classified in the Consolidated
Balance Sheet as a reduction of common shareholders' equity, consist of:

                                                    December 28,    December 29,
                                                        1995           1994
                                                     ---------      --------- 
                                                        (in  thousands)

    ARTRA                                            $   5,369      $   3,205
    Fill-Mor                                                 -          1,510
                                                     ---------      --------- 
                                                         5,369          4,715
    Less interest for the period 
      January 1, 1993 to date, 
      accrued and fully reserved                        (1,051)          (615)
                                                     ---------      --------- 
                                                     $   4,318      $   4,100
                                                     =========      =========


ARTRA has total  advances  due from its  president,  Peter R.  Harvey,  of which
$5,369,000 and $3,205,000,  including accrued interest,  remained outstanding at
December 28, 1995 and December 29, 1994 The advances  bear interest at the prime
rate plus 2% (10.5% at December 28, 1995 and December 29, 1994). This receivable
from Peter R. Harvey has been classified as a reduction of common  shareholders'
equity. See Note 9 for an additional 1996 advance for Mr. Harvey's prorata share
of debt  discharged  by a bank.  The debt  discharge was  principally  funded by
ARTRA.

In May, 1991, ARTRA's wholly-owned Fill-Mor subsidiary made advances to Peter R.
Harvey.  The advances  provided for interest at the prime rate plus 2%. At March
30,  1995  and  December  29,  1994,  advances  of  $1,540,000  and  $1,510,000,
respectively,  including accrued interest,  were  outstanding.  In April,  1995,
these  advances  from  ARTRA's  Fill-Mor  subsidiary  to  Peter R.  Harvey  were
transferred to ARTRA as a dividend.

Commencing January 1, 1993 to date,  interest on all advances to Peter R. Harvey
has been accrued and fully reserved.  Interest accrued and fully reserved on the
advances to Peter R. Harvey for the years ended  December  28, 1995 and December
29, 1994 totaled $436,000 and $341,000, respectively.

Peter R.  Harvey  has not  received  other  than  nominal  compensation  for his
services  as an officer or director  of ARTRA or any of its  subsidiaries  since
October  of  1990.  Additionally,  Mr.  Harvey  has  agreed  not to  accept  any
compensation  for his  services as an officer or director of ARTRA or any of its
subsidiaries  until  his  obligations  to  ARTRA,  described  above,  are  fully
satisfied.

Under  Pennsylvania  Business  Corporation  Law of 1988,  ARTRA (a  Pennsylvania
corporation)  is  permitted to make loans to officers  and  directors.  Further,
under the Delaware General Corporation Law, Fill-Mor (a Delaware corporation) is
permitted  to make  loans to an officer  (including  any  officer  who is also a
director,  as in the case of Peter R. Harvey),  whenever, in the judgment of the
directors, the loan can reasonably be expected to benefit Fill-Mor.
<PAGE>

                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



At the September 19, 1991 meeting, ARTRA's Board of Directors discussed, but did
not act on a proposal to ratify the  advances  made by ARTRA to Peter R. Harvey.
The 1992  advances made by ARTRA to Mr. Harvey were ratified by ARTRA's Board of
Directors.  In the case of the loan made by Fill-Mor to Mr. Harvey, the Board of
Directors of Fill-Mor  approved the borrowing of funds from Fill-Mor's bank loan
agreement, a condition of which was the application of a portion of the proceeds
thereof to the payment of certain of Mr. Harvey's loan  obligations to the bank.
However,  the  resolutions did not acknowledge the use of such proceeds for this
purpose  and the  formal  loan  documents  with the bank did not set forth  this
condition (though in fact, the proceeds were so applied by the bank).

As partial  collateral  for  amounts due from Peter R.  Harvey,  the Company has
received the pledge of 1,523 shares of ARTRA redeemable  preferred stock (with a
liquidation value of $1,523,000,  plus accrued dividends) which are owned by Mr.
Harvey.  In  addition,  Mr.  Harvey has  pledged a 25%  interest  in  Industrial
Communication Company (a private company). Such interest is valued by Mr. Harvey
at $800,000 to  $1,000,000.  During 1995,  Peter R. Harvey entered into a pledge
agreement with ARTRA whereby Mr. Harvey pledged additional collateral consisting
of  42,067  shares  of  ARTRA  common  stock  and  707,281   shares  of  PureTec
Corporation, a publicly traded corporation.

In  conjunction  with Lori's  October 1995  acquisition  of Global (see Note 3),
ARTRA has agreed to assume certain  pre-existing  Lori liabilities and indemnify
COMFORCE  in the event any  future  liabilities  arise  concerning  pre-existing
environmental  matters and business related litigation.  Accordingly,  ARTRA has
accrued $4,500,000 of Lori liabilities classified in its consolidated balance at
December 28, 1995 as current liabilities of discontinued operations.

For a discussion of certain other related party debt obligations see Note 9.
<PAGE>
                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES
           SCHEDULE I . CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                            ARTRA GROUP INCORPORATED
                                 BALANCE SHEETS
                         (Registrant Only In Thousands)


                                                    December 28,  December 29,
                                                         1995         1994
                                                      ---------    ---------

                             ASSETS
Current assets:
   Cash                                                 $2,347          $91
   Receivables                                              25           55
   Other current assets                                     85           87
                                                      ---------    ---------
                                                         2,457          233
                                                      ---------    ---------

Property, plant and equipment                               25           19
Less accumulated depreciation and amortization              14            6
                                                      ---------    ---------
                                                            11           13
                                                      ---------    ---------

Other assets:
   Investments in and advances to affiliates             2,567      (15,264)
   Other                                                     -        4,000
                                                      ---------    ---------
                                                         2,567      (11,264)
                                                      ---------    ---------
                                                        $5,035     ($11,018)
                                                      =========    =========


                          LIABILITIES
Current liabilities:
   Notes payable and current maturities 
     of long-term debt                                 $25,300      $28,053
   Accounts payable                                        509        1,576
   Accrued expenses                                      9,323        9,702
   Income taxes                                            200          138
                                                      ---------    ---------
                                                        35,332       39,469
                                                      ---------    ---------

Redeemable common stock                                  4,774        4,144
                                                      ---------    ---------

Redeemable preferred stock                               3,694        3,129
                                                      ---------    ---------

                 SHAREHOLDERS' EQUITY (DEFICIT)
Common stock                                             5,540        5,052
Additional paid-in capital                              38,526       36,613
Unrealized appreciation of investments                  21,047            -
Receivable from related party, 
  including accrued interest                            (4,318)      (4,100)
Accumulated deficit                                    (98,755)     (94,520)
                                                      ---------    ---------
                                                       (37,960)     (56,955)
Less treasury stock, at cost                               805          805
                                                      ---------    ---------
                                                       (38,765)     (57,760)
                                                      ---------    ---------
                                                        $5,035     ($11,018)
                                                      =========    =========


The  accompanying  notes  are  an  integral  part  of  the  condensed  financial
information.
<PAGE>
                                                                 
                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES
           SCHEDULE I . CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                            ARTRA GROUP INCORPORATED
                            STATEMENTS OF OPERATIONS
                         (Registrant Only In Thousands)



                                                          Fiscal Year
                                                -----------------------------
                                                  1995      1994*     1993*
                                                --------  ---------  --------

Selling, general and administrative expenses     $1,760     $2,158    $1,907
Depreciation and amortization                        27          4         2
Interest expense                                  4,953      3,139     2,641
Equity in loss of affiliates                      7,817      6,129     3,423
Other expense, net                                  424        308        85
                                                --------  ---------  --------
Loss from continuing operations
   before income taxes                          (14,981)   (11,738)   (8,058)
Charge equivalent to  income taxes               (1,962)    (1,791)     (269)
                                                --------  ---------  --------

Loss from continuing operations                 (16,943)   (13,529)   (8,327)

Equity in earnings (loss) 
    of discontinued affiliate                        10    (15,906)     (216)
                                                --------  ---------  --------
Loss before extraordinary credit                (16,933)   (29,435)   (8,543)

Extraordinary credit, 
    net discharge of indebtedness                14,030      8,965    22,057
                                                --------  ---------  --------

Net earnings (loss)                             ($2,903)  ($20,470)  $13,514
                                                ========  =========  ========




The  accompanying  notes  are  an  integral  part  of  the  condensed  financial
information.






______________________________________________
*  As reclassified for discontinued operations.

<PAGE>
                                                              
                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES
           SCHEDULE I . CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                            ARTRA GROUP INCORPORATED
                             STATEMENTS OF CASHFLOWS
                         (Registrant Only In Thousands)

<TABLE>
<CAPTION>

                                                                                            Fiscal Year
                                                                                 -------------------------------
                                                                                   1995        1994      1993
                                                                                 --------    ---------  --------
<S>                                                                              <C>         <C>        <C>
Cash flows from operating activities:
   Net earnings (loss)                                                           ($2,903)    ($20,470)  $13,514
     Adjustments to reconcile net loss
     to cash flows from operating activities:
        Extraordinary gain from net discharge of indebtedness                    (14,030)      (8,965)  (22,057)
        Equity in loss of affiliates                                               7,817        6,129     3,423
        Equity in (earnings) loss of discontinued operations                         (10)      15,906       216
        Gain on sale of property, plant and equipment                                  -            -         -
        Other, principally common stock issued as compensation                     1,370          489       392
        Changes in assets and liabilities:
            Increase (decrease) in other current and noncurrent assets                32           56       (42)
            Increase in other current and noncurrent liabilities                   1,738        2,152     1,076
           (Increase) decrease in receivable from related party                     (218)        (257)       42
                                                                                 --------    ---------  --------
Net cash flows used by operating activities                                       (6,204)      (4,960)   (3,436)
                                                                                 --------    ---------  --------

Cash flows from investing activities:
   Proceeds from collection of Welch notes                                         3,000            -         -
   Proceeds from sale of property, plant and equipment                                 -            -         -
   Proceeds from sale of BCA Holdings preferred stock                                  -            -     3,000
   Dividends and advances from (to) subsidiaries                                       -         (772)    1,824
   Additions to property, plant and equipment                                         (6)          (9)      (10)
                                                                                 --------    ---------  --------
Net cash flows from (used by) investing activities                                 2,994         (781)    4,814
                                                                                 --------    ---------  --------

Cash flows from financing activities:
   Proceeds from private placements of ARTRA common stock                              -        3,230         -
   Proceeds from exercise of stock options and warrants                               48           30       129
   Net increase (decrease) in short-term borrowings                                5,488        1,226      (158)
   Exercise of redeemable common stock options                                       (70)         (50)        -
                                                                                 --------    ---------  --------
Net cash flows from (used by) financing activities                                 5,466        4,436       (29)
                                                                                 --------    ---------  --------

Net increase (decrease) in cash                                                    2,256       (1,305)    1,349
Cash balance beginning of year                                                        91        1,396        47
                                                                                 --------    ---------  --------
Cash balance end of year                                                          $2,347          $91    $1,396
                                                                                 ========    =========  ========


Supplemental schedule of noncash investing and financing activities:
   Issue common stock and redeemable common stock
     to pay down current liabilities                                              $1,040         $756    $1,636
    ARTRA common stock issued to Lori's bank lender as partial
       consideration for discharge of indebtedness                                    -         2,500         -


<FN>
The  accompanying  notes  are  an  integral  part  of  the  condensed  financial
information.
</FN>
</TABLE>
<PAGE>

                ARTRA GROUP INCORPORATED AND SUB AND SUBSIDIARIES
        SCHEDULE I. CONDENSED FINANCIAL INFORMATION OF REGISTRANT-(Cont.)

                            ARTRA GROUP INCORPORATED
                         NOTES TO FINANCIAL INFORMATION
                                (Registrant Only)


1.   Presentation

The  condensed  financial  information  of the  Registrant  has been prepared in
accordance with the  instructions  for Schedule I to Form 10-K. The Registrant's
investments in subsidiaries and affiliates are presented on the equity method.

2.   Commitments and Contingencies

See Note 15 of the consolidated financial statements.

3.   Restricted Assets

The terms of several agreements place certain  restrictions on the net assets of
certain operating subsidiaries. See Notes 9 and 10 of the consolidated financial
statements for additional information.

4.   Notes Payable and Long-Term Debt

See Notes 9 and 10 of the consolidated financial statements.

5.   Redeemable Common and Preferred Stock and Stock Options

See Notes 11, 12 and 13 of the consolidated financial statements.

6.   Income Taxes

The Registrant files a consolidated income tax return with its 80% or more owned
subsidiaries.  Separate returns are filed by the Company's  majority-owned,  but
less  than  80%  owned  subsidiaries.  For  financial  reporting  purposes,  the
Registrant's   charge  or  benefit  equivalent  to  income  tax  represents  the
difference  between the aggregate of income taxes computed on a separate  return
basis for each of the  subsidiaries and affiliates and the income taxes computed
on a consolidated basis.

7.   Guarantees of Subsidiaries' Obligations

See Notes 3 and 21 of the consolidated  financial statements for a discussion of
guarantees of subsidiary obligations.

<PAGE>
                               
                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES
                 SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
    for each of the three fiscal years in the period ended December 28, 1995
                                 (in thousands)

<TABLE>
<CAPTION>

              Column A                                 Column B             Column C             Column D        Column E
              --------                                 --------             --------             --------        --------
                                                                            Additions
                                                                     ---------------------- 

                                                                        (1)          (2)                      
                                                       Balance at    Charged to  Charged to
                                                      Beginning of   Costs and      Other       Deductions       Balance at
             Description                                 Period       Expenses     Accounts     (Describe)     End of Period
         -------------------                           ---------    ----------   -----------    ----------     -------------
<S>                                                    <C>          <C>                           <C>              <C> 
For the fiscal year ended December 28, 1995:

   Deducted from assets to which they apply:

      Allowance for inventory valuation                $     207    $      315                    $   (232)(A)     $     290
                                                       =========    ==========                    ========         =========

      Allowance for markdowns                          $     835    $      291                    $ (1,126)(A)     $       -

      Allowance for doubtful accounts                        819           487                      (1,056)(A)           250
                                                        --------    ----------                    --------         ---------

                                                        $  1,654    $      778                    $ (2,182)        $     250
                                                        ========    ==========                    ========         =========
                                                                                                       

For the fiscal year ended December 29, 1994:

   Deducted from assets to which they apply:

      Allowance for inventory valuation                 $  4,315     $     218                    $ (4,326)(D)     $     207
                                                        ========     =========                    ========         =========

      Allowance for markdowns                           $  2,499      $  4,799                    $ (6,463)(B)     $     835

      Allowance for doubtful accounts                        595           445                        (221)(C)           819
                                                        --------      --------                    --------         ---------

                                                        $  3,094      $  5,244                    $ (6,684)        $   1,654
                                                        ========      ========                    ========         =========
                                                                                                       

For the fiscal year ended December 30, 1993:

   Deducted from assets to which they apply:

      Allowance for inventory valuation                 $  4,900     $     337                    $   (922)(D)      $  4,315
                                                        ========     =========                    ========          ========

      Allowance for markdowns                           $  5,280      $  5,722                    $ (8,503)(B)      $  2,499

      Allowance for doubtful accounts                        671           450                        (526)(C)           595
                                                        --------      --------                    --------          --------

                                                        $  5,951      $  6,172                    $ (9,029)         $  3,094
                                                        ========      ========                    ========          ========
                                                                                                          
<FN>
(A) Principally amounts of discontinued  operations. 
(B) Principally  markdowns taken. 
(C) Principally uncollectible accounts written off, net of recoveries.
(D) Principally inventory written off, net of recoveries.
</FN>
</TABLE>
<PAGE>



                       CONSENT OF INDEPENDENT ACCOUNTANTS


We consent to the  incorporation by reference in the  registration  statement of
ARTRA GROUP  Incorporated  on Form S-1 (File No.         ) of our report,  which
includes an explanatory  paragraph  referring to an  uncertainty  concerning the
Company's  ability  to continue as a going  concern,  dated April 9, 1996 on our
audits  of  the  consolidated   financial  statements  and  financial  statement
schedules of ARTRA GROUP  Incorporated  as of December 28, 1995 and December 29,
1994,  and for each of the three fiscal  years in the period ended  December 28,
1995.




COOPERS & LYBRAND L.L.P.


Chicago, Illinois
November 26, 1996

<PAGE>


                                     PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS



Item 13. Other Expenses of Issuance and Distribution

         The  expenses  estimated  to be  incurred  (other  than the fees of the
Commission  which are actual) in connection with the offering,  all of which are
payable by the Registrant, are as follows:


                        Description                       Amount
---------------------------------------------           ---------- 

         SEC Registration Fee                             $ 8,685

         Printing Costs                                         0

         Legal Fees                                       150,000*

         Accounting Fees                                   50,000*

         Blue Sky Fees and Expenses                         1,625

         Miscellaneous                                     14,690*
                                                          ------- 
         Total                                          $ 225,000*
                                                          =======

         -----------
         * Estimate


Item 14. Indemnification of Directors and Officers.

         Reference  is made  to the  discussion  in Part I of this  Registration
Statement under "Indemnification of Officers and Directors," which discussion is
incorporated herein by reference.

Item 15. Recent Sales of Unregistered Securities.

         Kwiatt,  Silverman & Ruben,  Ltd.,  Northfield,  Illinois,  has advised
Registrant as to the availability of the exemptions from registration  under the
Securities  Act of 1993  described  in this Item 15. This firm has also  advised
Registrant that shares of Registrant's  Common Stock issued upon the exercise of
options  issued  under   Registrant's  1985  Incentive  Stock  Option  Plan  are
registered pursuant to a Registration Statement on Form S-8 of Registrant.
Accordingly, such shares are not described below.

         Set forth below is a list of the Warrants  issued by  Registrant  since
November 1, 1991.  Registrant relied upon the exemption afforded by Section 4(2)
of the  Securities  Act of  1933  in  issuing  these  Warrants,  principally  as
additional  consideration  in  connection  with the  extension  of credit by the
Warrantholder or, in certain cases,  other  transactions.  Each Warrant provides
for the purchase of shares of Common Stock at a stated exercise price, which was
the date  Registrant  and the  holder  agreed to the  transaction  for which the
Warrant  was  awarded  as  additional  consideration.  No  underwriting  fees or
commissions were paid in connection with the issuance of these Warrants.

                                      II-1

<PAGE>





LIST OF WARRANTS ISSUED SINCE NOVEMBER 10, 1992  (AS OF SEPTEMBER 26, 1996)


                                        Issuance     Number of     Exercise
Warrant Holder                            Date         Shares       Price
-----------------------------------    ----------     --------     -------

Clinton Industries                       11-10-92       75,001      $5.000
John Harvey                              02-01-94        4,700      $5.500
John Harvey                              03-30-94        1,500      $5.625
John Harvey                              01-19-95        6,000      $4.750
John Harvey                              04-28-95       11,667      $3.750
John Harvey                              04-28-95        7,800      $4.750
John Harvey                              07-27-95        8,426      $4.250
John Harvey                              09-30-95        4,019      $4.625
John Harvey                              10-31-95        4,019      $4.875
John Harvey                              11-30-95        4,019      $4.375
John Harvey                              12-31-95        8,038      $6.125
John Harvey                              02-29-96        4,019      $6.125
John Harvey                              03-31-96        4,019      $6.250
John Harvey                              04-30-96        4,019      $6.000
Maynard K. Louis                         04-02-92        3,000      $7.000
Maynard K. Louis                         09-29-92       15,000      $5.625
Maynard K. Louis                         04-01-93       15,000      $4.500
Maynard K. Louis                         10-01-93       15,000      $5.125
Maynard K. Louis                         10-01-93        1,500      $5.375
Maynard K. Louis                         10-08-93        2,250      $5.375
Maynard K. Louis                         10-15-93        3,750      $5.375
Maynard K. Louis                         02-16-94        2,500      $6.000
Maynard K. Louis                         04-01-94       15,000      $5.375
Maynard K. Louis                         10-01-94       15,000      $5.125
Maynard K. Louis                         06-13-96       22,000      $8.000
Evelyn Bishop, Trustee                   11-29-91        6,685      $8.625
Evelyn Bishop, Trustee                   11-17-91        4,457      $8.375
Evelyn Bishop, Trustee                   05-16-92        1,560      $5.375
Evelyn Bishop, Trustee                   05-29-92        7,023      $5.000
Evelyn Bishop, Trustee                   11-29-92        7,383      $4.750
Evelyn Bishop, Trustee                   05-29-93        7,764      $3.750
Evelyn Bishop, Trustee                   06-13-01       10,911      $8.000
Alexander Verde                          08-09-92       76,480      $6.000
Alexander Verde                          02-09-93       37,258      $3.750
Alexander Verde                          08-09-93       36,651      $4.125
Alexander Verde                          02-09-94       35,555      $5.500
Alexander Verde                          08-09-94       10,464      $6.625
Carol M. Jacobsohn                       01-28-92        5,500      $9.875
Carol M. Jacobsohn                       12-02-92        2,750      $5.000
D.R. Zaccone                             07-05-92       10,000      $6.250


                                      II-2

<PAGE>




D.R. Zaccone                             09-03-92           600     $6.250
D.R. Zaccone                             09-01-93        11,333     $5.125
D.R. Zaccone                             09-93-02        10,600     $6.250
D.R. Zaccone                             12-17-92        16,800     $7.750
D.R. Zaccone                             03-31-93        17,000     $7.000
D.R. Zaccone                             10-31-92        17,000     $5.375
D.R. Zaccone                             01-30-93        17,000     $3.750
D.R. Zaccone                             05-01-93        17,000     $4.000
D.R. Zaccone                             07-31-93         5,667     $3.500
D.R. Zaccone                             09-16-93        25,667     $3.500
D.R. Zaccone                             10-26-93        25,333     $5.875
John Tull                                09-09-91         1,500     $6.375
Austin Iodice                            09-30-98         3,000     $5.375
Austin Iodice                            10-07-95         4,500     $5.375
Austin Iodice                            10-14-95         7,500     $5.375
Research  Center  Of  Kabbalah           10-29-93        21,250     $6.000
Research  Center  Of  Kabbalah           12-31-93        65,000     $7.000
Mark L. Werner                           12-24-94        45,000     $4.880
Mark L. Werner                           08-16-95        45,000     $4.125
Manufacturers Indemnity  And
   Insurance Co. Of America              04-15-96         5,000     $6.000
Howard R. Conant                         02-01-95        10,000     $4.750
Richard Blacmore                         04-24-95        10,000     $3.750
Stephen M. Levy                          12-29-95        12,500     $4.500
D. L. Arends Psp                         05-08-96         2,200     $8.000
Clark Gunderson                          05-08-96         5,000     $6.000
Robert Jones                             05-08-96         5,000     $6.000
William F. Foster, Jr.                   05-08-96         5,000     $6.000
Field Container Corp                     05-15-92       150,943     $5.375
Harvey Schuster                          06-13-96        25,000     $4.000
Woodrow Chamberlain                      04-15-96        10,000     $6.000
James A. Belushi Declaration Of Trust    04-15-96         5,000     $6.000
John Bramsen                             04-15-96        10,000     $6.000
Lenore M. Schnick Trust                  04-15-96        15,000     $6.000
Morris Belzberg                          04-15-96        25,000     $6.000
David J. Doerge Trust                    04-15-96        10,000     $6.000
Mark Dorian                              04-15-96         5,000     $6.000
Howard Grafman                           04-15-96         5,000     $6.000
Ilse W. Grafman                          04-15-96         5,000     $6.000
Thomas Kigin                             04-15-96         2,500     $6.000
James L. Mcgill                          04-15-96         5,000     $6.000
Johanna B. Mcgill                        04-15-96         5,000     $6.000
D. Michael Meyer                         04-15-96        10,000     $6.000
Leonard Feldman                          04-15-96        10,000     $6.000
Charles Reeder                           04-15-96        20,000     $6.000
William G. Reynolds, Jr.                 04-15-96         1,250     $6.000
Berkshire Capital/Partners, Ltd          04-15-96         5,000     $6.000
Stephen N. Engberg                       04-15-96        10,000     $6.000


                                      II-3

<PAGE>




Martha T. Seelbach                       04-15-96         3,750     $6.000
William Seelbach                         04-15-96         5,000     $6.000
Paul Smeets                              04-15-96        10,000     $6.000
Henry M. Staley Trust                    04-15-96         7,500     $6.000
Eva Staley Residual Trust                04-15-96         5,000     $6.000
Avery J. Stone                           04-15-96        20,000     $6.000
Shephard C. Swift                        04-15-96        10,000     $6.000
Emanuel Tarrson                          04-15-96        25,000     $6.000
Ronald E. Tarrson                        04-15-96        15,000     $6.000
Steven Tarrson                           04-15-96        10,000     $6.000
James F. Beedie                          04-15-96         5,000     $6.000
Thomas Whitney                           04-15-96        10,000     $6.000
Staley Family Agency                     04-15-96        20,000     $6.000
Jim Scott                                04-15-96         5,000     $6.000
David J. Doerge Trust                    04-15-96        35,000     $6.000
William Belzberg                         04-15-96        25,000     $6.000
Frank N. Magid                           04-15-96         2,500     $6.000
Evan D. Ritchie Living Trust
  U/A/D 12/23/92                         04-15-96         2,500     $6.000
Paul Farmer Ira                          04-15-96         2,500     $6.000
Dr. John H. Muehlstein Ira               04-15-96         5,000     $6.000
Diane Wilson                             04-15-96         1,250     $6.000
Ravinia Investors Llc                    04-15-96         2,500     $6.000
William J. Mirch                         04-15-96         5,000     $6.000
K. Reed Berkey                           04-15-96         2,500     $6.000
Jerry Michelson Ira                      04-15-96         1,250     $6.000
James Mchugh                             04-15-96         5,000     $6.000
Jerry Michelson                          04-15-96         3,750     $6.000
Thomas Philipsborn Ira                   04-15-96         5,000     $6.000
Gibralt Holdings, Ltd.                   04-15-96         5,000     $6.000
Howard Conant                            08-26-96        25,000     $5.000
Emanuel Tarson                           09-12-96        12,500     $5.000
Ronald Tarson                            09-12-96        12,500     $5.000
Robert A. Calabrese                      09-18-96        10,000     $5.000
Richard Blackmore                        09-18-96         7,500     $5.000
Marshall Rodin                           09-20-96         6,084     $4.000
Marshall Rodin                           09-20-96        12,100     $5.750


         Set forth  below is a list of persons  who  exchanged  debt  securities
(promissory  notes) of Registrant for  Registrant's  Common Stock. In each case,
Registrant  relied  upon  the  exemption  afforded  by  Section  3(a)(9)  of the
Securities  Act of 1933 in  effecting  these  transactions.  The price per share
shown  represents  the amount of principal and interest due under the obligation
exchanged (on a per share basis).

                                 Date of      Number of      Price Per
Holder                          Exchange        Shares         Share
-------------------             ---------      --------        -----

Maynard K. Louis                   3/92          68,198        $8.00
Howard Jacobsohn                   3/92          35,714        $7.00
Carol Jacobsohn                    3/92          35,714        $7.00
Martin Goldberg                    6/92          36,315        $7.10
R. Cooper                          6/92          18,750        $8.00
Franklin Bishop                    7/92          78,169        $5.53
Marty Nadler                      12/92          61,420        $5.24
Carol Jacobsohn                   12/92          50,000        $5.00
Ray Cosgrove                       3/93           4,000        $3.96
Ray Cosgrove                       6/93           2,000        $4.33


                                      II-4

<PAGE>




Ray Cosgrove                      12/93           7,286        $3.56
Franklin Bishop                   12/93         121,132        $5.63
Austin Iodice                      7/94          58,333        $6.00
Alexander Verde                  01-11-95        25,000       $4.480
Maynard K. Louis                 03-24-95        21,622       $4.625
Alexander Verde                  12-20-95         8,000       $4.480
Maynard K. Louis                 02-24-96         5,000       $5.250
Carol Jacobsohn                  03-12-96        38,000       $5.822
Thomas J. Carol                  04-25-96        17,211       $3.000
Cipka, S.A.                      09-18-96       450,000       $5.000
Richard Dolan                    09-18-96         7,500       $6.000




         Set forth below is a list of persons who received  Registrant's  Common
Stock in satisfaction of interest due under promissory notes of Registrant or of
other  obligations  of  Registrant  (such as fees for  services).  In each case,
Registrant relied upon the exemption  afforded by Section 4(2) of the Securities
Act of  1933  in  effecting  these  transactions.  The  price  per  share  shown
represents  the amount of interest or of the other  obligation  discharged (on a
per share basis).

                                        Date of      Number of      Price Per
Holder                                  Exchange        Shares         Share
-------------------                    ---------      --------        -----
 
Altech Employee Pension Plan              3/92         25,000         $8.00
Maynard K. Louis                          6/92            500         $5.75
Altech Employee Pension Plan              6/92          9,280         $5.75
R. Cooper                                 10/92         2,349         $8.00
Schmeltzer, Aptaker                       12/92        60,000         $5.00
Martin Nadler                             3/93         20,950         $4.25
Martin Nadler                             6/93          1,285         $3.62
Robert P. Lofblad                         11/93        14,857         $3.88
Cipka, S.A.                               12/93       112,738         $6.38
Josefh Strahammer                         12/93         8,748         $3.88
Donahue-Note Holder                       4/94          6,000         $7.50
Bard-Note Holder                          4/94          6,000         $7.50
Josefh Strahammer                         7/94          4,876         $7.00
Cipka, S.A.                               8/94         13,030         $6.38
John Tull                                  3/95         6,898         $5.00
Josef Strahammer                           3/95         5,657         $6.00
Austin Iodice                              3/95        10,000         $4.00
Josef Strahammer                           6/95         5,903         $3.75
Research Center of Kabbalah               11/95       126,222         $4.38
Richard A. Dolan                          12/95         7,246         $3.19
Schmeltzer, Aptaker                       12/95        25,000         $3.00
Josef Strahammer                          12/95         9,252         $3.75
Kwiatt, Silverman & Ruben, Ltd.            9/96        40,000         $5.00
Dieter E.A. Tannenberg                     9/96        30,000         $6.00 


         Set forth below is a list of persons who received  Registrant's  Common
Stock as additional  consideration  for agreeing to extend credit to Registrant,
to guaranty (or continue to guaranty)  other  indebtedness  of Registrant or, in
one instance, to forbear in exercising a put option.  Registrant relied upon the
exemption afforded by Section 4(2) of the Securities Act of 1933 in issuing this
stock.  The price per share  shown is the market  price of  Registrant's  Common
Stock on the date such Common Stock was issued.

                                      II-5

<PAGE>



                                             Date of     Number of   Price Per
Holder                                      Issuance       Shares      Share
----------------------------------         ---------      --------   -------- 

Martin Goldberg                                3/92            449     $9.96
Martin Nadler                                  3/92            449     $9.86
Kenny Construction Company                     6/92         17,493     $5.13
Bruce Slovitt                                  2/93          5,114     $4.63
Barry Rymer                                    12/93        73,320     $4.88
Kenny Construction Company                     5/94         18,326     $5.00
Alexander Verde                              01-11-95       25,000     $4.480
Maynard K. Louis                             03-24-95       21,622     $4.625
Alexander Verde                              12-20-95        8,000     $4.480
John E. Mcconnaughy                          12-27-95       75,000     $3.375
Richard Richter, IRA                         12-27-95       22,500     $3.375
Joann Timbanard                              12-27-95        3,750     $3.375
Martin Weinstein, Ira                        12-27-95       15,000     $3.375
Barry, M,. Ferrigno & B. Allen               12-27-95        7,500     $3.375
P/S Plan
Baytree Associates, Inc.                     12-27-95       15,000     $3.375
Billy Walker Enterprises                     12-27-95        7,500     $3.375
Barry W. Blank                               12-27-95       75,000     $3.375
Thomas J. Carroll                            12-27-95       11,250     $3.375
Marilyn Cohen                                12-27-95        3,750     $3.375
Leo Denslow                                  12-27-95        7,500     $3.375
Kelly Erickson                               12-27-95        7,500     $3.375
Bucky W. F. Fong                             12-27-95        3,750     $3.375
Joseph Giamanco                              12-27-95       30,000     $3.375
Myron & Donna Goldstein                      12-27-95       11,250     $3.375
Dane Johnson, Ira                            12-27-95        3,750     $3.375
Ronald Di Martino                            12-27-95       15,000     $3.375
MH Capital Partners, L.P.                    12-27-95        7,500     $3.375
Pollack Family L.L. C.                       12-27-95        3,750     $3.375
GHM, Inc.                                    12-27-95        3,750     $3.375
Maser Sosinski & Assoc. P.A.                 12-27-95        7,500     $3.375
Sherwood Securities Corp.                    12-27-95       15,000     $3.375
Violet M. Blank Living Trust                 12-27-95        7,500     $3.375
Leo Denslow                                  12-27-95        1,500     $3.375
Janet M. Portelly                            12-27-95        6,000     $3.375
Roger D. And Gail L. Williams                12-27-95        7,500     $3.375
Arabella S.A.                                02-26-96       91,166     $4.406
Alba Ltd.                                    02-26-96        8,834     $4.406
Arabella S.A.                                04-26-96       45,583     $4.406
Alba Ltd.                                    04-26-96       4 ,417     $4.406
Westminster Capital                          06-14-96       41,333     $5.000
Norton Herrick                               06-14-96       41,333     $5.000



                                      II-6

<PAGE>





         Set forth  below is a list of  transactions  or series of  transactions
involving the exchange of  Registrant's  Common Stock for shares of Registrant's
Ratex Resources  Incorporated  subsidiary (in the case of John Harvey) or shares
of its Sargent-Welch Scientific Company subsidiary held by certain shareholders.
Registrant relied upon the exemption  afforded by Section 4(2) of the Securities
Act of 1933 in  effecting  these  exchanges.  The price  per share  shown is the
market  price of  Registrant's  Common  Stock on the date such Common  Stock was
issued.


                                  Date of       Number of      Price Per
Holder                            Issuance       Shares           Share
-----------------------           --------      ---------       -------

John Harvey                         7/94            700           $6.00
Northworthy & Co.                   1/94          1,506           $7.00
Robert Grady                        1/94            944           $6.88
Joan McCue                          1/94            944           $6.88
Morgan Stanley, Inc.                3/94            730           $5.75
Rachelle Kremer                     8/94            377           $6.75



         In  November  1991,   Howard  Jacobsohn   purchased  29,851  shares  of
Registrant's  Common Stock for a purchase  price of $8.37 per share,  the market
price of the  Common  Stock on the date of  purchase.  The stock  was  purchased
subject to a put option that required Registrant to repurchase the stock held by
Mr. Jacobsohn at a higher price.  Registrant relied upon the exemption  afforded
by Section 4(2) of the Securities Act of 1933 in effecting this transaction.  No
commissions or fees were paid to any  underwriter  or broker in connection  with
this transaction.

         In August 1994, The Lori Corporation,  then a majority owned subsidiary
of Registrant, and IBJ Schroder Bank & Trust Company ("Schroder") entered into a
settlement agreement described under "Business and Properties - Jewelry Segment"
in  the  Prospectus  to  discharge  certain   indebtedness  owned  by  The  Lori
Corporation  and  its  subsidiaries  to IBJ  Schroder  Bank & Trust  Company  in
consideration  of, inter alia,  Registrant's  issuance to such lender of 400,000
shares of Registrant's  Common Stock.  The market price of  Registrant's  Common
Stock on August 18, 1994 (the date this  transaction was effected) was $6.25 per
share.  Registrant  relied upon the  exemption  afforded by Section  4(2) of the
Securities  Act of 1933  in  issuing  this  Common  Stock.  As  described  under
"Business  and  Properties  - Jewelry  Segment," in December  1994,  the parties
negotiated an amendment to the settlement agreement and, in this connection, the
Registrant  borrowed  $1,850,000  from McGoodwin  James & Co. In connection with
these  transactions,  300,000 of the 400,000 shares of the  Registrant's  common
stock issued to Schroder were transferred to McGoodwin James & Co.

         In August 1994, the Registrant  sold 133,333 shares of its Common Stock
to The Alana  Group  Ltd.  and  266,667  shares of its  Common  Stock to Salcott
Holdings  Limited at a purchase  price of $3.75 per share.  Of the $1,500,000 of
proceeds  realized,  the  Registrant  paid  $50,000 as a placement  fee to M. L.
Werner and $15,000 for the legal fees of purchaser's counsel.  Registrant relied
upon the exemption  from  registration  afforded by Regulation S of the Rules of
the Commission in effecting these sales to foreign  investors located outside of
the United States.

         In August 1994, the Registrant  raised  $1,700,000  through the private
placement  of  425,000  shares of Common  Stock at a selling  price of $4.00 per
share. In addition,  in September 1994, Registrant sold 80,000 additional shares
to a single  individual  for $3.75 per share,  raising an  additional  $300,000.


                                      II-7

<PAGE>



Registrant relied upon the exemption  afforded by Section 4(2) of the Securities
Act of 1933 in  effecting  these  sales  to the  investors,  each of whom was an
accredited investor. No underwriting fees or commissions were paid in connection
with this private placement.

         Set forth below is a list of certain debt securities (promissory notes)
issued by Registrant since April 20, 1990.  Registrant relied upon the exemption
afforded by Section 4(2) of the Securities Act of 1933 in issuing these notes.

                     LIST (AS OF SEPTEMBER 26, 1996) OF CERTAIN
            DEBT SECURITIES ISSUED, AMENDED, CONSOLIDATED OR RESTATED
                             SINCE APRIL 20, 1990

Note Holder                             Date of Note (2)     Note Amount (3)
------------------------------          ----------------     --------------- 
Michael Laundrie                            03/08/96                53,750
Morton J. Harris Trust                      03/01/95               200,000
Research Center of Kabbalah                 12/31/93             3,000,000
Richard Blackmore                           04/24/95                22,500
Austin Iodice                               05/29/96               465,820
California Investment Counsel               07/01/93                50,000
Edward E. Celano                            05/09/96               100,000
William F. Foster                           05/28/96               100,000
Clark Gunderson                             05/28/96               100,000
Robert Jones                                05/28/96               100,000
Anthon J. Giglio                            05/29/96                62,500
Austin Iodice                               05/29/96               188,333

Woodrow Chamberlain                         04/15/96               200,000
James A. Belushi
   Declaration Of Trust                     04/15/96               100,000
John Bramsen                                04/15/96               200,000
Lenore M. Schnick Trust                     04/15/96               300,000
Semamor Enterprises                         04/15/96               500,000
David J. Doerge Trust                       04/15/96               200,000
Mark Dorian                                 04/15/96               100,000
Howard Grafman                              04/15/96               100,000
Ilse W. Grafman                             04/15/96               100,000
Thomas Kigin                                04/15/96                50,000
James L. Mcgill                             04/15/96               100,000
Johanna B. Mcgill                           04/15/96               100,000
D. Michael Meyer                            04/15/96               200,000
Leonard Feldman                             04/15/96               200,000
Charles Reeder                              04/15/96               400,000
William G. Reynolds, Jr.                    04/15/96                25,000


                                      II-8

<PAGE>




Berkshire Capital/Partners, Ltd             04/15/96               100,000
Stephen N. Engberg                          04/15/96               200,000
Martha T. Seelbach                          04/15/96                75,000
William Seelbach                            04/15/96               100,000
Paul Smeets                                 04/15/96               200,000
Henry M. Staley Trust                       04/15/96               150,000
Eva Staley Residual Trust                   04/15/96               100,000
Avery J. Stone                              04/15/96               400,000
Shephard C. Swift                           04/15/96               200,000
Emanuel Tarrson                             04/15/96               500,000
Ronald E. Tarrson                           04/15/96               300,000
Steven Tarrson                              04/15/96               200,000
James F. Beedie                             04/15/96               100,000
Thomas Whitney                              04/15/96               200,000
Staley Family Agency                        04/15/96               400,000
James L. Scott                              04/15/96               100,000
William Belzberg                            05/17/96               500,000
Frank N. Magid                              05/20/96                50,000
Evan D. Ritchie Living Trust 
  U/A/D 12/23/92                            05/23/96                50,000
Paul Farmer Ira                             05/30/96                50,000
Dr. John H. Muehlstein Ira                  06/05/96               100,000
Diane Wilson                                06/05/96                25,000
Ravinia Investors Llc                       06/13/96                50,000
William J. Mirch                            06/21/96               100,000
K. Reed Berkey                              06/26/96                50,000
Jerry Michelson Ira                         06/27/96                25,000
James Mchugh                                07/03/96               100,000
Jerry Michelson                             06/27/96                75,000
Thomas Philipsborn Ira                      06/25/96               100,000
Gibralt Holdings, Ltd.                      07/05/96               100,000
Howard Conant                               08/27/96               500,000
Emanuel Tarson                              09/13/96               250,000
Ronald Tarson                               09/13/96               250,000

(1)      This table shows promissory  notes which the Registrant  treats as debt
         securities.   Notes  issued  to  banks  or  other  commercial   lending
         institutions are excluded.

(2)      Certain of these notes have been amended, restated, or consolidated to,
         inter  alia,  (i) extend the  maturity  date and,  in this  connection,
         provide for the issuance of warrants to purchase shares of Registrant's
         Common Stock as consideration  therefor,  (ii) modify the interest rate
         or other terms of the note,  (iii)  capitalize  unpaid interest or (iv)
         consolidate  two ore more separate notes  previously  issued.  The date
         shown, if the subject note has been amended,  restated or consolidated,
         is the date the subject  note was most  recently  amended,  restated or
         consolidated.  In such  instances,  the date that the subject  note was
         originally issued is not shown.

(3)      This  amount  represents  the  principal  amount  of the  subject  note
         (included capitalized interest, if any) as of the date issued, amended,
         restated or consolidated as shown in the prior column. Certain of these

                                      II-9

<PAGE>



         notes have been repaid or retired,  including  through the  exchange of
         stock or other securities of Registrant.


         The Registrant contributed 100,000 shares, 65,000 shares, 15,000 shares
and 8,750  shares of its Common Stock to the ARTRA GROUP  Incorporated  Employee
Stock Ownership Plan (the "ESOP")  effective as of December 31, 1992, 1993, 1994
and 1995  respectively.  Insofar  as the  ESOP is a  noncontributory  plan,  the
Registrant has relied upon releases and no action letters of the Commission that
provide  that the issuance by a  registrant  of its stock in such  circumstances
does not constitute a "sale" subject to registration under the Securities Act of
1933.  Effective  August 1, 1995, the Company  terminated the ESOP and completed
the distribution of its ARTRA common shares to the participants in 1996.

                                      II-10

<PAGE>





Item 16.          Exhibits and Financial Statement Schedules.

            (a)   Exhibits

                        ** 2.1      Debtor's  Amended  Chapter  11  Plan  of New
                                    Dimensions   Accessories,   Ltd.   filed  on
                                    February  16,  1993  in  the  United  States
                                    Bankruptcy  Court for the Southern  District
                                    of  New  York   filed  as  an   exhibit   to
                                    Registrant's  Form 8-K  dated  February  18,
                                    1993 and incorporated by reference herein.

                        ** 2.2      Voluntary   Petition   of   New   Dimensions
                                    Accessories,  Ltd. (for reorganization under
                                    Chapter  11 of the  Bankruptcy  Code)  filed
                                    February  5,  1993  in  the  United   States
                                    Bankruptcy  Court for the Southern  District
                                    of  New  York   filed  as  an   exhibit   to
                                    Registrant's  Form 8-K  dated  February  18,
                                    1993 and incorporated by reference herein.

                        ** 2.3      Debtor's   Amended   Chapter  11  Plan,   As
                                    Modified,  of  New  Dimensions  Accessories,
                                    Ltd.  dated  March  9,  1993  With  Proposed
                                    Modifications dated March 26, 1993, as filed
                                    in the United  States  Bankruptcy  Court for
                                    the Southern  District of New York, filed as
                                    an  exhibit to  Registrant's  Form 8-K dated
                                    May 17, 1993 and  incorporated  by reference
                                    herein.

                        ** 2.4      Second Amended Disclosure Statement Pursuant
                                    to Section  1125 of the  Bankruptcy  Code of
                                    New Dimensions Accessories, Ltd. filed as an
                                    exhibit to  Registrant's  Form 8-K dated May
                                    17,  1993  and   incorporated  by  reference
                                    herein.

                        ** 2.5      Notice of Entry of Order  Confirming  Second
                                    Amended Plan of  Reorganization  as Modified
                                    dated  April 9, 1993  filed as an exhibit to
                                    Registrant's Form 8-K dated May 17, 1993 and
                                    incorporated by reference herein.

                        ** 2.6      Amended   Disclosure   Statement   dated  as
                                    February   16,  1993,   of  New   Dimensions
                                    Accessories,  Ltd.. Pursuant to Section 1125
                                    of the  Bankruptcy  Code filed as an exhibit
                                    to Registrant's  Form 8-K dated February 18,
                                    1993 and incorporated by reference herein.

                        ** 3.1      Amended    and    Restated    Articles    of
                                    Incorporation  of the Registrant as filed in
                                    the Department of State of  Pennsylvania  on
                                    December  21,  1990  filed as an  exhibit to
                                    Registrant's  Form  10-K for the year  ended
                                    December 31, 1990 and incorporated herein by
                                    reference.

                        ** 3.2      Bylaws of the Registrant, amended as of July
                                    24,   1990,   filed   as   an   exhibit   to
                                    Registrant's  Form  10-K for the year  ended
                                    December  31,  1990  and   incorporated   by
                                    reference herein.


                                      II-11

<PAGE>



                         ** 3.3     Statement with Respect to Shares of Series A
                                    Preferred  Stock of Registrant,  filed as an
                                    exhibit  to  Registrant's  Form 10-K for the
                                    year   ended    December    30,   1993   and
                                    incorporated by reference herein.

                         ** 3.4     Statement   with   Respect   to  Rights  and
                                    Preferences  Series  B  Preferred  Stock  of
                                    Registrant,   filed   as   an   exhibit   to
                                    Registrant's  Form  10-K for the year  ended
                                    December  30,  1993  and   incorporated   by
                                    reference herein.

                         ** 4.1     Form     of   Registrant's   Common    Stock
                                    Certificate.

                         ** 4.2     Form of Registrant's Warrant.

                            5.1     Opinion of Kwiatt, Silverman & Ruben, Ltd.

                           10.1     Note Purchase  Agreement  dated February 20,
                                    1996 by and among ARTRA  Group  Incorporated
                                    Fill-Mor   Holding,   Inc.  and  Westminster
                                    Capital, Inc. in the amount of $1,200,000.

                           10.2     Note Purchase  Agreement  dated February 20,
                                    1996 by and among ARTRA Group  Incorporated,
                                    Fill-Mor Holding, Inc. and Norton Herrick in
                                    the amount of $1,200,000.

                           10.3     Registration Rights Agreement dated February
                                    20,   1996   by  and   among   ARTRA   Group
                                    Incorporated and Westminster  Capital,  Inc.
                                    re:   Purchase  of  a  Secured   Convertible
                                    Promissory Note.

                           10.4     Registration Rights Agreement dated February
                                    20,   1996   by  and   among   ARTRA   Group
                                    Incorporated and Norton Herrick re: Purchase
                                    of a Secured Convertible Promissory Note.

                           10.5     Form Of Promissory  Note re:  December 1995,
                                    Private  Placement of twelve  percent  (12%)
                                    convertible subordinated promissory notes.

                           10.6     Form Of Warrant To Purchase Common Stock re:
                                    July,  1996  Private   Placement  of  twelve
                                    percent (12%) promissory notes due April 15,
                                    1997 for 378,750 ARTRA common shares.

                           10.7     Form  Of  Promissory  Note  re:  July,  1996
                                    Private  Placement of twelve  percent  (12%)
                                    promissory notes due April 15, 1997.

                           

                                      II-12

<PAGE>



                        ** 10.8     Letter  Agreement dated February 26, 1996 by
                                    and among  ARTRA Group  Incorporated,  ARTRA
                                    Subsidiary,  Inc., BCA Holdings, Inc., Peter
                                    and  Jean   Harvey,   and  Bank  of  America
                                    Illinois,  re.  certain  Purchase  and  Sale
                                    Agreement  and  Assignment  between the Bank
                                    and  Arabella  S.A.,  a  Luxembourg  holding
                                    company, filed as an exhibit to Registrant's
                                    Form 10-K,  for the year ended  December 28,
                                    1995.

                        ** 10.9     Purchase and Sale Agreement and  Assignment,
                                    dated  as  of  February  26,  1996,  by  and
                                    between  Bank  of  America   Illinois   (the
                                    "Seller")  and  Arabella  S.A., a Luxembourg
                                    holding company (the "Purchaser"),  filed as
                                    an exhibit to  Registrant's  Form 10-K,  for
                                    the year ended December 28, 1995.

                        ** 10.10    Letter  Agreement dated February 26, 1996 by
                                    and  among  ARTRA  Group   Incorporated  and
                                    Arabella S.A., a Luxembourg holding company,
                                    re.  purchase  of  certain  indebtedness  by
                                    Arabella  (the  "Purchaser")  from  Bank  of
                                    America Illinois (the "Seller"), filed as an
                                    exhibit to  Registrant's  Form 10-K, for the
                                    year ended December 28, 1995.

                        ** 10.11    Amended and Restated  Promissory Note, dated
                                    February 26, 1996 made by BCA Holdings, Inc.
                                    in  favor  of  Arabella  S.A.,  filed  as an
                                    exhibit to  Registrant's  Form 10-K, for the
                                    year ended December 28, 1995.

                        ** 10.12    Option to Purchase Shares of Common Stock of
                                    Bagcraft  Corporation of America sold by BCA
                                    Holdings, Inc. to Arabella S.A., filed as an
                                    exhibit to  Registrant's  Form 10-K, for the
                                    year ended December 28, 1995.

                        ** 10.13    Preferred   Stock   Agreement  made  by  and
                                    between  BCA  Holdings   Inc.  and  Bagcraft
                                    Corporation of America,  filed as an exhibit
                                    to  Registrant's  Form  10-K,  for the  year
                                    ended December 28, 1995.

                        ** 10.14    Preferred Stock Exchange Agreement, dated as
                                    of January  31,  1996 by and  between  Ozite
                                    Corporation,  BCA Holdings Inc. and Bagcraft
                                    Corporation of America,  filed as an exhibit
                                    to  Registrant's  Form  10-K,  for the  year
                                    ended December 28, 1995.

                        ** 10.15    Limited   Consent  and  Sixth  Amendment  to
                                    Credit  Agreement,  dated as of  February 1,
                                    1996 between Bagcraft Corporation of America
                                    and General  Electric  Capital  Corporation,
                                    filed as an  exhibit  to  Registrant's  Form
                                    10-K, for the year ended December 28, 1995.

                        ** 10.16    Asset Purchase Agreement made as of the 28th
                                    day of  September,  1995, by and among Arcar
                                    Graphics,   Inc.,  an  Illinois  corporation
                                    ("Arcar" or "Seller"), BCA Holdings, Inc., a
                                    Delaware   corporation   ("BCA"),   Bagcraft
                                    Corporation    of   America,    a   Delaware
                                    corporation  ("BCA" and,  collectively  with
                                    BCA, "Bagcraft"),  ARTRA Group Incorporated,
                                    a Pennsylvania  corporation  ("ARTRA"),  and
                                    Arcar   Acquisition    Corp.,   a   Delaware
                                    corporation     ("Buyer"),     filed    with
                                    Registrant's  Form  8-K  dated  October  26,
                                    1995.


                                      II-13

<PAGE>



                        ** 10.17    Limited  Release,  dated  October 30,  1995,
                                    between NatWest Bank N. A. ("Releasor"), and
                                    ARTRA Group Incorporated and Peter R. Harvey
                                    ("Releasee"),  filed with  Registrant's Form
                                    8-K dated October 26, 1995.

                        ** 10.18    Stock Purchase  Agreement,  Dated  September
                                    11, 1995 by and Among Spectrum Technologies,
                                    Inc., The Lori Corporation,  COMFORCE Corp.;
                                    ARTRA Group  Incorporated,  Peter R. Harvey,
                                    Marc L. Werner,  James L.  Paterek,  Michael
                                    Ferrentino, and Christopher P. Franco, filed
                                    with  Registrant's  Form 8-K dated September
                                    11, 1995.

                        ** 10.19    Letter   Agreement   dated  June  29,  1995,
                                    regarding  employment or consulting services
                                    between  The Lori  Corporation,  ARTRA Group
                                    Incorporated,   James  L.  Paterek,  Michael
                                    Ferrentino, and Christopher P. Franco, filed
                                    with  Registrant's  Form 8-K dated September
                                    11, 1995.

                        ** 10.20    Assignment  Agreement,  dated and  effective
                                    March 31,  1995,  by and among IBJ  Schroder
                                    Bank & Trust Company,  The Lori Corporation,
                                    Lawrence   Jewelry  Co.,   Lawrence  Jewelry
                                    Corporation,   New  Dimensions   Accessories
                                    Ltd.,  Rosecraft,  Inc.,  Fill-Mor  Holding,
                                    Inc., ARTRA Group Incorporated and Alexander
                                    Verde,  filed as an exhibit to  Registrant's
                                    Form 10-K,  for the year ended  December 29,
                                    1994, dated April 12, 1995.

                        ** 10.21    Registration and Settlement  Agreement dated
                                    as of March 31,  1995 by and  between  ARTRA
                                    Group  Incorporated  and IBJ Schroder Bank &
                                    Trust   Company   filed  as  an  exhibit  to
                                    Registrant's  Form 10-K,  for the year ended
                                    December 29, 1994, dated April 12, 1995.

                        ** 10.22    Amended  Settlement  Agreement  by and among
                                    The Lori Corporation,  Lawrence Jewelry Co.,
                                    Lawrence Jewelry Corporation, New Dimensions
                                    Accessories  Ltd.  (formerly  known  as R.N.
                                    Koch,  Inc.),  Rosecraft,  Inc.,  Fill-  Mor
                                    Holding,  Inc., ARTRA Group Incorporated and
                                    IBJ Schroder Bank & Trust Company,  dated as
                                    of December  23, 1994 filed as an exhibit to
                                    Registrant's  Form  8-K,  dated  January  3,
                                    1995.

                        ** 10.23    Loan  Agreement,  dated as of  December  23,
                                    1994, by and among ARTRA Group  Incorporated
                                    and McGoodwin James & Co filed as an exhibit
                                    to  Registrant's  Form 8-K, dated January 3,
                                    1995.

                        ** 10.24    Settlement  Agreement  dated August 18, 1994
                                    by  among  The  Lori  Corporation,  Lawrence
                                    Jewelry Co.,  Lawrence Jewelry  Corporation,
                                    New Dimensions Accessories, Ltd., Rosecraft,
                                    Inc.,  Fill-Mor  Holding,  Inc., ARTRA Group
                                    Incorporated  and IBJ Schroder  Bank & Trust
                                    Company, dated as of August 18,1994 filed as
                                    an exhibit to Registrant's Form 10-Q for the
                                    quarterly  period ended June 30, 1994, dated
                                    August 19, 1994.

                        ** 10.25    Pledge and  Security  Agreement  between The
                                    Lori  Corporation  and IBJ  Schroder  Bank &
                                    Trust  Company  dated as of August 18,  1994
                                    filed   as   an   exhibit  to   Registrant's
                                    Form 10-Q  for  the quarterly  period  ended
                                    June 30, 1994, dated August 19, 1994.
                                    


                                      II-14

<PAGE>



                                    
                        ** 10.26    Pledge  and   Security   Agreement   between
                                    Lawrence Jewelry Co. and IBJ Schroder Bank &
                                    Trust  Company  dated as of August 18,  1994
                                    filed as an  exhibit  to  Registrant's  Form
                                    10-Q for the quarterly period ended June 30,
                                    1994, dated August 19, 1994.

                        ** 10.27    Pledge  and   Security   Agreement   between
                                    Lawrence   Jewelry   Corporation   and   IBJ
                                    Schroder  Bank & Trust  Company  dated as of
                                    August  18,  1994  filed  as an  exhibit  to
                                    Registrant's  Form  10-Q  for the  quarterly
                                    period ended June 30, 1994, dated August 19,
                                    1994.

                        ** 10.28    Pledge and  Security  Agreement  between New
                                    Dimensions   Accessories,   Ltd.   and   IBJ
                                    Schroder  Bank & Trust  Company  dated as of
                                    August  18,  1994  filed  as an  exhibit  to
                                    Registrant's  Form  10-Q  for the  quarterly
                                    period ended June 30, 1994, dated August 19,
                                    1994.

                        ** 10.29    Pledge  and   Security   Agreement   between
                                    Rosecraft,  Inc.  and  IBJ  Schroder  Bank &
                                    Trust  Company  dated as of August 18,  1994
                                    filed as an  exhibit  to  Registrant's  Form
                                    10-Q for the quarterly period ended June 30,
                                    1994, dated August 19, 1994.
 
                        ** 10.30    Pledge  and   Security   Agreement   between
                                    Fill-Mor Holding, Inc. and IBJ Schroder Bank
                                    & Trust  Company dated as of August 18, 1994
                                    filed as an  exhibit  to  Registrant's  Form
                                    10-Q for the quarterly period ended June 30,
                                    1994, dated August 19, 1994.

                            23.1    Consent of Kwiatt, Silverman & Ruben, Ltd.

                            23.2    Consent of Coopers & Lybrand  L.L.P.
                      
                        ** 10.31    Subordinated Promissory Note dated  December
                                    31, 1993 in the original principal amount of
                                    $3,000,000  from  Registrant to the Research
                                    Center of Kabbalah.

                        ** 11.1     Computation   of  earnings   per  share  and
                                    equivalent share of common stock for each of
                                    the three years in the period ended December
                                    28, 1995.

                       ** 21.1     Subsidiaries.
                           

                                      II-15

<PAGE>


                           

                          ** 24.1   Powers of Attorney  (included  on page II-14
                                    of this Registration Statement.)

                        
                          ** 99.2   Fourth Amended Complaint filed July 18, 1995
                                    in the case of ARTRA GROUP  Incorporated  v.
                                    Salomon  Brothers  Holding  Company Inc., et
                                    al. in the Circuit  Court of the  Eighteenth
                                    Judicial Circuit for the State of Illinois.

                          ** 99.3   Joint  Memorandum of Points and  Authorities
                                    of Salomon  Defendants sent to the Honorable
                                    Michael  Galasso of the Circuit Court of the
                                    Eighteenth Judicial Circuit for the State of
                                    Illinois   in  the  case  of   ARTRA   GROUP
                                    Incorporated  v.  Salomon  Brothers  Holding
                                    Company Inc., et al.

                          ** 99.4   Complaint  filed  September  24, 1991 in the
                                    case  of  The  Sherwin-Williams  Company  v.
                                    ARTRA  GROUP  Incorporated,  et  al.  in the
                                    United   States   District   Court  for  the
                                    District of Maryland.

                          ** 99.5   Answer,   Counterclaim   and  Crossclaim  of
                                    Registrant filed June 3, 1992 in the case of
                                    The Sherwin-Williams  Company v. ARTRA GROUP
                                    Incorporated, et al. 

                          ** 99.6   Second  Amended  Verified   Complaint  filed
                                    August 7, 1995 in the  Supreme  Court of New
                                    York in the  case  of  Philip  Elghanian  v.
                                    Peter Harvey,  Jeffrey  Newman,  Artra Group
                                    Inc., et al.

                          ** 99.7   Complaint  dated June 14,  1995 filed in the
                                    United   States   District   Court  for  the
                                    Northern District of Illinois in the case of
                                    Tartan  Resources v. A. G. Holding Corp., et
                                    al.
                                    
                          ** 99.8   Complaint filed in the Circuit Court of Cook
                                    County,  Illinois  in the  case  of  City of
                                    Chicago  v. NL  Industries,  Inc.  and ARTRA
                                    GROUP Incorporated.

                          ** 99.9   March 17, 1993 Judgment  against ARTRA GROUP
                                    Inc.   in  the   case  SW   Assoc.   Limited
                                    Partnership v. ARTRA GROUP Inc.

                          ** 99.10  Third-Party  Complaint and  Counterclaim  of
                                    Registrant in the case of City of Chicago v.
                                    NL   Industries,   Inc.   and  ARTRA   GROUP
                                    Incorporated.

                          ** 99.11  Complaint filed in the Circuit Court of Cook
                                    County,  Illinois  in the case of  People of
                                    the State of Illinois v. NL Industries, Inc.
                                    and ARTRA GROUP Inc., et al.

                          ** 99.12  Notice of Potential Liability dated November
                                    17,  1995 sent to ARTRA  GROUP  Inc.  by the
                                    United   States   Environmental   Protection
                                    Agency  regarding  the Dutch Boy facility in
                                    Chicago, Illinois.

                          ** 99.13  Notice   of   Potential    Liability   dated
                                    September 30, 1993 sent by the United States
                                    Environmental  Protection  Agency  to  James
                                    Doering,  President  of Fill-  Mor  Holdings
                                    Inc.,   regarding  Harvel  Industries  Corp.
                                    disposal of waste to a PSC Resources Site in
                                    Palmer, Massachusetts.

                          ** 99.14  Subsequent  Notice  of  Potential  Liability
                                    regarding  Harvel   Industries  Corp.  dated
                                    April 18, 1994 and sent by the United States
                                    Environmental   Protection  Agency  to  John
                                    Conroy, Vice President of Registrant.

                                    

                                                       II-16
<PAGE>



                          ** 99.15  Complaint filed December 6, 1994 in the U.S.
                                    District Court for the Northern  District of
                                    Indiana   (Ninth  Ave   Remedial   Group  v.
                                    Bagcraft et al).

                          ** 99.16  Notice of  Violation  dated  November,  1995
                                    issued  by the  U.S.  EPA  against  Bagcraft
                                    regarding  alleged  violations  of the Clean
                                    Air  Act  and  related  regulations  at  the
                                    Chicago Facility.
                                    ----------------------

                           * To be filed by amendment.
                           ** Previously filed

                           (b)      Financial  Statement  Schedules.  Set  forth
                                    below is a list of the  Financial  Statement
                                    Schedules    included   as   part   of   the
                                    Registration Statement. Schedules other than
                                    those  listed  are  omitted  as they are not
                                    applicable   or   required   or   equivalent
                                    information   has  been   included   in  the
                                    financial  statements or notes thereto.  See
                                    "Index  to  Financial   Statements"  in  the
                                    Prospectus.

                                          I.  Condensed  Financial   Information
                                              of Registrant

                                         II.  Valuation and Qualifying Accounts


Item 17. Undertakings.

         (a)      The Registrant hereby undertakes:

                  (1) To file,  during any  period in which  offers or sales are
         being made, a post-effective amendment to this Registration Statement:

                           (i)  To include any  prospectus required  by  Section
                                10(a)(3) of the Securities Act;

                           (ii) To reflect in the prospectus any facts or events
                  arising  after  the  effective   date  of  this   Registration
                  Statement  (or  the  most  recent   post-effective   amendment
                  thereof) which, individually or in the aggregate,  represent a
                  fundamental  change  in the  information  set  forth  in  this
                  Registration Statement;

                           (iii)  To  include  any  material   information  with
                  respect to the plan of distribution  not previously  disclosed
                  in this Registration  Statement or any material change to such
                  information in this Registration Statement;

                                      II-17

<PAGE>




                  (2) That, for the purpose of determining  any liability  under
         the Securities Act, each such post-effective  amendment shall be deemed
         to be a new registration  statement  relating to the securities offered
         therein,  and the  offering  of such  securities  at that time shall be
         deemed to be the initial bona fide offering thereof.

                  (3) To remove from  registration by means of a  post-effective
         amendment any of the securities being registered which remain unsold at
         the termination of the offering.

         (b)  Insofar  as  indemnification  for  liabilities  arising  under the
Securities Act of 1933 may be permitted to directors,  officers and  controlling
persons of the Registrant  pursuant to the foregoing  provisions,  or otherwise,
the  Registrant  has been  advised  that in the  opinion of the  Securities  and
Exchange  Commission such  indemnification is against public policy as expressed
in the  Securities  Act and is,  therefore,  unenforceable.  In the event that a
claim for  indemnification  against such liabilities  (other than the payment by
the  Registrant  of  expenses  incurred  or  paid  by  a  director,  officer  or
controlling person of the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered,  the Registrant will,
unless in the opinion of its counsel the matter has been settled by  controlling
precedent,  submit to a court of appropriate  jurisdiction  the question whether
such  indemnification  by it is  against  public  policy  as  expressed  in  the
Securities Act and will be governed by the final adjudication of such issue.

                                      II-18

<PAGE>



                                   SIGNATURES


         Pursuant  to the  requirements  of the  Securities  Act  of  1933,  the
Registrant has duly caused this Amendment No. 1 to this  Registration  Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Northfield, State of Illinois, on January 26, 1995.

                                       ARTRA GROUP Incorporated
                                       (Registrant)

                                       By:  /s/ Peter R. Harvey
                                          ___________________________________
                                                Peter R. Harvey
                                                President and Chief Operating
                                                Officer




         Pursuant to the  requirements of the Securities Act, this Amendment No.
1 to this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

Name/Signature    Title    Date

           *               
______________________     Chairman and Chief Executive Officer
John Harvey       (Principal Executive Officer); Director


           * 
______________________     Vice President and Chief Financial Officer
James D. Doering  (Principal Financial Officer)


           *
______________________
Lawrence D. Levin          Controller (Principal Accounting Officer)


           *
______________________
Peter R. Harvey             Director


           *
______________________
Gerard M. Kenny             Director



* By:  /s/ Lawrence D. Levin
       ______________________________
         Lawrence D. Levin
         Attorney-in-fact           ________________, 1996


<PAGE>



                                                Registration No. 33-


                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                              --------------------

                                    EXHIBITS

                                   Filed With

                                    FORM S-1
                             REGISTRATION STATEMENT

                        Under The Securities Act of 1933

                              --------------------



                            ARTRA GROUP INCORPORATED
             (Exact name of registrant as specified in its charter)
[{"type": "S-1", "sequence": "1", "description": "REGISTRATION STATEMENT", "secsgml_size_bytes": 625453}]
{"company-data": {"conformed-name": "ARTRA GROUP INC", "cik": "0000200243", "assigned-sic": "2670", "irs-number": "251095978", "state-of-incorporation": "PA", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "S-1", "act": "33", "file-number": "333-16965", "film-number": "96673585"}, "business-address": {"street1": "500 CENTRAL AVE", "city": "NORTHFIELD", "state": "IL", "zip": "60093", "phone": "7084416650"}, "mail-address": {"street1": "500 CENTRAL AVE", "city": "NORTHFIELD", "state": "IL", "zip": "60093"}, "former-company": [{"former-conformed-name": "TELEPRO INDUSTRIES INC", "date-changed": "19820225"}, {"former-conformed-name": "ELT INC", "date-changed": "19760503"}, {"former-conformed-name": "DUTCH BOY INC", "date-changed": "19750630"}]}
As filed with the Securities and Exchange Commission on November 26, 1996
                                                    Registration No.

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM S-1
                             REGISTRATION STATEMENT
                        Under The Securities Act of 1933
                            ARTRA GROUP INCORPORATED
             (Exact name of registrant as specified in its charter)
Pennsylvania                                  2671                                        25-1095978
(State or other jurisdiction        (Primary Standard Industrial Classification        (I.R.S Employer Identification No.)
of incorporation or organization)                   Code Number)
--------------------
                               500 Central Avenue
                           Northfield, Illinois 60093
                                 (847) 441-6650
    (Address, including zip code, and telephone number, including area code,
                  of registrant's principal executive offices)
                              --------------------
                                Lawrence D. Levin
                               500 Central Avenue
                           Northfield, Illinois 60093
                                 (847) 441-6650
                            (Name, address, including
                                  zip code, and
                                telephone number,
                              including area code,
                              of agent for service)
                                 With copies to:

           Lawrence R. Samuels                       Philip E. Ruben
             Ross & Hardies                    Kwiatt Silverman & Ruben Ltd.
               Suite 2500                           500 Central Avenue
        150 North Michigan Avenue                 Northfield, IL  60093  
            Chicago, IL 60601                        (847) 441-7676
             (312) 558-1000                               
                              ---------------------
        Approximate date of commencement of proposed sale to the public:
From time to time after the  effective  date of this  Registration  Statement as
determined by market conditions and other factors.

If any of the  securities  being  registered on this form are to be offered on a
delayed or continuous  basis  pursuant to Rule 415 under the  Securities  Act of
1933,   check  the   following   box.  X   
                                      ---  

                        CALCULATION OF REGISTRATION FEE
======================================================================================================================= 
                                                      Proposed  Maximum      Proposed  Maximum  
  Title of Each Class of             Amount to           Offering Price           Aggregate             Amount of 
Securities to be Registered       be Registered(1)       Per Share(1)          Offering Price(1)     Registration Fee
-----------------------------------------------------------------------------------------------------------------------
Common  Stock, $.01 par value        4,629,972            $6.19                   $28,659,257         $8,685.00
=======================================================================================================================
(1) Solely  for the  purpose  of  calculating  the  registration  fee,  the
offering  price per share,  the aggregate  offering  price and the amount of the
registration  fee have been  computed in  accordance  with Rule 457(c) under the
Securities Act of 1933, as amended.  Accordingly,  the price per share of Common
Stock has been  calculated to be equal to the average of the high and low prices
for a share of  Common  Stock as  reported  by the New York  Stock  Exchange  on
November 25, 1996,  which is a specified date within five business days prior to
the original date of filing of this Registration Statement.
The Registrant hereby amends this  Registration  Statement on such date or dates
as may be necessary to delay its effective date until the Registrant  shall file
a further amendment which specifically  states that this Registration  Statement
shall  thereafter  become  effective  in  accordance  with  Section  8(a) of the
Securities  Act of 1933,  or  until  the  Registration  Statement  shall  become
effective on such date as the Commission,  acting pursuant to said Section 8(a),
may determine.

Page  1  of  _____  sequentially   numbered  pages.  Exhibit  Index  appears  on
sequentially numbered page ______.
CROSS REFERENCE SHEET
Form S-1
Item No.               Registration Item and Heading                          Location in Prospectus
--------               -----------------------------                          ----------------------
1.        Forepart of the Registration Statement and Outside Front
              Cover Page of Prospectus...............................   Forepart; Outside Front Cover Page

2.        Inside Front and Outside Back Cover Pages of Prospectus....   Inside Front and Outside Back Cover Pages

3.        Summary Information, Risk Factors and Ratio of Earnings to
              Fixed Charges                                             Prospectus Summary; Risk Factors

4.                                                                      Outside Front Cover Page; Prospectus Summary; Plan of
          Use of Proceeds............................................      Distribution

5.        Determination of Offering Price............................   Not applicable

6.        Dilution...................................................   Not applicable

7.        Selling Security Holders...................................   Selling Shareholders

8.        Plan of Distribution.......................................   Outside Front Cover Page; Plan of Distribution

9.        Description of Securities to be Registered.................   Description of the Company's Securities

10.       Interests of Named Experts and Counsel.....................   Not applicable

11.       Information with Respect to the Company:

11.(a)    Description of Business....................................   Business and Properties; Index to Financial Statements

11.(b)    Description of Property....................................   Business and Properties

11.(c)    Legal Proceedings..........................................   Legal Proceedings; Business and Properties

11.(d)    Market Price of and Dividends on the Registrant's Common
              Equity and
              Related Shareholder Matters............................   Market Price of the Company's Common Stock

11.(e)    Financial Statements.......................................   Index to Financial Statements

11.(f)    Selected Financial Data....................................   Prospectus Summary

11.(g)    Supplementary Financial Information........................   Prospectus Summary

11.(h)
          Management's Discussion and Analysis of                       Management's Discussion and Analysis of Financial
              Financial Condition and Results of Operations..........      Condition and Results of Operations

11.(i)    Disagreements with Accountants on Accounting and Financial
              Disclosure.............................................   Not applicable

11.(j)    Directors and Executive Officers...........................   Management

11.(k)    Executive Compensation.....................................   Executive Compensation

11.(l)    Security Ownership of Certain Beneficial
              Owners and Management..................................   Principal Shareholders

11.(m)    Certain Relationships and Related
              Transactions...........................................   Transactions with Management and Others

12.
          Disclosure of Commission Position on Indemnification for
              Securities Act                                            Indemnification of
              Liabilities............................................      Officers and Directors
SUBJECT TO COMPLETION DATED NOVEMBER 26, 1996
PROSPECTUS

Information   contained  herein  is  subject  to  completion  or  amendment.   A
registration  statement  relating  to these  securities  has been filed with the
Securities  and Exchange  Commission.  These  securities may not be sold nor may
offers  be  accepted  prior  to the  time  the  registration  statement  becomes
effective.  This  prospectus  shall  not  constitute  an  offer  to  sell or the
solicitation of an offer to buy nor shall there by any sale of these  securities
in any State in which such offer,  solicitation  or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.

                                4,629,972 Shares
                            ARTRA GROUP INCORPORATED
                                  COMMON STOCK

       THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. See "Risk Factors."

         ARTRA GROUP Incorporated,  a Pennsylvania corporation (the "Company" or
"ARTRA"),  is  engaged,  through  its  subsidiary,   in  manufacturing  flexible
packaging products principally for the food industry.  It also has a significant
minority  interest  (1,813,036  shares or  approximately  19% of the outstanding
stock as of September 26, 1996) in the common stock of COMFORCE  Corporation,  a
public  company whose stock is listed on The American  Stock  Exchange under the
symbol "CFS."

         All of the 4,629,972 shares of common stock of the Company (the "Common
Stock")  offered  hereby are being  offered for sale from time to time by or for
the account of certain  existing  security  holders of the Company (the "Selling
Shareholders").  See "Selling  Shareholders."  The Common Stock is listed on the
New York and Pacific  Stock  Exchanges.  The Common  Stock may be offered by the
Selling  Shareholders  from  time to time in  transactions  on the New  York and
Pacific Stock Exchanges,  in negotiated  transactions,  or a combination of such
methods  of sale,  at  fixed  prices  that  may be  changed,  at  market  prices
prevailing  at the time of sale,  at prices  related to such  prevailing  market
prices or at  negotiated  prices.  The  Selling  Shareholders  may  effect  such
transactions by the sale of the Common Stock to or through  broker-dealers,  and
such  broker-dealers  may  receive   compensation  in  the  form  of  discounts,
concessions or commissions from the Selling  Shareholders  and/or the purchasers
of the  Common  Stock for whom such  broker-dealers  may act as agent or to whom
they  may  sell  as  principal,  or both  (which  compensation  to a  particular
broker-dealer might be in excess of customary commissions).

         In certain  cases the Selling  Shareholders,  brokers  executing  sales
orders  on  their  behalf  and  dealers   purchasing  shares  from  the  Selling
Shareholders  for resale,  may be deemed to be  "underwriters,"  as that term is
defined  in  Section  2(11) of the  Securities  Act of  1933,  as  amended  (the
"Securities  Act"),  and any commissions  received by them and any profit on the
resale of Common Stock purchased by them may be deemed underwriting  commissions
or discounts under the Securities Act.

         The Company will not receive any proceeds from sales of shares to which
this Prospectus relates.  However, insofar as the holders of options or warrants
to purchase  shares of the Common Stock are expected to exercise  their warrants
or options in order to sell the underlying shares (which are registered hereby),
the Company will  receive the amount of the  exercise  prices of any warrants or
options so  exercised.  See "Risk  Factors - Dilution and  Depression  of Market
Price from  Issuance of  Additional  Common  Stock." As of the date hereof,  the
aggregate  amount of the exercise  prices of all shares  issuable by the Company
upon the exercise of options or warrants  outstanding  as of the date hereof and
subject to registration  hereby is $13,098,000.  The Company cannot predict when
or if it will receive proceeds from the exercise of warrants or options,  or the
amount of any such  proceeds.  None of the  holders of options or  warrants  can
reasonably be expected to exercise  their options or warrants  unless the market
price on the New York and  Pacific  Stock  Exchanges  of the Common  Stock is in
excess of the exercise price therefor.  The Company intends to use the proceeds,
if any,  received  from the  exercise of warrants or options to retire or reduce
indebtedness,  to pay expenses of the offering and for working capital purposes.
See "Plan of Distribution."

         The  Company's  Common  Stock is traded  and quoted on the New York and
Pacific Stock  Exchanges  under the symbol "ATA." On November 25, 1996, the last
sale price of Common  Stock,  as  reported  on the New York Stock  Exchange  was
$6.50 per share.

         The Company will bear all expenses (other than  underwriting  discounts
and selling  commissions,  and fees and expenses of counsel or other advisors to
the Selling  Stockholders)  in connection with the registration of the shares of
Common  Stock  being  offered  hereby,   which  expenses  are  estimated  to  be
approximately $225,000. See "Selling Shareholders" elsewhere in this Prospectus.

THESE  SECURITIES  HAVE NOT BEEN APPROVED OR  DISAPPROVED  BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE  SECURITIES  COMMISSION  PASSED UPON THE  ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
ADDITIONAL INFORMATION

         The Company has filed with the Securities and Exchange  Commission (the
"Commission"),  Washington, D.C., a Registration Statement on Form S-1 under the
Securities  Act and the  rules  and  regulations  promulgated  thereunder,  with
respect to the Common Stock offered hereby.  This Prospectus,  which constitutes
part of the Registration Statement,  omits certain information contained in said
Registration  Statement and the exhibits and schedules thereto,  as permitted by
the rules and  regulations  of the  Commission.  For  further  information  with
respect to the Company and the Common Stock offered hereby, reference is made to
the  Registration  Statement,  including  the  exhibits  thereto  and  financial
statements,  notes, and schedules filed as part thereof,  which may be inspected
and copied at the public  reference  facilities  of the  Commission  referred to
below.  Statements  herein  concerning  the  contents  of any  contract or other
document are not necessarily complete, and in each instance reference is made to
the full text of such contract or other document filed with the Commission as an
exhibit to the Registration Statement,  or otherwise,  each such statement being
qualified and amplified in all respects by such reference.

         The  Company  is  subject  to  the  informational  requirements  of the
Securities Exchange Act of 1934 (the "Exchange Act") and in accordance therewith
files reports,  proxy  statements  and other  information  with the  Commission.
Certain  information as of specified  dates  concerning  directors and officers,
their remuneration, options granted to them, the principal holders of securities
of the Company,  and any material  interest of such persons in transactions with
the Company,  is  disclosed in proxy  statements  distributed  to the  Company's
shareholders and filed with the Commission.  Such reports,  proxy statements and
other information filed by the Company, and The Registration  Statement of which
this Prospectus forms a part, the exhibits and schedules  thereto and amendments
thereof,  may be  inspected  at the  Commission's  public  reference  facilities
maintained at 450 Fifth Street,  N.W., Room 1024,  Judiciary Plaza,  Washington,
D.C. 20549, and at the following SEC Regional Offices: Seven World Trade Center,
13th Floor,  New York,  New York  10048;  and Suite  1400,  Northwestern  Atrium
Center,  500 West  Madison  Street,  Chicago,  Illinois  60661.  Copies  of such
material can be obtained from the Public  Reference  Section of the  Commission,
Room 204,  Judiciary Plaza, 450 Fifth Street,  N.W.,  Washington,  D.C. 20549 at
prescribed  rates.  The  Common  Stock of the  Company is listed on the New York
Stock Exchange and the Pacific Stock Exchange,  and such reports, proxy material
and other  information  are also  available for inspection at the New York Stock
Exchange,  20 Broad  Street,  New York,  New York 10005,  and the Pacific  Stock
Exchange, 301 Pine Street, San Francisco, California 94104.

                                      -2-
PROSPECTUS SUMMARY

         The following is a summary of certain of the  information  contained in
this  Prospectus  and  is  qualified  in  its  entirety  by  the  more  detailed
information and financial  statements  appearing  elsewhere herein.  Prospective
investors should carefully  consider the information set forth under the caption
"Risk Factors."

The Company

         ARTRA,   through  its  subsidiary,   Bagcraft  Corporation  of  America
("Bagcraft"),  currently  operates in one industry  segment as a manufacturer of
packaging products  principally serving the food industry.  All of the shares of
Bagcraft  are  owned by BCA  Holdings,  Inc.  ("BCA"),  which is a wholly  owned
subsidiary of ARTRA. BCA has no assets other than the shares of Bagcraft.  ARTRA
is a public  company,  whose stock is listed on the New York and  Pacific  Stock
Exchanges under the symbol ATA.

         ARTRA,  through its wholly-owned  subsidiary,  Fill-Mor  Holding,  Inc.
("Fill-Mor"),  also owns a significant minority interest in COMFORCE Corporation
("COMFORCE"),  consisting  of  1,813,036  shares  or  approximately  19%  of the
outstanding common stock of COMFORCE as of September 26, 1996. COMFORCE provides
telecommunications and computer technical staffing services worldwide to Fortune
500  companies  and  maintains  an  extensive   global   database  of  technical
specialists, with an emphasis on wireless communications capabilities.  COMFORCE
is a public company,  whose stock is listed on The American Stock Exchange under
the symbol  "CFS." On November 25, 1996,  the last  reported  sale price for the
Common Stock of COMFORCE was $12.00 per share. Fill-Mor has no assets other than
the COMFORCE shares.

The Offering

         ARTRA is required  under  certain  agreements  it has entered into with
shareholders  and warrant holders to register the shares of Common Stock held by
such  shareholders  or  issuable  upon the  exercise  of  warrants  held by such
warrantholders.

         Existing  security  holders of the Company are offering up to 4,629,972
shares of Common  Stock held by them,  or issuable to them upon the  exercise of
options or warrants held by them.

Common Stock Offered by the Selling Shareholders ............  4,629,972 shares*
Common Stock Outstanding as of September 26, 1996............  7,694,872 shares
Common Stock Issuable Under Options as of September 26, 1996.    932,350 shares
Common Stock Issuable Under Warrants as of September 26, 1996  1,584,514 shares
Total (including Options and Warrants)....................... 10,211,736 shares

-----------------
*Includes Common Stock issuable under options and warrants. Neither the warrants
or options are being  registered.  The Company is  registering  shares of common
stock issuable upon exercise of the options and warrants,  shares  issuable upon
conversion  of certain  notes,  and shares  issued in payment of ARTRA notes and
other obligations.

         See "Selling Shareholders" and "Plan of Distribution."

Proceeds From Exercise of Warrants or Options

         The Company will not receive any  proceeds  from the sale of the Common
Stock offered  hereby by the Selling  Shareholders.  However,  if the holders of
options or warrants to purchase  shares of Common Stock  exercise their warrants
or options in order to sell the underlying  shares, the Company will receive the
amount of the exercise  prices of any warrants or options so exercised.  Neither
the warrants or options are being registered. The Company

                                      - 3 -
is  registering  shares of common stock  issuable upon exercise of the warrants,
shares issuable upon  conversion of certain notes,  and shares issued in payment
of ARTRA notes and  obligations.  The Company  cannot predict when or if it will
receive proceeds from the exercise of warrants or options,  or the amount of any
such proceeds.  The Company intends to use the proceeds,  if any,  received from
the  exercise of warrants  or options to retire or reduce  indebtedness,  to pay
certain expenses of the offering and for working capital.

Risk Factors

         Prospective  investors  should  carefully  review the risk  factors and
other  information set forth herein,  including under the heading "Risk Factors"
which  discusses,  among other  things,  significant  risks  associated  with an
investment in the Company.

Selected Financial Data

         Following is a consolidated  summary of selected  financial data of the
Company for the nine month  periods  ended  September 26, 1996 and September 28,
1995 and each of the five fiscal  years in the period  ended  December 28, 1995.
The  information  for the year ended December 29, 1994 has been  reclassified to
reflect the operations of Arcar Graphics, Inc. as discontinued  operations.  The
sale of Arcar  (acquired  effective  April 9, 1994) was completed on October 26,
1995.  Certain  selected  financial  data each of the four  fiscal  years in the
period  ended   December  29,  1994  has  been   reclassified   to  reflect  the
discontinuance  of the Company's  fashion  costume  jewelry  business  effective
September 30, 1995 conducted by its former  majority-owned  subsidiary  COMFORCE
(formerly  known as The Lori  Corporation  ("Lori")).  In October  1995,  due to
additional  issuances  of  COMFORCE  common  stock,  the  Company's  interest in
COMFORCE was reduced to  approximately  25% and the  investment  in COMFORCE was
accounted for under the equity  method during the fourth  quarter of 1995. As of
September 26, 1996, the Company owned 1,813,036  shares, or approximately 19% of
COMFORCE.  See Notes 2 and 5 to the Company's condensed  consolidated  financial
statements for the nine months ended September 26, 1996 for a further discussion
of the Company's investment in COMFORCE and its results of operations.

                                      - 4 -
Nine Months Ended                         Fiscal Year Ended (E)
                                        --------------------      ----------------------------------------------------------- 
                                        Sept 26,     Sept 28,
                                          1996        1995          1995         1994         1993         1992         1991
                                         ------      ------        ------       ------       ------       ------       ------
                                                                (in thousands except per share data)
Net sales                            $ 90,162    $ 90,703     $ 121,879    $ 111,837    $ 113,584    $ 121,084    $ 123,906
   Earnings (loss) from               
     continuing operations (A)             3,523     (12,543)      (16,943)     (13,529)      (8,327)      (4,118)     (11,191)
   Earnings (loss) from
     discontinued operations (B)             --       (9,156)           10      (15,906)        (216)     (33,854)      (1,970)
   Extraordinary credits (C)               9,424       9,113        14,030        8,965       22,057          --           --
   Net earnings (loss)                    12,947     (12,586)       (2,903)     (20,470)      13,514      (37,972)     (13,161)

   Earnings (loss) per share:
     Continuing operations                   .32       (1.96)        (2.69)       (2.56)       (1.84)       (1.16)       (2.87)
     Discontinued operations                 --        (1.36)          --         (2.74)        (.04)       (7.74)        (.49)
     Extraordinary credits                  1.23        1.35          2.06         1.57         4.49          --           --
     Net earnings (loss)                    1.55       (1.97)         (.63)       (3.73)        2.61        (8.90)       (3.36)

   Total assets (D)                       86,131      79,161        77,949       93,429       92,774       98,731      126,277
   Long-term debt                         34,541      11,086        34,113       19,673       29,264       13,802       57,296
   Debt subsequently discharged              --          --            --         9,750          --           --           --
   Liabilities subject
      to compromise                          --          --            --           --           --        41,500          --
   Cash dividends                            --          --            --           --           --           --           --
- 5 -
(A)  Earnings from continuing operations for the nine months ended September 26,
     1996 includes  realized gains of $4,823,000  from  dispositions of COMFORCE
     common  common stock and a gain of $838,000  from an exchange of redeemable
     preferred stock of its subsidiary Bagcraft.

(B)  The loss from  discontinued  operations for the nine months ended September
     26,  1996,  and the year  ended  December  28,  1995  includes  a charge to
     operations of  $6,430,000  to write-off  the  remaining  goodwill of Lori's
     fashion costume jewelry operations effective June 29, 1995, and a provision
     of $1,000,000  for loss on disposal of the Lori's fashion  costume  jewelry
     operations.  Earnings  from  discontinued  operations  for the  year  ended
     December 28, 1995 includes a gain on sale of Bagcraft's Arcar subsidiary of
     $8,483,000.  The loss  from  discontinued  operations  for the  year  ended
     December  31,  1994  includes  a  charge  to   operations  of   $10,800,000
     representing  a  write-off  of  New  Dimensions  goodwill.  The  loss  from
     discontinued  operations  for the year ended  December  31,  1992  includes
     charges to operations of $8,664,000  representing an impairment of goodwill
     at December 31, 1992 and  $8,500,000  representing  increased  reserves for
     markdowns allowances and inventory valuation.

(C)  The 1996,  1995 and 1994  extraordinary  credits  represent  gains from net
     discharge of bank indebtedness.  The 1993 extraordinary credit represents a
     gain from a net  discharge of  indebtedness  due to the  reorganization  of
     Lori's New Dimensions subsidiary.

(D)  As partial consideration for a debt settlement agreement, in December, 1994
     Lori's  bank  lender  received  all of the  assets  of the  New  Dimensions
     subsidiary.

(E)  Effective in 1993, the Company  adopted a 52/53 week fiscal year ending the
     last Thursday of December.

                                      - 6 -
RISK FACTORS

      THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS INVOLVE A HIGH
  DEGREE OF RISK. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER, AMONG OTHER
THINGS, THE FOLLOWING RISK FACTORS INHERENT IN AND AFFECTING THE BUSINESS OF THE
     COMPANY AND THIS OFFERING, TOGETHER WITH THE OTHER INFORMATION IN THIS
               PROSPECTUS, BEFORE MAKING AN INVESTMENT DECISION.

         Continuing Losses

         The Company has experienced  losses from continuing  operations in each
year  since  1990.   Losses  from  continuing   operations  of  $16,943,000  and
$13,529,000 were experienced in 1995 and 1994, respectively.

         Indebtedness

         As of  September  26,  1996,  the  Company had  outstanding  short-term
indebtedness of  approximately  $15,500,000,  of which  $3,300,000 was past due.
Bagcraft,  the  Company's  operating  subsidiary,   is  also  obligated  to  pay
substantial  amounts in the near future under the terms of its debt obligations.
At September 26, 1996, Bagcraft had $14,800,000 in term loans outstanding,  with
$600,000 due in 1996,  $200,000  payable monthly through August 31, 1997 and the
balance due on  September  30,  1997.  Bagcraft's  Revolving  Credit Loan had an
outstanding  balance of $12,311,000 due on September 30, 1997. Bagcraft also had
approximately  $802,000  in 1997,  on loans  from  the City of  Baxter  Springs,
Kansas, the aggregate  principal amount of which was $10,684,000 as of September
26,  1996.  See  Note  8  to  the  Company's  condensed  consolidated  financial
statements for the nine months ended September 26, 1996

         ARTRA has  outstanding  an  aggregate of  $3,000,000  in loans from The
Research Center of Kabbalah ("RCK").  All of these loans are currently past due,
but RCK has made no demand for payment of past due amounts.  During  1993,  RCK,
which held  approximately 8% of ARTRA's  outstanding Common Stock (including the
stock  issuable  upon the exercise of warrants) as of September  26, 1996,  made
certain  short-term loans to the Company of which  $2,000,000,  with interest at
10%, was  outstanding  at December 31, 1993.  As  additional  compensation,  RCK
received  warrants to purchase an aggregate  of 86,250  ARTRA  common  shares at
prices  ranging  from $6.00 to $7.00 per share  based  upon the market  price of
ARTRA's  common  stock at the date of issuance.  The warrants  expire five years
from the date of issuance.  In January 1994,  RCK made an additional  $1,000,000
short-term loan to the Company,  also with interest at 10%. The proceeds of this
loan were  used to pay down  various  ARTRA  short-term  loans  and  other  debt
obligations.  In December,  1995, RCK received 126,222 shares of ARTRA common in
payment of past due  interest  through  October 31,  1995.  In August,  1996 RCK
received a cash payment of approximately $240,000 representing past due interest
through June, 1996. Payment on the loans was due March 31, 1994.

         In July 1996,  ARTRA  completed a private  placement of 12%  promissory
notes due April 15, 1997 in the principal  amount of  $7,575,000.  The notes are
collateralized by ARTRA's interest in all of the common stock of BCA (the parent
company of Bagcraft).  As additional  consideration,  the  noteholders  received
warrants to purchase

                                      - 7 -
an aggregate of 378,750  ARTRA common  shares at a price of $6.00 per share.  In
addition,  warrants to purchase an  additional  39,000  shares were issued to an
unrelated  party as a commission in connection  with the offering.  The warrants
became  exercisable August 15, 1996 and expire April 15, 1999. The proceeds from
this private placement were used to pay down various ARTRA debt obligations.

         On August  15,  1996,  ARTRA  and its 100%  owned  Fill-Mor  subsidiary
entered into a $2,500,000 term loan agreement with Manufacturers Bank. The loan,
payable  by  Fill-Mor  in 90 days  from the date of the  loan  agreement,  bears
interest,  payable monthly, at the bank's reference rate. Fill-Mor has an option
to extend the loan for an additional 90 days. In November  1996,  the option was
exercised and the loan was extended to February 11, 1997.  The loan,  guaranteed
by ARTRA, is  collateralized  by 800,000 shares of COMFORCE common stock. In the
event of a default, the bank has the right to sell all of its right and interest
in the loan to an  unaffiliated  individual for an aggregate  price equal to the
outstanding principal balance of the loan plus accrued interest. The proceeds of
the loan were used for working capital.

         In May,  1996,  ARTRA  borrowed  $100,000  from Mr.  Celano,  a private
investor,  evidenced by an unsecured  short-term  note,  due August 7, 1996, and
renewed to January 6, 1997,  bearing  interest at 10%. At the  Company's  annual
meeting of  shareholders,  held August 29, 1996,  Mr.  Celano was elected to the
Company's board of directors. The $100,000 loan is currently outstanding.

         In August,  1996,  ARTRA borrowed  $500,000 from Mr. Conant,  a private
investor,  evidenced by an  short-term  note,  due  December  23, 1996,  bearing
interest at 10%. The loan is collateralized by 125,000 shares of COMFORCE common
stock owned by the Company's Fill-Mor subsidiary. As additional compensation for
the loan, the lender  received a warrant,  expiring in 2001, to purchase  25,000
ARTRA  common  shares at a price of $5.00 per  share.  At the  Company's  annual
meeting of  shareholders,  held August 29, 1996,  Mr.  Conant was elected to the
Company's board of directors. The $500,000 loan is currently outstanding.

         In October 1996 the Company and its Fill-Mor  subsidiary entered into a
margin loan agreement with a financial institution which provided for borrowings
of $600,000,  with interest  approximating the prime rate.  Borrowings under the
loan agreement are  collateralized  by 125,000  shares of COMFORCE  common stock
owned by the Company's Fill-Mor subsidiary.

         ARTRA also has outstanding  short-term  borrowings from other unrelated
parties aggregating approximately $1,850,000, of which $300,000 is past due. The
remaining  amounts  come due at various  times in 1996 and 1997.  The notes were
issued at various times during the period May, 1991 to September,  1996, and the
interest rates vary between 10 and 15 percent.

         ARTRA has suffered  recurring  losses from  operations.  As a result of
these factors,  ARTRA has experienced difficulty in obtaining adequate financing
to replace certain current credit arrangements, certain of which are in default,
to fund its debt service and liquidity requirements.  Due to its limited ability
to receive operating funds from its operating subsidiary, ARTRA historically has
met its operating  expenditures with funds generated by such alternative sources
as private  placements  of ARTRA common  stock and notes,  sales of ARTRA common
stock with put options, loans from  officers/directors and private investors, as
well as through sales of assets (including  COMFORCE shares) and/or other equity
infusions.  ARTRA plans to continue to seek such alternative sources of funds to
meet its future operating expenditures.  However, there can be no assurance that
it will be successful in doing so in the future. If ARTRA is unable to negotiate
extensions  with its  creditors and complete the above  mentioned  transactions,
ARTRA could suffer severe adverse  consequences,  and as a result,  ARTRA may be
forced to liquidate its assets or file for protection under the Bankruptcy Code.

         COMFORCE

         ARTRA, through its wholly owned Fill-Mor subsidiary, owns a significant
minority  interest in COMFORCE,  consisting of 1,813,036 shares or approximately
19% of the outstanding common stock of COMFORCE as of November 25,1996,  with an
aggregate value as of that date of approximately $21,756,432 (value at September
26,  1996 was $31,728,000).  The  value of  COMFORCE  stock  has
fluctuated  substantially  in recent periods.  The high per share for the twelve
period ending  September  26, 1996 was $34.12,  and the per share low during the
same period was $2.75.  There can be no assurance that the value of the COMFORCE
shares will not decline substantially in the future, which would have a material
adverse effect on the value of ARTRA.

                                      - 8 -
The  COMFORCE  shares  constitute  unregistered  securities  under  the
Securities Act of 1933 (the "Act"). As a result of ARTRA's former involvement in
the operations  and management of COMFORCE,  ARTRA was considered an "affiliate"
of COMFORCE  under the Act, and because of this, the number of shares that ARTRA
could sell without  registration under the Act within any three-month period was
limited. For the reasons set forth below, the Company believes that an exemption
from registration  under Rule 144(k)  promulgated under the Act is now available
to it, and therefore the limitations  under Rule 144 on the number of restricted
shares that ARTRA could sell within any three-month period without registrations
are no longer applicable to it.

         Rule 144(k) of the Act permits the sale without  registration under the
Act of  restricted  shares of an  issuer  that have been held in excess of three
years by persons who have not been  "affiliates" of the issuer for the preceding
three months.  Since  December 28, 1995,  ARTRA,  Fill-Mor and their  respective
officers,  directors,  affiliates  and  employees  have  held no  managerial  or
executive  positions  with  COMFORCE  nor have any of the  above  served  in the
capacity of directors, nor have any of them had the right under any agreement or
otherwise to serve in such capacity since December 28, 1995.  Likewise,  neither
ARTRA,  Fill-Mor  nor any of the  above had the right  under  any  agreement  or
otherwise to serve in such capacity since December 28, 1995. Finally, since that
time, neither ARTRA,  Fill-Mor nor any of their respective officers,  directors,
affiliates  and employees  have had any material  involvement  in, nor have they
been able to  exercise  any  control  over,  COMFORCE,  either  individually  or
together with any other person or entity.  Because of this, the Company believes
that ARTRA and Fill-Mor are not  "affiliates"  of COMFORCE and,  since they have
held their shares in excess of three years, qualify for the exemption under Rule
144(k) set forth above.

         COMFORCE  has not agreed  that Rule  144(k) is  available  to ARTRA and
Fill-Mor,  and  accordingly  has not permitted ARTRA and Fill-Mor to sell shares
using  the  Rule  144(k)  exemption,  and  ARTRA  has no  right,  short of legal
proceedings, to force COMFORCE to permit it to sell shares using the Rule 144(k)
exemption.  Likewise, there can be no assurance that the Securities and Exchange
Commission would concur with the Company's position. Notwithstanding this, ARTRA
does not believe that its ability to sell  COMFORCE  shares,  or  eventually  to
realize on the value of its  COMFORCE  shares,  will be  affected  in a material
adverse way,  although it may not be able to sell its COMFORCE shares as quickly
as it could if it were to use Rule 144(k),  and in any event, an attempt to sell
a large number of its COMFORCE shares over a limited period could be expected to
result in a reduction in the value of such shares.

         Inability to Honor Put Options

         ARTRA has entered into various  agreements  under which it has sold its
common  shares  along with put options that require  ARTRA to  repurchase  these
shares at the option of the holder, usually one year after the date of each such
agreement.  At September 26, 1996,  options were outstanding that, if exercised,
would  require  ARTRA to  repurchase  98,734  shares of its Common  Stock for an
aggregate of  $3,565,000.  ARTRA does not have  adequate  resources to make such
redemptions.  However,  the holders  have the option to sell their shares in the
market,  subject to the  limitations  of Rule 144 of the  Securities  Act, which
could  adversely  impact the market price of the Common Stock. At its discretion
and subject to its financial  ability,  ARTRA could reimburse the option holders
for any  shortfall  resulting  from such sale.  At the present  time none of the
option  holders  have  demanded  payment,  and all of the  option  holders  have
indicated to the Company a  willingness  to work with the Company to satisfy the
obligations,  in some  manner  other  than a demand  for  payment  under the put
option.  See "Risk  Factors -  Dilution  and  Depression  of Market  Price  from
Issuance of Additional Common Stock" and "- Limited Trading Activity."

         Need for Additional Funds; Unfavorable Credit Terms

         The  Company  continues  to be engaged in efforts to obtain  equity and
debt financing.  Even if the Company's  Bagcraft  subsidiary  generates positive
cash flow (and there can be no  assurances  that it will),  it is  restricted in
paying  dividends  or making  distributions  to the Company  under  certain loan
agreements (except for limited overhead  allocations payable to ARTRA in certain
circumstances and payments under tax sharing arrangements where applicable).  As
a  result,  ARTRA  does not have a means of  generating  cash  flow on a regular
basis.  Consequently,  ARTRA is reliant on its  ability to place debt and equity
securities  privately and to sell  COMFORCE  shares to raise cash needed to meet
its working capital requirements.

         The costs and conditions  associated with raising  required capital may
not be on  favorable  terms,  and the Company  may not be able to sell  COMFORCE
shares at  favorable  prices.  In recent  years,  short-term  borrowings  by the
Company from private investors have generally been available, but at a high cost
to the Company. Stated base interest rates on its notes have been as high as 20%
(with  substantially  higher default  rates),  and certain of the borrowers have

                                      - 9 -
demanded  warrants as additional  consideration for agreeing to extend credit to
the  Company.  Warrants  to  purchase  approximately  1,584,514  shares  of  the
Company's  common  stock (at  exercise  prices  equal to the  market  price when
issued,  which has ranged from $3.50 to $9.875 per share) have  previously  been
issued  to  private   lenders  in  connection  with  these   transactions.   The
continuation of such practices could result in further  dilution of the existing
shareholders' interests in the Company.

         Risks Relating to Peter R. Harvey

         The  Company's  ability to  continue to  refinance  its  operations  is
dependent on the ability of the  Company's  officers and  directors,  especially
Peter R. Harvey,  to raise capital.  In the event Mr. Harvey were not affiliated
with the Company for any reason,  this could adversely affect the ability of the
Company to survive.

         As of September 26, 1996, ARTRA has outstanding  total amounts due from
Peter R. Harvey,  including accrued interest,  of $5,861,000.  The advances bear
interest at the prime rate plus 2%, which was 10.25% at September 26, 1996. This
receivable has been classified as a reduction of common shareholder's equity.

         As partial collateral for amounts due from Peter R. Harvey, the Company
has received the pledge of 1,523 shares of ARTRA  redeemable  Series A preferred
stock (with a liquidation value of $1,523,000, plus accrued dividends) which are
owned by Mr.  Harvey.  In  addition,  Mr.  Harvey has pledged a 25%  interest in
Industrial Communication Company (a private company). Such interest is valued by
Mr. Harvey at $800,000 to $1,000,000.  During 1995, Peter R. Harvey entered into
a pledge agreement with ARTRA whereby Mr. Harvey pledged  additional  collateral
consisting of 42,067 shares of ARTRA common stock and 707,281  shares of PureTec
Corporation, a publicly traded corporation ("PureTec"). As of November 25, 1996,
the closing  market price of PureTec on the NASDAQ  National  Market was $2.0625
per  share.  In  addition,  in  connection  with a  discharge  of  certain  bank
indebtedness  discussed below, ARTRA received rights under a mortgage of certain
real estate owned by Mr.  Harvey.  The real estate had an appraised  value of $2
million as of December 13, 1993. The mortgage  secures  $2,150,000 of the amount
owed by Mr. Harvey.  Bank of America Illinois has a senior security  interest in
the  amount  of  $850,000.  See  "Transactions  with  Management  And  Others --
Settlement of the Bank of America Illinois Debt."

         Explanatory Paragraph in Report of Independent Accountants

         The  Company's  independent  accountants,   Coopers  &  Lybrand  L.L.P.
("Coopers & Lybrand"),  has issued an explanatory  paragraph with respect to the
Company,  that expresses  substantial  doubt as to the ability of the Company to
continue as a going concern due to recurring  losses from  operations  and a net
capital  deficiency  at December 28,  1995.  Coopers & Lybrand has stated in its
report  that,  as a  result  of  these  factors,  the  Company  has  experienced
difficulty  in  obtaining  adequate  financing  to replace  the  current  credit
agreements,   to  fund  its  debt  service  and  liquidity   requirements.   The
Consolidated  Financial  Statements  do not include any  adjustments  that might
result  from this  uncertainty.  If the  Company  ceases to  operate  as a going
concern,  an  investor  would be likely  to lose his  entire  investment  in the
Company's Common Stock.

         Dilution and  Depression  of Market Price from  Issuance of  Additional
Common Stock

         As of September 26, 1996,  there were 7,694,872 shares of the Company's
common stock  outstanding.  The  Company's  Board of Directors  has the power to
issue any and all authorized but unissued shares without  shareholder  approval.
At the  annual  meeting  held on August 29,  1996,  the  Company's  shareholders
approved an amendment to the Company's Articles of Incorporation to increase the
number of authorized  common shares from 7,500,000 to  20,000,000.  In addition,
the Company anticipates that holders of options and warrants will exercise their
options and warrants in order to sell the underlying shares  registered  hereby.
Such an exercise could result in a dilution of the interests of existing

                                     - 10 -
shareholders.  Purchasers of the Shares  offered hereby should be aware that the
issuance of  additional  shares may result in a reduction in the market price of
the Company's  Common Stock then  outstanding.  See also "Risk Factors - Limited
Trading Volume."

         Possible  Delisting of Securities  from the New York Stock Exchange and
the Pacific Stock Exchange

         The  Company's  Common  Stock is  currently  listed on the New York and
Pacific Stock  Exchanges.  The Company has been unable to maintain the standards
for continued listing on these exchanges,  and the Company's securities could be
subject to delisting  from these  exchanges  at any time.  Trading of the Common
Stock might  thereafter  be  conducted  in the  over-the-counter  markets on the
electronic  bulletin board  established  for securities that do not meet the New
York and Pacific  Stock  exchange  listing  requirements  or in what is commonly
referred to as the "pink sheets." If delisting were to occur,  an investor could
find it more difficult to dispose of, or to obtain accurate quotations regarding
the price of the  Company's  Common  Stock,  and the market  price of the Common
Stock could decline significantly.

         Composition of the Board

         The  Company's  Articles  of  Incorporation  require  that at least six
persons  serve on the Board of  Directors.  Vacancies  existed on the  Company's
Board  between 1989 and August 29, 1996.  All  corporate  actions  taken between
October 12, 1993 and August 29, 1996 are potentially voidable since such actions
were take in reliance on the  consent or  affirmative  vote of less than four of
the Company's  directors  which would  constitute a majority of the required six
person Board.

         Conflicts of Interest

         In the past, the Company has been a party to numerous transactions with
officers  and  directors of the Company or with  entities in which  officers and
directors of the Company own  substantial  equity  interests.  While the Company
does not presently  contemplate  effectuating any additional  transactions  with
officers and directors of the Company or with management-owned  entities,  there
can be no assurance that it will not do so in the future. See "Transactions with
Management   and  Others."  In   addition,   as   described   under   "Principal
Shareholders,"  various  officers  and  directors  hold  warrants  or options to
purchase  shares of the  Company's  Common Stock,  including at exercise  prices
lower than the market price of the Company's Common Stock as of the date hereof.

         Limited Trading Activity

         During the six months  ended  September  26,  1996,  the daily  average
number of  shares of Common  Stock  traded on the New York  Stock  Exchange  was
approximately  39,500  shares.  If  such  trading  levels  continue,  it  may be
difficult  for Selling  Shareholders  to effect sales of their shares on the New
York and Pacific Stock  Exchanges,  and the placement of a substantially  larger
number of sell orders could materially and adversely impact the market price
                                     - 11 -
of the Common Stock.  See also "Risk Factors - Dilution and Depression of Market
Price from Issuance of Additional Common Stock."

         Competitive Conditions in the Packaging Products Industry

         The packaging  products industry is highly  competitive.  The Company's
Bagcraft  subsidiary  competes as a printer and converter within the competitive
flexible  packaging  business.  Management  believes the  principal  competitive
factors in the Company's markets are product quality and  functionality,  price,
service and reputation.  Bagcraft  encounters  competition  from both integrated
producers  and  independents  in  each of its  four  divisions.  Some  of  these
competitors  are larger  and have  access to greater  financial  resources  than
Bagcraft. Bagcraft's costs have increased substantially in recent years, largely
due to increases in the cost of paper. Although Bagcraft generally seeks to pass
its increased costs on to its customers,  this is frequently not possible due to
the  competitive  nature of the  paper  products  industry.  See  "Business  and
Properties - Packaging Products Segment."

         Litigation

         At September  26,  1996,  ARTRA has  reserved  $1,900,000  for business
litigation and environmental liabilities.  Based on investigation and settlement
discussions,  the  Company  believes  this  to be a  sufficient  amount  for any
potential  costs or liabilities for the matters  described  below.  However,  no
assurance  can be given that the reserved  amount is  sufficient  to satisfy all
potential business litigation and environmental liabilities.  As described under
"Business and Properties - Legal Proceedings"  herein, ARTRA or its predecessors
or their subsidiaries have been identified by the U.S. Environmental  Protection
Agency ("EPA") as potentially  responsible  parties for  environmental  clean-up
costs (or sued by a named potentially  responsible party seeking indemnification
or contribution  for clean-up costs) for waste sent to several sites included on
the EPA's  National  Priorities  List,  which are commonly  known as "Superfund"
sites. In addition, ARTRA or its predecessors and their subsidiaries are alleged
to have sent  hazardous  substances to certain  other sites which,  although not
designated  as Superfund  sites,  are sites at which  environmental  clean-up or
remediation  may be  required  to be  undertaken.  ARTRA  and its  predecessors,
directly and through  subsidiaries,  have, since 1960,  operated in excess of 30
manufacturing  facilities.  Certain of these  facilities  used and/or  generated
hazardous  materials  and  disposed  of the  hazardous  substances,  directly or
through third party waste  disposal  firms at various  off-site  waste  disposal
locations,  in most  cases  before  laws had  been  enacted  governing  the safe
disposal of hazardous substances.

         ARTRA  has  not   conducted   a   comprehensive   audit  of   potential
environmental liability at the facilities formerly owned or operated by ARTRA or
its  predecessors  and their  subsidiaries  since it is no  longer  the owner or
operator  of most of the  properties  at which it or its  predecessors  or their
affiliates  conducted  manufacturing  operations.  As  a  result,  ARTRA  cannot
accurately  quantify  potential  environmental  liability  associated  with past
ownership or operation  of these  facilities.  ARTRA did not keep records of the
companies  with which it  contracted  for the  disposal  of wastes  before  such
record-keeping became mandated by law.

         In addition,  even if ARTRA is not found to be responsible for clean-up
costs at any particular  site, the costs of defending  itself in any proceedings
or inquiries instituted by the EPA, any state environmental  agencies or private
parties could itself be significant. As described under "Risk Factors - Need for
Additional Funds" herein, ARTRA has limited funds available to it, including for
its legal defense. In certain cases, ARTRA may be unable to raise

                                     - 12 -
the funds  needed to mount an  adequate  (or any)  defense  against  the  claims
raised,  even if it has  legal  grounds  to do so. In one case  described  under
"Business and Properties - Legal Proceedings" herein, ARTRA did not prosecute an
appeal  of a  decision  adverse  to  ARTRA  in which  its  insurer  was held not
responsible  for  defending  or  indemnifying   ARTRA  in  connection  with  two
environmental clean-up cases in California.  In addition, in another case, ARTRA
entered into a consent decree with the EPA to pay certain  clean-up  costs,  but
was unable to pay the costs it had agreed to bear.

         No Cash Dividends

         The  Company  has not paid any cash  dividends  on its Common  Stock in
recent  years  and  does  not  anticipate  paying  any  such  dividends  in  the
foreseeable  future.  In addition,  the  Bagcraft  operating  subsidiary  of the
Company  is  prohibited  from  or  restricted  in  paying  dividends  or  making
distributions  to the Company under various loan agreements  (except for limited
overhead  allocations payable to ARTRA in certain  circumstances and tax sharing
agreements  where  applicable).  Accordingly,  even if  ARTRA  were  able to pay
dividends to its  shareholders,  the  restrictions or limitations on Bagcraft in
upstreaming payments would make payment of dividends by ARTRA unlikely.

         Negative  Effect on  Shareholders  from Possible  Issuance of Preferred
Stock

         The Company is authorized to issue up to 2,000,000  shares of preferred
stock,  par value $1,000 per share.  The preferred stock may be issued in one or
more series, the terms of which may be determined at the time of issuance by the
Board of Directors,  without  further  action by  shareholders,  and may include
voting rights  (including the right to vote as a series on particular  matters),
preferences as to dividends and  liquidation,  conversion and redemption  rights
and sinking fund provisions. In 1990 the Company issued 3,750 shares of Series A
Preferred  Stock and in 1996 the  Company has agreed to issued  2,250  shares of
Series E Preferred Stock. No other preferred stock is currently  outstanding and
the Company has no present plans for the issuance  thereof.  The issuance of any
preferred  stock could  affect the rights of the holders of Common Stock and, in
certain circumstances, reduce the value of the Common Stock. See "Description of
the Company's Securities".
                                     - 13 -
CAPITALIZATION

                                 (in thousands)

         The  following  table sets forth the  capitalization  of the Company at
September  26,  1996.  The  following  should  be read in  conjunction  with the
Company's   consolidated   financial  statements  appearing  elsewhere  in  this
Prospectus.

Current maturities of long-term debt                           $     2,407
                                                               ===========

Long-term debt:
   Bagcraft Credit Agreement,
     Term loans, interest at the prime rate
       plus 1.75% to 3%, matures 9/30/97                       $    12,400
     Revolving credit loan, interest at the 
       prime rate plus 1.5%, matures 9/30/97                        12,311
     Unamortized discount                                              (71)

   Bagcraft, City of Baxter Springs, 
     Kansas loan agreements, interest, 
       at varying rates to 6.6%, 
       due in varying amounts through 2025                           9,901
                                                               -----------

                                                               $    34,541
                                                               ===========

Redeemable common stock, issued 164,847 shares                 $     3,565
                                                               ===========

ARTRA redeemable preferred stock:
   Series  A,  $1,000  par  value,
   6%  cumulative  payment-in-kind, including
   accumulated dividends, net of unamortized
   discount of $1,349 in 1996 and
   $1,575 in 1995; redeemable March 1, 2000
   at $1,000 per share plus accrued dividends;
   authorized 2,000,000 shares all series;
    issued 3,750 shares                                              4,157
                                                               ===========

Series E, $1,000 par value, 10% cumulative,
   liquidation  preference equal to $1,000
   or 200 shares of common stock per
   share, plus accrued dividends;
   convertible, at the holder's option into
   200 shares of common stock per share                              2,250
                                                               ===========

Bagcraft redeemable preferred stock 
   payable to a related party, cumulative $.01
   par value, 13.5%; including accumulated dividends;  
   redeemable in 1997 with a liquidation preference
   equal to $100 per share; 
   8,650 shares issued and outstanding                         $     1,978
                                                               ===========

BCA Holdings preferred stock:
   Series A, $1.00 par value, 6% cumulative;
   including  accumulated  dividends;
   liquidation preference of $1,000 per share;
   10,000 shares authorized; issued 3,675 shares               $     4,308
                                                               ===========

   Series B,  payable to a related  party,  
   $1.00 par value,  13.5%  cumulative;
   including accumulated dividends; 
   redeemable in 1997 with a liquidation
   preference of $1,000 per share;
   8,135 shares authorized and issued                          $     8,818
                                                               ===========

                                     - 14 -
Common stock, no par value; 
   authorized 20,000,000 shares; 
   issued 7,603,766 shares                                     $    5,777
Additional paid-in capital                                         40,140
Unrealized appreciation of investments                             34,960
Receivable from related party,
   including accrued interest                                      (5,861)
Accumulated deficit                                               (86,568)
                                                               -----------
                                                                  (11,552)
Less treasury stock (7,628 shares), at cost                           (52)
                                                               -----------
Total shareholders' equity                                     $  (11,604)
                                                               ===========

Total capitalization                                           $   50,420
                                                               ===========

                                     - 15 -
Management's Discussion and Analysis of Financial Condition and Results
of Operations.

         ARTRA,  through  its  Bagcraft  subsidiary,  currently  operates in one
industry segment as a manufacturer of packaging products principally serving the
food  industry.  ARTRA also owns a  significant  minority  interest  in COMFORCE
through ARTRA's wholly owned Fill-Mor subsidiary, consisting of 1,813,036 shares
or approximately 19% of the outstanding common stock of COMFORCE as of September
26, 1996. COMFORCE provides  telecommunications  and computer technical staffing
services  worldwide to Fortune 500 companies  and maintains an extensive  global
database of technical specialists,  with an emphasis on wireless  communications
capabilities.  COMFORCE  is a  public  company,  whose  stock is  listed  on The
American  Stock  Exchange under the symbol "CFS." On November 25, 1996, the last
reported  sale  price for the  Common  Stock of  COMFORCE  was $12.00 per share.
Fill-Mor has no assets other than its COMFORCE shares.

         The  following  discussion  supplements  the  information  found in the
financial statements and related notes:

Changes in Business

         Arcar

         As  discussed  in  Note  2  to  the  Company's  condensed  consolidated
financial  statements  for the nine months ended  September 26, 1996,  effective
April 8,  1994,  Bagcraft  purchased  the  business  assets,  subject to buyer's
assumption of certain  liabilities,  of Arcar, a manufacturer and distributor of
waterbase inks.  Effective October 26, 1995,  Bagcraft sold the business assets,
subject to the buyer's assumption of certain  liabilities,  of Arcar for cash of
approximately  $20,300,000,  resulting  in a net  gain  of  $8,483,000.  The net
proceeds,   after   extinguishment  of  certain  Arcar  debt   obligations,   of
approximately $10,400,000, were used to reduce Bagcraft debt obligations.

         COMFORCE

         Prior to September, 1995, ARTRA's then 62.9% owned subsidiary, COMFORCE
(formerly  Lori),  operated  as a designer  and  distributor  of  popular-priced
fashion costume jewelry and accessories.  In September, 1995, COMFORCE adopted a
plan to discontinue its jewelry  business and recorded a provision of $1,000,000
for the estimated  costs to complete the disposal of the fashion costume jewelry
business.

         Effective October 17, 1995,  COMFORCE acquired all of the capital stock
of COMFORCE Global,  Inc.  ("Global"),  formerly Spectrum Global Services,  Inc.
d/b/a YIELD Global, for consideration of approximately $6.4 million, net of cash
acquired.  This  consideration  consisted of cash to the seller of approximately
$5.1 million, fees of approximately  $700,000,  including a fee of $500,000 to a
related party,  and 500,000  shares of COMFORCE  common stock valued at $843,000
(at a price per share of $1.68)  issued as  consideration  for various  fees and
guarantees  associated  with the  transaction.  The  500,000  shares of COMFORCE
common stock  consisted of (i) 100,000  shares issued to an unrelated  party for
guaranteeing  the purchase  price to the seller,  (ii) 100,000  shares issued to
ARTRA,  then the majority  stockholder  of  COMFORCE,  in  consideration  of its
guaranteeing  the  purchase  price to the seller and  agreeing to enter into the
Assumption Agreement,  as discussed below, (iii) 150,000 issued to two unrelated
parties for  advisory  services in  connection  with the  acquisition,  and (iv)
150,000 shares issued to Peter R. Harvey,  then a Vice President and director of
COMFORCE for  guaranteeing the payment of the $6.4 million purchase price to the
seller. Additionally, in conjunction with the Global acquisition,  ARTRA entered
into an  Assumption  Agreement  whereby  it agreed to assume  substantially  all
pre-existing  Lori  liabilities  and indemnify  COMFORCE in the event any future
liabilities  arise concerning  pre-existing  environmental  matters and business
related  litigation.  Accordingly,  at  September  26,  1996,  $764,000  of such
pre-existing Lori liabilities were classified in ARTRA's condensed  consolidated
balance as current liabilities of discontinued operations.

                                     - 16 -
Global  provides  telecommunications  and computer  technical  staffing
services  worldwide to Fortune 500 companies  and maintains an extensive  global
database of technical  specialists  with an emphasis on wireless  communications
capability.  The  acquisition  of COMFORCE  Global was  completed on October 17,
1995.

         Effective July 4, 1995,  Lori's  management agreed to issue up to a 35%
common  stock  interest  in  the  COMFORCE  to  certain  individuals  to  manage
COMFORCE's entry into the  telecommunications  and computer  technical  staffing
business.  COMFORCE  recognized a non-recurring  charge of $3,425,000 related to
this stock  since these stock  awards  were 100%  vested when  issued,  and were
neither conditioned upon these individuals'  service to the Company as employees
nor the  consummation  of the COMFORCE  Global  acquisition.  Accordingly,  this
compensation  charge was fully recognized in 1995. The shares of COMFORCE common
stock issued in  accordance  with the above  agreements  were valued at $.93 per
share.  COMFORCE's  management  valued  COMFORCE based on its  discussions  with
market  makers and other  advisors,  taking  into  account  (i) that the Jewelry
Business, which was discontinued at the end of the second quarter of 1995, had a
negligible value, and (ii) the value of COMFORCE was principally  related to the
potential effect that a purchase of COMFORCE Global, if successfully  concluded,
would have market value of COMFORCE common stock. COMFORCE's management believed
this  value of $.93 per  share to be a fair and  appropriate  value  based  upon
COMFORCE's financial condition as of the date COMFORCE became obligated to issue
these shares. After the issuance of the COMFORCE common shares, plus the effects
of other  transactions,  ARTRA's  common  stock  ownership  interest in COMFORCE
common stock was reduced to approximately  19% and 25% at September 26, 1996 and
December 28, 1995, respectively.  Accordingly,  in October 1995, the accounts of
COMFORCE and its majority-owned  subsidiaries were  deconsolidated  from ARTRA's
consolidated  financial  statements.  See  Note  5 to  the  Company's  condensed
consolidated  financial  statements for the nine months ended September 26, 1996
for a further  discussion of the accounting  treatment of ARTRA's  investment in
COMFORCE.

         A  disagreement  has  arisen  between  ARTRA  and  COMFORCE   regarding
interpretations of the July 4, 1995 agreement,  as amended, to issue up to a 35%
common stock interest in COMFORCE to certain  individuals  to manage  COMFORCE's
entry into the  telecommunications and computer technical staffing business; the
Global acquisition agreement;  and the Assumption Agreement whereby ARTRA agreed
to assume substantially all pre-existing Lori liabilities and indemnify COMFORCE
in the event any future liabilities arise concerning pre-existing  environmental
matters and business  related  litigation.  The disputed  issues include (i) the
number of  COMFORCE  common  shares  issued to the above  individuals  to manage
COMFORCE's entry into the  telecommunications  and computer  technical  staffing
business. Accordingly, ARTRA voted against ratification of the issuance of these
shares at COMFORCE's  Annual Meeting of  Stockholders  held on October 28, 1996;
(ii) the number of COMFORCE  common stock options  issued to COMFORCE's  current
management  group subsequent to the Global  acquisition;  (iii) 100,000 COMFORCE
common shares to be issued to ARTRA in  consideration  of its  guaranteeing  the
Global purchase price to the seller and agreeing to assume certain  pre-existing
Lori  liabilities;  (iv) 150,000 COMFORCE common shares to be issued to Peter R.
Harvey for  guaranteeing the payment of the Global purchase price to the seller,
and (vi) certain  stock options  granted in 1993 under  provisions of COMFORCE's
Long-Term Stock Investment Plan. As a result of the above  disagreements,  ARTRA
has not exchanged its Lori Series C preferred stock with a liquidation  value of
$19.5 million for 100,000 COMFORCE common shares,  as required by the Assumption
Agreement,  and will not  consummate  the exchange until all of the disputes are
resolved.  ARTRA's financial  statements have reflected the exchange of the Lori
Series C preferred  stock for 100,000  COMFORCE common shares in accordance with
the  Assumption  Agreement.  Based  on the  above  disputed  matters,  ARTRA  is
withholding  delivery  of the Lori  Series C  preferred  shares  and is  seeking
appropriate   resolution  in  conformity  with  the  Assumption   Agreement  and
resolution of the other obligations owed by COMFORCE to ARTRA and its employees,
or ARTRA  will  seek to  rescind  this  aspect of the  agreement.  Additionally,
ARTRA's  financial  statements  have reflected the issuance of 100,000  COMFORCE
common shares to ARTRA as  compensation  for  guaranteeing  the Global  purchase
price to the seller and  entering  into the  Assumption  Agreement.  COMFORCE is
withholding  issuance  of such  shares  to ARTRA,  in  violation  of the  Global
acquisition  agreement.  ARTRA has aggressively attempted to resolve its dispute
with  COMFORCE  without  success  and at this  point,  ARTRA can not predict the
ultimate   resolution,   nor  whether  such  dispute  can  be  resolved  without
litigation.

         Results of Operations

         On October 26, 1995, the Company's wholly-owned  subsidiary,  Bagcraft,
completed the sale of the business assets,  subject to the buyer's assumption of
certain liabilities, of its Arcar subsidiary.

         In September,  1995, COMFORCE adopted a plan to discontinue its jewelry
business and  recorded a provision  of  $1,000,000  for the  estimated  costs to
complete the disposal of the jewelry business.

                                    - 17 -
The Company's  consolidated financial statements have been reclassified
to  report  separately  the  results  of  operations  of  Arcar  and  COMFORCE's
discontinued  jewelry business prior to the  deconsolidation of COMFORCE and its
majority-owned  subsidiaries effective October 1995. The following discussion of
results of operations is presented  for the Company's  continuing  operations at
September 26, 1996 and December 28, 1995,  which were conducted by the Company's
Bagcraft subsidiary.

         The Company's Bagcraft subsidiary sells all of its products directly to
its customers. On a very limited basis certain customers may be offered extended
payment  terms beyond 30 days  depending  upon  prevailing  trade  practices and
financial strength.

Nine Months Ended September 26, 1996 vs. Nine Months Ended September 28, 1995

         Net sales from continuing operations of $90,162,000 for the nine months
ended September 26, were $541,000, or 0.6%, lower than net sales from continuing
operations for the nine months ended September 28, 1995. The 1996 sales decrease
is  attributable  to an overall volume  decrease  partially  offset by increased
selling  prices.  The volume  decrease  is  principally  attributable  to a 1995
promotion by a major fast food customer.  The increased 1996 selling prices were
in response to the significant increases in paper costs in 1995.

         The Company's cost of sales from  continuing  operations of $71,710,000
for the nine months ended September 26, 1996 decreased $5,161,000 as compared to
the  nine  months  ended  September  28,  1995.  Cost of sales  from  continuing
operations  in the nine months ended  September  26, 1996 was 79.5% of net sales
compared  to a cost of sales  percentage  of 84.8%  for the  nine  months  ended
September 28, 1995. The decrease in cost of sales is primarily  attributable  to
lower paper costs and  decreased  sales volume as noted  above.  The decrease in
cost of sales  percentage  is  primarily  attributable  to lower paper costs and
improved production efficiencies in 1996.

         Selling, general and administrative expenses from continuing operations
were  $10,967,000  in the nine months  ended  September  26, 1996 as compared to
$15,972,000 in the nine months ended  September 28, 1995.  Selling,  general and
administrative  expenses  were  12.2%  of net  sales in the  nine  months  ended
September  26, 1996 as  compared to 17.6% of net sales in the nine months  ended
September  28, 1995.  The 1996 decrease in selling,  general and  administrative
expenses is primarily  attributable to a third quarter 1995 compensation  charge
related to the issuance of a 35% common stock interest in COMFORCE as additional
consideration  for certain  individuals  to enter into  employment or consulting
services  agreements  to manage  COMFORCE's  entry into and  development  of the
telecommunications  and computer  technical  business and to  professional  fees
incurred in 1995 related to certain consulting projects.

         Depreciation  and amortization  expense from continuing  operations was
$2,954,000 in the nine months ended September 26, 1996 as compared to $3,306,000
in the nine months ended  September  28,  1995.  Depreciation  and  amortization
expense was 3.3 % of net sales in the three months ended  September  26, 1996 as
compared to 3.6% of net sales in the three months ended  September 28, 1995. The
1996 decrease in depreciation and amortization expense is primarily attributable
to the December,  1995  write-down of idle machinery and equipment  dedicated to
the production of microwave popcorn products.

         The Company had operating  earnings in the nine months ended  September
26, 1996 of $4,531,000  as compared to operating  loss of $5,446,000 in the nine
months ended  September  28, 1995.  The 1996  increase in operating  earnings is
attributable  to  improved  operating  margins  and to the  decrease in selling,
general and administrative expenses as noted above.

         Interest  expense from  continuing  operations in the nine months ended
September  26, 1996  decreased  $1,022,000  as compared to the nine months ended
September 28, 1995. The 1996 decrease is principally due to an overall  decrease
in borrowings.

                                     - 18 -
During the nine months ended  September  26,  1996,  ARTRA sold 193,000
COMFORCE shares in the market.  As additional  consideration for 1996 short-term
loans,  the  lenders  received  95,000  COMFORCE  common  shares held by ARTRA's
Fill-Mor  subsidiary.  The disposition of these 288,000 COMFORCE shares resulted
in realized gains of $4,823,000 during the nine months ended September 26, 1996.

         The  1996 and 1995  extraordinary  credits  represent  net  gains  from
discharge of  indebtedness.  No income tax expense is reflected in the Company's
financial  statements  resulting  from the  extraordinary  credits  and from the
Company's 1996 earnings from continuing operations due to the utilization of tax
loss  carryforwards.  Due  to the  Company's  tax  loss  carryforwards  and  the
uncertainty  of future taxable  income,  no income tax benefit was recognized in
connection with the Company's 1995 pre-tax loss.

Year Ended December 28, 1995 vs. Year Ended December 29, 1994

         Net sales from continuing operations of $121,879,000 for the year ended
December  28,  1995  were  $10,042,000,  or 9.0%,  higher  than net  sales  from
continuing  operations  for the year ended  December  29,  1994.  The 1995 sales
increase is attributable to increased 1995 selling prices due to the significant
increases  in paper  costs in the  second  half of 1994 and early 1995 and to an
improved sales mix in 1995.

         The Company's cost of sales from continuing  operations of $102,508,000
for year ended December 28, 1995 increased  $7,742,000 as compared to year ended
December 29, 1994.  Cost of sales from  continuing  operations in the year ended
December 28, 1995 was 84.1% of net sales compared to a cost of sales  percentage
of 84.7% for the year ended  December 29, 1994. The increase in cost of sales is
primarily attributable to the significant increases in paper costs in the second
half of 1994  and  early  1995.  The  decrease  in cost of sales  percentage  is
primarily  attributable  to the Company's  ability to pass along the significant
increases in paper costs and to improved production efficiencies in 1995.

         Selling, general and administrative expenses from continuing operations
were  $19,131,000 in the year ended December 28, 1995 as compared to $16,760,000
in the year  ended  December  29,  1994.  Selling,  general  and  administrative
expenses were 15.7% of net sales in the year ended December 28, 1995 as compared
to 15.0% of net sales in the year ended  December 29, 1994. The 1995 increase in
selling,  general and  administrative  expenses is primarily  attributable  to a
compensation  charge of $3,000,000 related to the issuance of a 35% common stock
interest in COMFORCE as additional compensation for certain individuals to enter
into employment or consulting  services  agreements to manage its entry into and
development of the  telecommunications  and computer technical staffing services
business.

         In recent  years,  Bagcraft has  experienced  a decline in its domestic
microwave  popcorn business due to the acquisition of one of its major customers
by a company with its own packaging ability.  Accordingly, at December 31, 1995,
Bagcraft  incurred  a charge to  operations  of  $1,503,000  to  write-down  the
carrying  value of idle  machinery and equipment  dedicated to the production of
microwave popcorn products.

         Operating  loss from  continuing  operations in the year ended December
28, 1995 was  $5,593,000 as compared to operating loss of $4,026,000 in the year
ended December 29, 1994. The increased operating loss is primarily  attributable
to a compensation  charge of $3,000,000  related to the issuance of a 35% common
stock interest in COMFORCE as additional compensation for certain individuals to
enter into employment or consulting services agreements to manage its entry into
and  development  of the  telecommunications  and  computer  technical  staffing
services  business and a charge to operations  of  $1,503,000 to write-down  the
carrying  value of idle  machinery and equipment  dedicated to the production of
microwave  popcorn products,  partially offset by improved  operating margins of
the Bagcraft subsidiary.

                                     - 19 -
Interest expense from continuing  operations in the year ended December
28, 1995  increased  $1,164,000 as compared to the year ended December 29, 1994.
The 1995 increase is principally due to the cost of ARTRA common stock issued as
additional  compensation  for the  December  1995  private  placement  of  ARTRA
short-term notes.

         Due to the  Company's tax loss  carryforwards  and the  uncertainty  of
future taxable  income,  no income tax benefit was recognized in connection with
the  Company's  1995 and 1994  pre-tax  losses.  The 1995  extraordinary  credit
represents a net gain from discharge of bank indebtedness.

Year Ended December 29, 1994 vs. Year Ended December 30, 1993

         Net sales from continuing operations of $111,837,000 for the year ended
December 29, 1994 were $1,747,000, or 1.5%, lower than net sales from continuing
operations  for the year ended December 30, 1993. The 1994 net sales decrease is
primarily attributable to the sale of Bagcraft's Roll Press division,  which was
completed in the second quarter of 1993.

         The Company's cost of sales from  continuing  operations of $94,766,000
for year ended December 29, 1994 increased  $1,305,000 as compared to year ended
December 30, 1993.  Cost of sales from  continuing  operations in the year ended
December 29, 1994 was 84.7% of net sales compared to a cost of sales  percentage
of 82.3% for the year ended  December  30, 1993.  The increase in the  packaging
segment cost of sales and cost of sales percentage is primarily  attributable to
unforeseen  delays in the  completion  of and higher than  anticipated  start-up
costs of the Baxter Springs,  Kansas production facility and higher raw material
costs in the second half of 1994,  partially offset by a more favorable  product
mix.

         Selling, general and administrative expenses from continuing operations
were  $16,760,000 in the year ended December 29, 1994 as compared to $15,537,000
in the year  ended  December  30,  1993.  Selling,  general  and  administrative
expenses were 15.0% of net sales in the year ended December 29, 1994 as compared
to 13.7% of net sales in the year ended  December 30, 1993. The 1994 increase in
selling,  general and  administrative  expenses is primarily  attributable to an
increase in employee benefit costs and professional fees.

         In  December,  1993  the  Bagcraft  subsidiary  recorded  a  charge  to
operations of $1,175,000  representing  equipment and inventory relocation costs
and employee  severance and outplacement costs relating to the construction of a
new manufacturing facility in Baxter Springs, Kansas.

         Operating  loss from  continuing  operations in the year ended December
29, 1994 was  $4,026,000  as compared to operating  loss of $974,000 in the year
ended December 30, 1993. The increased operating loss is primarily  attributable
to unforeseen  delays in the completion of and higher than anticipated  start-up
costs of the Baxter Springs, Kansas production facility.

                                     - 20 -
Interest expense from continuing  operations in the year ended December
29, 1994  increased  $2,067,000 as compared to the year ended December 30, 1993.
The 1994 increase is principally due to an overall increase in borrowings due to
the December, 1993 refinancing of Bagcraft's bank debt, an increase in the prime
rate and fees incurred for short-term borrowings at the Corporate entity.

         The 1994  extraordinary  credit represents a net gain from discharge of
bank  indebtedness  under the loan  agreements  of  COMFORCE  and its  operating
subsidiaries.  The  1993  extraordinary  credit  represents  a  gain  from a net
discharge of indebtedness at COMFORCE's New Dimensions subsidiary. No income tax
expense is reflected in the Company's  financial  statements  resulting from the
extraordinary credit due to the utilization of tax loss carryforwards.

Liquidity and Capital Resources

         Cash and Cash Equivalents and Working Capital

         Cash and cash equivalents  decreased  $2,248,000 during the nine months
ended September 26, 1996. Cash flows used by operating  activities of $4,516,000
and cash flows used by financing  activities of  $637,000  exceeded cash flows
from investing activities of $2,905,000. Cash flows used by operating activities
were  principally  attributable  to funds used to pay down accounts  payable and
accrued  liabilities.  Cash flows used by financing  activities were principally
attributable  to a net  reduction  of  short-term  borrowings.  Cash  flows from
investing  activities  principally  represent proceeds from the sale of COMFORCE
common stock.

         Cash and cash  equivalents  increased  $277,000  during  the year ended
December 28, 1995.  Cash flows used by operating  activities of  $5,943,000  and
cash flows used by financing  activities of $14,419,000 exceeded cash flows from
investing  activities of  $20,639,000.  Cash flows used by operating  activities
were principally  attributable to the Company's loss from operations,  exclusive
of the effect of a charge to operations of $6,430,000 representing an impairment
of goodwill at  COMFORCE's  discontinued  jewelry  business  and a  compensation
charge to  continuing  operations  of  $3,000,000  representing  the issuance in
aggregate of a 35% common stock interest in COMFORCE as additional consideration
under employment or consulting  services  agreements with certain individuals to
manage  COMFORCE's  entry into and  development  of the  telecommunications  and
computer  technical  staffing  services  business.  Cash flows used by financing
activities  were  principally  attributable to a net reduction of long-term debt
with proceeds from the October 26, 1995 sale of Arcar. Cash flows from investing
activities represent proceeds from the October 26, 1995 sale of Arcar.

         The  Company's   consolidated   working  capital  deficiency  decreased
$15,486,000 to $10,879,000  during the nine months ended September 26, 1996. The
decrease  in  working  capital  deficiency  is  principally  attributable  to an
agreement  to  discharge  amounts  due on ARTRA bank notes and  related  accrued
interest and fees.

         The  Company's   consolidated   working  capital  deficiency  decreased
$34,107,000 to $26,365,000 during the year ended December 28, 1995. The decrease
in working capital deficiency is principally attributable to the

                                     - 21 -
classification  of borrowings  under  Bagcraft's  credit  agreement as long-term
liabilities  at  December  28,  1995 due to a February  1, 1996  amendment  that
extended the maturity date of the agreement  until  September 30, 1997 (see Note
10 to the  Company's  consolidated  financial  statements  for  the  year  ended
December 28, 1995). At December 29, 1994,  borrowings  under  Bagcraft's  credit
agreement  were  classified  in the  Company's  consolidated  balance  sheet  as
currently payable.

         Status of Debt Agreements and Operating Plan

         At September  26, 1996 the Parent  Company was in default of provisions
of certain of its credit  agreements.  Under certain debt agreements of Bagcraft
with its lenders,  Bagcraft is restricted in the distributions  that it can make
to ARTRA.  Effective February 1, 1996,  Bagcraft's credit agreement was extended
until  September  30,  1997.  See  Notes 6, 7 and 8 to the  Company's  condensed
consolidated  financial  statements for the nine months ended September 26, 1996
and discussion below.

         ARTRA Corporate

         As of  September  26,  1996,  the  Company had  outstanding  short-term
indebtedness of approximately $15,500,000, of which $3,300,000 was past due.

         ARTRA has outstanding an aggregate of $3,000,000 in loans from RCK. All
of these loans are currently past due, but RCK has made no demand for payment of
past due  amounts.  During 1993,  RCK,  which held  approximately  8% of ARTRA's
outstanding  Common Stock  (including  the stock  issuable  upon the exercise of
warrants) as of September 26, 1996, made certain short-term loans to the Company
of which $2,000,000, with interest at 10%, was outstanding at December 31, 1993.
As additional  compensation,  RCK received  warrants to purchase an aggregate of
86,250 ARTRA common shares at prices ranging from $6.00 to $7.00 per share based
upon the  market  price of ARTRA's  common  stock at the date of  issuance.  The
warrants expire five years from the date of issuance.  In January 1994, RCK made
an additional  $1,000,000  short-term loan to the Company, also with interest at
10%. The proceeds of this loan were used to pay down  various  ARTRA  short-term
loans and other debt obligations. In December, 1995, RCK received 126,222 shares
of ARTRA  common in payment  of past due  interest  through  October  31,  1995.
Payment on the loans was due March 31, 1994. In August, 1996 RCK received a cash
payment of approximately  $240,000  representing past due interest through June,
1996. Payment on the loans was due March 31, 1994.

         In July 1996,  ARTRA  completed a private  placement of 12%  promissory
notes due April 15, 1997 in the principal  amount of  $7,575,000.  The notes are
collateralized by ARTRA's interest in all of the common stock of BCA (the parent
company of Bagcraft).  As additional  consideration,  the  noteholders  received
warrants to purchase an aggregate of 378,750  ARTRA common  shares at a price of
$6.00 per share. In addition,  warrants to purchase an additional  35,000 shares
were  issued  to an  unrelated  party as a  commission  in  connection  with the
offering.  The warrants became  exercisable August 15, 1996 and expire April 15,
1999.  The proceeds  from this private  placement  were used to pay down various
ARTRA debt obligations.

                                     - 22 -
On August  15,  1996,  ARTRA  and its 100%  owned  Fill-Mor  subsidiary
entered into a $2,500,000 term loan agreement with Manufacturers Bank. The loan,
payable  by  Fill-Mor  in 90 days  from the date of the  loan  agreement,  bears
interest,  payable monthly, at the bank's reference rate. Fill-Mor has an option
to extend the loan for an additional 90 days. In November  1996,  the option was
exercised and the loan was extended to February 11, 1997.  The loan,  guaranteed
by ARTRA, is  collateralized  by 800,000 shares of COMFORCE common stock. In the
event of a default, the bank has the right to sell all of its right and interest
in the loan to an  unaffiliated  individual for an aggregate  price equal to the
outstanding principal balance of the loan plus accrued interest. The proceeds of
the loan were used for working capital.

         In May,  1996,  ARTRA  borrowed  $100,000  from Mr.  Celano,  a private
investor,  evidenced by an unsecured  short-term  note,  due August 7, 1996, and
renewed to January 6, 1997,  bearing  interest at 10%. At the  Company's  annual
meeting of  shareholders,  held August 29, 1996,  Mr.  Celano was elected to the
Company's board of directors. The $100,000 loan is currently outstanding.

         In August,  1996,  ARTRA borrowed  $500,000 from Mr. Conant,  a private
investor,  evidenced by an  short-term  note,  due  December  23, 1996,  bearing
interest at 10%. The loan is collateralized by 125,000 shares of COMFORCE common
stock owned by the Company's Fill-Mor subsidiary. As additional compensation for
the loan, the lender  received a warrant,  expiring in 2001, to purchase  25,000
ARTRA  common  shares at a price of $5.00 per  share.  At the  Company's  annual
meeting of  shareholders,  held August 29, 1996,  Mr.  Conant was elected to the
Company's board of directors. The $500,000 loan is currently outstanding.

         ARTRA also has outstanding  short-term  borrowings from other unrelated
parties aggregating approximately $1,850,000, of which $300,000 is past due. The
remaining  amounts come due at various  times in 1996.  The notes were issued at
various times during the period May, 1991 to May,  1996,  and the interest rates
vary between 10 and 15 percent.

         In October 1996 the Company and its Fill-Mor  subsidiary entered into a
margin loan agreement with a financial institution which provided for borrowings
of $600,000,  with interest  approximating the prime rate.  Borrowings under the
loan agreement are  collateralized  by 125,000  shares of COMFORCE  common stock
owned by the Company's Fill-Mor subsidiary.

         ARTRA has  suffered  recurring  losses  from  operations  and had a net
capital  deficiency  at September 26, 1996 and December 28, 1995. As a result of
these factors,  ARTRA has experienced difficulty in obtaining adequate financing
to replace certain current credit arrangements, certain of which are in default,
to fund its debt service and liquidity  requirements in 1996. Due to its limited
ability  to  receive  operating  funds  from  its  operating  subsidiary,  ARTRA
historically  has met its operating  expenditures  with funds  generated by such
alternative sources as private placements of ARTRA common stock and notes, sales
of ARTRA  common  stock  with put  options,  loans from  officers/directors  and
private  investors,  as well as  through  sales of  assets  (including  COMFORCE
shares)  and/or  other  equity  infusions.  ARTRA plans to continue to seek such
alternative sources of funds to meet its future operating expenditures.

         ARTRA  believes  that  it will be  able  to  satisfy  its  obligations.
However,  there can be no  assurance  that  ARTRA  will be able to  successfully
refinance  the  above  referenced  indebtedness  or that it will be able to sell
COMFORCE   shares  at  an  acceptable   price.   See   "Investment  In  COMFORCE
Corporation." If ARTRA is unable to negotiate  extensions with its creditors and
complete the above  mentioned  transactions,  ARTRA could suffer severe  adverse
consequences,  and as a result,  ARTRA may be forced to liquidate  its assets or
file for protection under the Bankruptcy Code.

         ARTRA was the obligor  under two demand notes issued to CIPKA S.A.,  an
unrelated Swiss company,  in the amount of $1,811,000.  The notes were issued in
October,  1990 and with interest at 15 percent.  In September,  1996, CIPKA S.A.
agreed to exchange  its notes and the amounts due under other ARTRA  obligations
for 2,250 shares of ARTRA Series E Preferred Stock.

         As of February 26, 1996, ARTRA was indebted to Bank of America Illinois
("B of A") in the sum of $14,563,639.59 including accrued interest and fees (the
"Prior  ARTRA  Indebtedness").  As of February 26,  1996,  Peter R.  Harvey,  an
officer and director of ARTRA,  was indebted to B of A in the sum of  $7,496,830
including  accrued interest (the "Prior Harvey  Indebtedness").  The Prior ARTRA
Indebtedness and the Prior Harvey  Indebtedness are collectively  referred to as
the "Debt," or "Prior Notes."

         
                                     - 23 -
On February 26, 1996,  for an aggregate  purchase  price of  $5,150,000
(the "Purchase Price") Arabella,  S.A.  ("Arabella")  purchased from B of A (the
"Debt  Purchase")  all  of B of A's  interest  in the  Debt  except  that B of A
retained the rights to $3 million of the Prior Harvey Indebtedness.  B of A then
entered  into a  Participation  Agreement  with ARTRA  pursuant  to which B of A
transferred  to ARTRA the right to  receive  $2.15  million of the  retained  $3
million  indebtedness.  The $3 million  indebtedness is secured by a mortgage on
certain  real  estate  owned by Mr.  Harvey.  B of A's  rights to the  remaining
$850,000 of the  indebtedness  have  priority  over ARTRA's  rights to the $2.15
million.

         The Prior ARTRA  Indebtedness  and the Prior Harvey  Indebtedness  were
satisfied as follows.

         1. ARTRA paid Arabella cash in the amount of $2,650,000, 100,000 shares
of ARTRA  common  stock  (valued at  $440,667  after a discount  for  restricted
marketability)  and 25,000 shares of COMFORCE common stock held by ARTRA (with a
then fair market value of $200,000).

         2. BCA executed a note in favor of Arabella in the principal  amount of
$1,900,000  with a maturity  date of May 26,  1996 (the "New ARTRA  Note"),  and
Peter R. Harvey executed a note in favor of Arabella in the principal  amount of
$2,296,830 (the "New Harvey Note"). The amount of the Harvey Note was reduced to
$100,000 if payment was made by May 26, 1996.  Arabella was entitled to up to an
additional  100,000  shares of ARTRA common stock and 25,000  shares of COMFORCE
stock  depending on when ARTRA and Peter R. Harvey repaid the new debt.  The New
ARTRA and Harvey Notes were repaid in April, 1996, principally from the proceeds
of a private placement completed in July (and commenced in April).  Based on the
date of the repayment,  Arabella  received an additional  50,000 shares of ARTRA
stock,   which  had  a  value  of  $220,000  after  a  discount  for  restricted
marketability.  Arabella  also  received an  additional  $125,000 in lieu of the
additional  12,500 shares of COMFORCE to which it was entitled based on the date
of repayment.

         3. ARTRA gave Arabella an option to purchase 40% of the common stock of
Bagcraft for nominal  consideration.  The option was valued at $500,000. Per the
terms of the  agreement,  ARTRA  repurchased  the option for  $550,000 in April,
1996.

         ARTRA  recognized a gain on the discharge of indebtedness of $9,424,000
($1.23 per share) in the first quarter of 1996 and recorded a receivable for Mr.
Harvey's  pro rata  share  ($1,089,000)  of the  debt  discharge  funded  by the
Company. In addition,  ARTRA discharged $2,150,000 of amounts previously owed to
it by Peter Harvey,  which offset ARTRA's right to receive  $2,150,000  from Mr.
Harvey  pursuant  to  the   Participation   Agreement   discussed   above.   See
"Transactions  With  Management  And Others -- Settlement of the Bank of America
Illinois Debt."

         In December 1995, ARTRA completed a private  placement of $2,500,000 of
12% convertible  subordinated promissory notes due March 21, 1996. As additional
consideration  the  noteholders  received  15,000 ARTRA  common  shares per each
$100,000 of notes issued,  or an aggregate of 375,000 ARTRA common  shares.  The
ARTRA common shares were valued at $1,266,000  ($3.375 per share) based upon the
closing market value of ARTRA common stock on the date of issue,  discounted for
restricted  marketability.  In the event the notes and all accrued interest were
not paid in full at maturity, the noteholders had the option to convert all or a
portion of the amount due into shares of ARTRA common at a  conversion  price of
$3.00 per share.  The  proceeds  from the private  placement,  held in escrow at
December  28,  1995,  were used to pay down other debt  obligations  in January,
1996. At March 28, 1996, the outstanding principal amount due on these notes was
reduced to  $1,975,000.  In April,  1996, the remaining  outstanding  notes were
repaid  principally  with  proceeds  from the private  placement  of ARTRA notes
completed in July, 1996 as discussed above.

                                     - 24 -
On March 31, 1994,  ARTRA entered into a series of agreements with B of
A and Kenny Construction Company ("Kenny"),  which had guaranteed  $2,500,000 of
ARTRA bank notes held by B of A. A major  shareholder  and executive  officer of
Kenny  is an  ARTRA  director.  Per  terms of the  agreements,  Kenny  purchased
$2,500,000  of  ARTRA  notes  from B of A and B of A  released  Kenny  from  its
$2,500,000 loan guaranty. As additional consideration,  Kenny received an option
to put back to ARTRA  the  49,980  shares  of ARTRA  common  stock  which it had
received as compensation  for the former  $2,500,000 loan guaranty at a price of
$15.00 per share.  The put option was  exercisable  on the later of the day that
the $2,500,000 note payable to Kenny became due or the date the ARTRA bank notes
payable to B of A were paid in full.  The option  price was to increase by $2.25
annually.  During the first  quarter of 1996,  the  $2,500,000  note and related
accrued interest was paid in full, principally with the proceeds from additional
short-term borrowings. The put option remains outstanding.

         On  February  20,  1996,  the Company  issued 10%  Secured  Convertible
Promissory  Notes  to  two  lenders  for  the  aggregate   principal  amount  of
$2,400,000. Up to an aggregate principal amount of $400,000 of Secured Notes was
convertible into common stock of the Company at the rate of $5.00 per share. The
notes were collateralized by an aggregate of 1,980,000 shares of COMFORCE common
stock, which constituted all of the COMFORCE stock owned by the Company. The 10%
Notes were due on June 19,  1996.  The holders  converted  notes with a value of
$400,000,  and the  remaining  notes were repaid with the proceeds from the June
sale of COMFORCE shares. See "Investment In COMFORCE Corporation."

         As  discussed  in  Note  14 to  the  Company's  condensed  consolidated
financial  statements  for the nine months ended  September 26, 1996,  ARTRA has
total amounts due from its president,  Peter R. Harvey,  of which  7,232,000 and
$5,369,000,  including accrued interest,  remained  outstanding at September 26,
1996 and December 28, 1995,  respectively.  The amounts due bear interest at the
prime rate plus 2% (10.25% at September 26, 1996 and 10.5% at December 28, 1995,
respectively).  This  receivable  from Peter R. Harvey has been  classified as a
reduction of common shareholders' equity.

         Commencing  January 1, 1993 to date,  interest  on all amounts due from
Peter R. Harvey has been accrued and fully reserved.

         As partial collateral for amounts due from Peter R. Harvey, the Company
has  received  the pledge of 1,523 shares of ARTRA  redeemable  preferred  stock
(with a liquidation value of $1,523,000, plus accrued dividends) which are owned
by Mr. Harvey. In addition,  Mr. Harvey has pledged a 25% interest in Industrial
Communication Company (a private company). Such interest is valued by Mr. Harvey
at $800,000 to  $1,000,000.  During 1995,  Peter R. Harvey entered into a pledge
agreement with ARTRA whereby Mr. Harvey pledged additional collateral consisting
of 42,067  shares of ARTRA  common  stock and 707,281  shares of PureTec.  As of
November 25, 1996,  the closing  market price of Puretec on the NASDAQ  National
Market was $2.0625 per share.  In addition,  in  connection  with a discharge of
certain  bank  indebtedness  discussed  below,  ARTRA  received  rights  under a
mortgage of certain  real  estate  owned by Mr.  Harvey.  The real estate had an
appraised  value of $2 million as of December  13, 1993.  The  mortgage  secures
$2,150,000  of the amount owed by Mr.  Harvey.  Bank of America  Illinois  has a
senior  security  interest in the amount of  $850,000.  See  "Transactions  With
Management And Others -- Settlement of the Bank of America Illinois Debt."

         ARTRA's  corporate  entity  has no  material  commitments  for  capital
expenditures.

                                     - 25 -
Bagcraft

         Bagcraft has entered into a Credit  Agreement (the "Credit  Agreement")
that provides for a revolving  credit loan and two separate term loans. The term
loans are separate facilities  initially totaling  $12,000,000 (Term Loan A) and
$8,000,000 (Term Loan B), bearing interest at the lender's index rate plus 1.75%
and 3%, respectively. At September 26, 1996, outstanding borrowings on Term Loan
A and Term Loan B were $12,000,000 and $2,800,000,  respectively,  with interest
rates  of 10%  and  11.25%  respectively.  At  December  28,  1995,  outstanding
borrowings  on Term  Loan A and Term  Loan B were  $12,000,000  and  $4,600,000,
respectively, with interest rates of 10.25% and 11.5% respectively.

         The amount  available to Bagcraft  under the  revolving  credit loan is
subject to a borrowing base, as defined in the Credit Agreement, up to a maximum
of  $18,000,000.  At September  26, 1996 and  December  28, 1995,  approximately
$1,900,000 and  $6,600,000,  respectively,  was available and unused by Bagcraft
under the revolving credit loan. Borrowings under the revolving credit loan bear
interest at the lender's  index rate plus 1.5% and are payable upon  maturity of
the Credit Agreement, unless accelerated under terms of the Credit Agreement. At
September 26, 1996 and December 28, 1995, interest rates on the revolving credit
loan were 9.75% and 10%, respectively.

         Effective  February 1, 1996, the Credit  Agreement was amended whereby,
among other things, the maturity date of the Credit Agreement was extended until
September  30, 1997,  and certain loan  covenants  were  amended.  The principal
payments  under  Term  Loan B were  modified  to  include  twenty-three  monthly
installments  of $200,000 from November 15, 1995 to September 30, 1997, with the
remaining  balance payable at maturity  (September 30, 1997).  Additionally,  in
conjunction with a preferred stock exchange agreement between BCA (the parent of
Bagcraft),  Bagcraft and the holder of Bagcraft's  13.5%  cumulative  redeemable
preferred  stock,  the lender  consented to an advance to Bagcraft of $4,135,000
under the revolving  credit loan to be  transferred  to ARTRA as a dividend (see
Note 10 to the Company's  condensed  consolidated  financial  statements for the
nine months ended September 26, 1996).

         As additional  compensation for borrowings under the Credit  Agreement,
the lender received a detachable  warrant,  expiring in December 1998,  allowing
the holder to purchase up to 10% of the fully diluted  common equity of Bagcraft
at a nominal value. Under certain conditions  Bagcraft is required to repurchase
the warrant from the lender.  The  determination  of the repurchase price of the
warrant is to be based on the  warrant's  pro rata share of the  highest of book
value,  appraised  value or market value of  Bagcraft.  In  connection  with the
February 1, 1996 amendment to the Credit  Agreement,  the warrant  agreement was
amended to permit the holder to purchase 13% of the fully diluted  common equity
of Bagcraft at the original  nominal purchase price and to extend the expiration
date to December 17, 1999.

         Borrowings   under  the  Credit   Agreement   are   collateralized   by
substantially all of the assets of Bagcraft.  The Credit Agreement,  as amended,
contains various restrictive covenants,  that among other restrictions,  require
Bagcraft to maintain minimum levels of tangible net worth and liquidity  levels,
and  limits  capital  expenditures  and  restricts  additional  loans,  dividend
payments and payments to related  parties.  In  addition,  the Credit  Agreement
prohibits  changes in ownership of Bagcraft.  At September 26, 1996 Bagcraft was
in compliance with the provisions of its Credit Agreement.

                                     - 26 -
In  March,  1994  Bagcraft  and the  City  of  Baxter  Springs,  Kansas
completed a $12,500,000  financing package associated with the construction of a
new 265,000 sq. ft. production facility in Baxter Springs, Kansas. The financing
package,  funded by a combination of Federal, state and local funds, consists of
the following loan agreements payable by Bagcraft directly to the City of Baxter
Springs:

         A $7,000,000  promissory  note payable in ten  installments of $700,000
         due annually on July 21 of each year beginning in 1995 through maturity
         on July 21,  2004.  Interest,  at varying  rates from 4.6% to 6.6%,  is
         payable semi-annually.  At September 26, 1996, Bagcraft had outstanding
         borrowings of $5,600,000 under this loan agreement.

         A $5,000,000 subordinated promissory note payable as follows:  $150,000
         due in 1996;  $2,425,000  due in 1998;  and $2,425,000 due in 1999. The
         subordinated  promissory  note  is  non-interest  bearing,  subject  to
         certain repayment  provisions as defined in the agreement (as amended).
         At  September  26,  1996,   Bagcraft  had  outstanding   borrowings  of
         $4,850,000 under this loan agreement.

         Two separate $250,000 subordinated  promissory notes payable in varying
         installments  through  January 20, 2025.  The  subordinated  promissory
         notes are non-interest bearing, subject to certain repayment provisions
         as defined  in the  agreement.  At  September  26,  1996  Bagcraft  had
         outstanding borrowings of $234,000 under this loan agreement.

         Borrowings  under the above loan  agreements  are  collateralized  by a
first lien on the land and  building at the Baxter  Springs,  Kansas  production
facility and by a second lien on certain machinery and equipment.  Under certain
circumstances,  repayment of the borrowings  under the above loan  agreements is
subordinated to the repayment of obligations  under Bagcraft's Credit Agreement.
At December 28, 1995,  $552,000 of borrowings from the above loan agreements was
reflected  in the  condensed  consolidated  balance  sheet in current  assets as
restricted cash and equivalents.  These funds, invested in interest bearing cash
equivalents and restricted for expenditures  associated with the Baxter Springs,
Kansas  project  were  expended  during the first  quarter of 1996.

         The  Kansas  facility  replaced  Bagcraft's  production  facilities  in
Joplin,  Missouri and Carteret, NJ. 

         Bagcraft has  historically  funded its capital  requirements  with cash
flow from operations and funds available under its revolving  credit loan. These
sources  should  provide  sufficient  cash  flow to fund  Bagcraft's  short-term
capital  requirements.  As discussed  above,  it is anticipated  that Bagcraft's
recently amended Credit Agreement will provide Bagcraft with the ability to fund
its long-term capital  requirements.  Bagcraft is currently negotiating with the
lender to extend the maturity date  (September 30, 1997) and increase the amount
of borrowings available to it under the credit agreement.

         Bagcraft  anticipates that its 1996 capital  expenditures,  principally
for manufacturing equipment, will be approximately $2,500,000 and will be funded
principally from the above-mentioned credit facilities and also from operations.

                                     - 27 -
The common  stock and  virtually  all the assets of the Company and its
Bagcraft subsidiary have been pledged as collateral for borrowings under various
loan  agreements.  Under certain debt  agreements  the Company is limited in the
amounts it can withdraw from its operating  subsidiaries.  At September 26, 1996
and December 28, 1995,  substantially  all cash and equivalents on the Company's
consolidated  balance  sheet  were  restricted  to use by and for the  Company's
operating subsidiaries.

         Investment In COMFORCE Corporation

         ARTRA, through its wholly owned Fill-Mor subsidiary, owns a significant
minority  interest in COMFORCE,  consisting of 1,813,036 shares or approximately
19% of the outstanding common stock of COMFORCE as of November 25, 1996, with an
aggregate value as of that date of approximately $21,756,432 (value at September
26,  1996  was  $31,728,000).   The  value  of  COMFORCE  stock  has  fluctuated
substantially in recent periods. The high per share for the twelve period ending
September 26, 1996 was $34.12,  and the per share low during the same period was
$2.75.  There can be no assurance that the value of the COMFORCE shares will not
decline  substantially in the future, which would have a material adverse effect
on the value of the Company.

         The  COMFORCE  shares  constitute  unregistered  securities  under  the
Securities Act of 1933 (the "Act"). As a result of ARTRA's former involvement in
the operations  and management of COMFORCE,  ARTRA was considered an "affiliate"
of COMFORCE  under the Act, and because of this, the number of shares that ARTRA
could sell without  registration under the Act within any three-month period was
limited. For the reasons set forth below, the Company believes that an exemption
from registration  under Rule 144(k)  promulgated under the Act is now available
to it, and therefore the limitations  under Rule 144 on the number of restricted
shares that ARTRA could sell within any three-month period without registrations
are no longer applicable to it.

         Rule 144(k) of the Act permits the sale without  registration under the
Act of  restricted  shares of an  issuer  that have been held in excess of three
years by persons who have not been  "affiliates" of the issuer for the preceding
three months.  Since  December 28, 1995,  ARTRA,  Fill-Mor and their  respective
officers,  directors,  affiliates  and  employees  have  held no  managerial  or
executive  positions  with  COMFORCE  nor have any of the  above  served  in the
capacity of directors, nor have any of them had the right under any agreement or
otherwise to serve in such capacity since December 28, 1995.  Likewise,  neither
ARTRA,  Fill-Mor  nor any of the  above had the right  under  any  agreement  or
otherwise to serve in such capacity since December 28, 1995. Finally, since that
time, neither ARTRA,  Fill-Mor nor any of their respective officers,  directors,
affiliates  and employees  have had any material  involvement  in, nor have they
been able to  exercise  any  control  over,  COMFORCE,  either  individually  or
together with any other person or entity.  Because of this, the Company believes
that ARTRA and Fill-Mor are not  "affiliates"  of COMFORCE and,  since they have
held their shares in excess of three years, qualify for the exemption under Rule
144(k) set forth above.

         COMFORCE  has not agreed  that Rule  144(k) is  available  to ARTRA and
Fill-Mor,  and  accordingly  has not permitted ARTRA and Fill-Mor to sell shares
using  the  Rule  144(k)  exemption,  and  ARTRA  has no  right,  short of legal
proceedings, to force COMFORCE to permit it to sell shares using the Rule 144(k)
exemption.  Likewise, there can be no assurance that the Securities and Exchange
Commission would concur with the Company's position. Notwithstanding this, ARTRA
does not believe that its ability to sell  COMFORCE  shares,  or  eventually  to
realize on the value of its  COMFORCE  shares,  will be  affected  in a material
adverse way,  although it may not be able to sell its COMFORCE shares as quickly
as it could if it were to use Rule 144(k),  and in any event, an attempt to sell
a large number of its COMFORCE shares over a limited period could be expected to
result in a reduction in the value of such shares.

         In January 1996, the Company's Board of Directors  approved the sale of
200,000 of ARTRA's COMFORCE common shares to certain officers, directors and key
employees of ARTRA for non-interest bearing notes totaling $400,000.  The notes,
collateralized by the 200,000 COMFORCE common shares sold, are not payable until
the earlier of the registration of these shares under the Securities Act of 1993
or the expiration of the applicable  resale waiting period under  Securities Act
Rule 144.  Additionally,  the  noteholders  have the right to put their COMFORCE
shares back to ARTRA in full payment of the balance of their  notes.  Based upon
the preceding factors,  the Company has concluded that, for reporting  purposes,
it has effectively sold options to certain officers, directors and key employees
to acquire 200,000 of ARTRA's COMFORCE common shares. Accordingly, these 200,000
COMFORCE  common  shares  have been  removed  from the  Company's  portfolio  of
"Available-for-sale  securities"  and are classified in the Company's  condensed
consolidated balance sheet at September 26, 1996 as other current assets with an
aggregate  value of  $400,000,  based upon the value of  proceeds to be received
upon future exercise of the options.  The disposition of these 200,000  COMFORCE
common  shares  will  result in a gain which has been  deferred  and will not be
recognized in the Company's  financial  statements until the options to purchase
these 200,000 COMFORCE common shares are exercised. As of September 26, 1996, no
options to acquire any of the 200,000 COMFORCE common shares had been exercised.

         
                                     - 28 -
During the nine months ended  September  26,  1996,  ARTRA sold 193,000
COMFORCE shares in the market.  As additional  consideration for 1996 short-term
loans,  the lenders  received 95,000  COMFORCE common shares held by ARTRA.  The
disposition  of these  288,000  COMFORCE  shares  resulted in realized  gains of
$4,823,000 during the nine months ended September 26, 1996.

         At  September  26,  1996  ARTRA's  remaining   investment  in  COMFORCE
(1,813,036  shares, or approximately a 19% common stock ownership  interest) was
classified in the Company's condensed  consolidated  balance sheet in noncurrent
assets as  "Available-for-sale  securities."  At  September  26,  1996 the gross
unrealized  gain  relating to ARTRA's  investment  in  COMFORCE,  reflected as a
separate component of shareholders' equity, was $34,950,000.

         In  conjunction  with the Global  acquisition,  ARTRA  agreed to assume
substantially all pre-existing  COMFORCE liabilities (i.e., COMFORCE liabilities
existing  from  operations  prior to the  acquisition  of Global) and  indemnify
COMFORCE  in the event any  future  liabilities  arise  concerning  pre-existing
environmental matters and business related litigation. Accordingly, at September
26, 1996 and December 28, 1995,  respectively,  $764,000 and  $4,500,000 of such
pre-existing   COMFORCE   liabilities  were  classified  in  ARTRA's   condensed
consolidated  balance sheet as current  liabilities of discontinued  operations.
See  Note 5 to the  condensed  consolidated  financial  statements  for the nine
months ended September 26, 1996 for a further  discussion of ARTRA's  investment
in COMFORCE.  See "Changes in Business - COMFORCE"  for  additional  information
relating to the Company's investment in COMFORCE.

         Litigation

         The  Company  and  its  subsidiaries  are  the  defendants  in  various
business-related  litigation  and  environmental  matters.  See  Note  13 to the
Company's condensed  consolidated financial statements for the nine months ended
September 26, 1996. At September 26, 1996 and December 28, 1995, the Company had
accrued $1,900,000 and $1,500,000, respectively, for business-related litigation
and environmental liabilities. However, as discussed elsewhere herein, ARTRA may
not  have   available   funds   to  pay   liabilities   arising   out  of  these
business-related  litigation and environmental matters or, in certain instances,
to provide for its legal defense. ARTRA could suffer severe adverse consequences
in the  event of an  unfavorable  judgment  in any of these  matters.  See "Risk
Factors -- Litigation," and "Legal Proceedings."

         Net Operating Loss Carryforwards

         At September  26, 1996,  the Company and its  subsidiaries  had Federal
income tax loss  carryforwards  of  approximately  $33,000,000  available  to be
applied against future taxable income, if any. ARTRA's tax loss carryforwards of
approximately  $22,000,000  expire  principally  in 2003 -  2010.  Additionally,
ARTRA's  discontinued  Ultrasonix and Ratex  subsidiaries had Federal income tax
loss carryforwards of approximately  $11,000,000 available to be applied against
future taxable income, if any. In recent years, the Company has issued shares of
its  common  stock to repay  various  debt  obligations,  as  consideration  for
acquisitions,  to fund working  capital  obligations  and as  consideration  for
various  other  transactions.  Section 382 of the Internal  Revenue Code of 1986
limits a corporation's  utilization of its Federal income tax loss carryforwards
when certain changes in the ownership of a corporation's common stock occurs. In
the  opinion  of  management,  the  Company  is not  currently  subject  to such
limitations   regarding  the   utilization   of  its  Federal  income  tax  loss
carryforwards.  Should the  Company  continue to issue a  significant  number of
shares of its common stock,  it could trigger a limitation that would prevent it
from   utilizing  a  substantial   portion  of  its  Federal   income  tax  loss
carryforwards.

                                     - 29 -
Impact of Inflation and Changing Prices

         Bagcraft's costs have increased  substantially in recent years, largely
due to  increases  in the cost of  paper.  Although  Bagcraft  seeks to pass its
increased costs on to its customers,  this is frequently not possible due to the
competitive nature of the paper products industry.

Recently Issued Accounting Pronouncements

         Impairment of Long-Lived Assets

         SFAS No. 121,  "Accounting for the Impairment of Long-Lived  Assets and
for Long-Lived  Assets to be Disposed Of",  requires that long-lived  assets and
certain  identifiable  intangibles  to be held and used by an entity be reviewed
for impairment  whenever  events or changes in  circumstances  indicate that the
carrying amount of an asset may not be  recoverable.  Impairment is evaluated by
comparing future cash flows (undiscounted and without interest charges) expected
to result from the use or sale of the asset and its eventual disposition, to the
carrying amount of the asset. This new accounting principle is effective for the
Company's  fiscal year ending  December  26,  1996.  The Company  believes  that
adoption did not have a material impact on its financial statements.

         Stock-Based Compensation

         SFAS No. 123,  "Accounting for Stock-Based  Compensation",  encourages,
but does not require,  companies to recognize compensation expense for grants of
stock,  stock options,  and other equity  instruments to employees  based on new
fair value accounting  rules.  Although  expense  recognition for employee stock
based compensation is not mandatory,  the pronouncement  requires companies that
choose not to adopt the new fair value accounting, to disclose the pro-forma net
income  and  earnings  per  share  under  the new  method.  This new  accounting
principle is effective for the Company's  fiscal year ending  December 26, 1996.
The  Company  believes  that  adoption  will not have a  material  impact on its
financial  statements  as  the  Company  will  not  adopt  the  new  fair  value
accounting, but instead comply with the disclosure requirements.

                             BUSINESS AND PROPERTIES

General

         At December 29, 1994 and,  through  September 1995,  ARTRA  principally
operated in two industry  segments as: 1) a manufacturer  of packaging  products
principally  serving the food  industry;  and 2) a designer and  distributor  of
popular-priced fashion costume jewelry.

                                     - 30 -
During 1995, the Company's packaging products business was conducted by
its current principal operating subsidiary,  Bagcraft, and its then wholly-owned
subsidiary Arcar Graphics,  Inc.  ("Arcar") acquired effective April 9, 1994. As
discussed in Note 3 to the Company's  consolidated  financial statements for the
year ended December 28, 1995, effective October 26, 1995, Bagcraft completed the
sale of the  business  assets of Arcar,  subject to the  buyer's  assumption  of
certain liabilities.

         During  1995,  the  Company's  fashion  costume  jewelry  business  was
conducted by its then majority-owned subsidiary COMFORCE (then known as The Lori
Corporation) through its wholly-owned subsidiaries: Rosecraft, Inc. and Lawrence
Jewelry  Corporation.  In  recent  years,  COMFORCE's  fashion  costume  jewelry
operations  had  experienced a pattern of  significantly  lower sales levels and
related  operating losses primarily due to a shift in the buying patterns of its
major  customers  (i.e.  certain  mass   merchandisers)  from  participation  in
COMFORCE's  service  program to  purchases  of costume  jewelry and  accessories
directly  from   manufacturers  and  due  to  a  continued   unfavorable  retail
environment.  Accordingly,  in  September,  1995,  COMFORCE  adopted  a plan  to
discontinue  its  jewelry  business  as  discussed  in  Note 3 to the  Company's
consolidated financial statements for the year ended December 28, 1995.

         As  discussed  in  Note  3  to  the  Company's  consolidated  financial
statements for the year ended  December 28, 1995, on October 17, 1995,  COMFORCE
completed  the  acquisition  of one  hundred  percent  of the  capital  stock of
COMFORCE Global, Inc. ("Global"),  formerly Spectrum Global Services, Inc. d/b/a
YIELD Global,  a wholly owned subsidiary of Spectrum  Information  Technologies,
Inc. for consideration of approximately $6.4 million, net of cash acquired. This
consideration   consisted  of  cash  of  approximately  $5.1  million,  fees  of
approximately  $700,000  including  a fee of $500,000  to a related  party,  and
500,000 shares of COMFORCE common stock issued as consideration for various fees
and   guarantees    associated   with   the    transaction.    Global   provides
telecommunications and computer technical staffing services worldwide to Fortune
500  companies  and  maintains  an  extensive,   global  database  of  technical
specialists,   with  an   emphasis  on   wireless   communications   capability.
Additionally,  in conjunction with the Global  acquisition,  ARTRA has agreed to
assume certain  pre-existing  COMFORCE liabilities and indemnify COMFORCE in the
event any future liabilities arise concerning pre-existing environmental matters
and business related litigation.

         Effective July 4, 1995,  COMFORCE and ARTRA entered into  employment or
consulting  services  agreements with certain  individuals to manage  COMFORCE's
entry into and  development  of the  telecommunications  and computer  technical
staffing services business. As additional compensation,  the agreements provided
for the issuance in aggregate of a 35% common stock interest in COMFORCE.  After
the issuance of the COMFORCE common shares,  plus the effects of the issuance of
COMFORCE  common shares sold by private  placements  and other  COMFORCE  common
shares issued in conjunction with the Global  acquisition,  ARTRA's common stock
ownership  interest in  COMFORCE  was  reduced to  approximately  19% and 25% at
September 26, 1996 and December 28, 1995, respectively. See "Changes in Business
- COMFORCE" for additional  information  relating to the Company's investment in
COMFORCE.

         Packaging Products Segment

         Effective  March 3, 1990,  ARTRA  entered into the  packaging  products
business with its acquisition of Bagcraft.  Bagcraft,  established in 1947, is a
leading  manufacturer  and supplier of flexible  packaging  products to the fast
food,  bakery,  microwave  popcorn  and  supermarket  industries  and is  also a
significant supplier to the theater

                                     - 31 -
industry.  Several of Bagcraft's  products are widely recognized and have become
standard  items  within  various  segments of the food  industry.  Bagcraft is a
full-service   supplier   complete  with  its  own  laboratory  and  engineering
departments.  Bagcraft's  sales and  technical  staff work in  conjunction  with
Bagcraft's  customers  to  determine  the  proper  components  of  the  package.
Bagcraft's  art  department  creates  packaging  designs,  subject  to  customer
approval, or duplicates  customer-supplied designs. Thereafter, the packaging is
produced in accordance with customer  specifications  using a variety of papers,
film,  foil and  lamination.  Bagcraft  has  developed  a number of  proprietary
innovations  in the  manufacture  of its packaging  products.  Such  innovations
include the  Dubl-Wax(TM)  bag,  which  introduced  specialty  waxed bags to the
retail bakery  industry.  Bagcraft is also credited with being  instrumental  in
developing and producing the first microwave popcorn bags.

         Bagcraft  currently  produces  over two  billion  bags and two  billion
sheets and  wrappers  annually for the  packaging  of more than 1,000  different
products. Bagcraft purchases the paper, foil, films and chemicals it uses from a
number of different unaffiliated suppliers. Since Bagcraft purchases each of the
raw materials it requires from more than one supplier,  it is not dependent upon
a single supplier for any specific materials or supplies.

         Sales orders are processed,  and manufacturing  and delivery  schedules
are determined  primarily at Bagcraft's  headquarters  and principle  production
facility in Chicago. In September,  1994, Bagcraft completed the construction of
a new 265,000 sq. ft.  production  facility in Baxter Springs,  Kansas.  The new
Kansas facility,  which has added production capacity in Bagcraft's growing food
service  products  business,  has  replaced  Bagcraft's  production  facility in
Joplin,  Missouri  (which was conveyed to a contractor  involved in constructing
the Baxter Springs facility in partial consideration of such contractor's fees),
its facility in Carteret,  New Jersey  (which was sold in 1994) and its facility
in Forest Park, Georgia (which was converted into a distribution facility).

         Bagcraft's  products are sold  throughout  the United States by a sales
force  of  approximately  20  full-time   salespersons  who  sell  to  wholesale
distributors and a number of independent brokers who sell Bagcraft product lines
to large food processors and food chains.  Bagcraft presently sells its products
to more than 1,000  customers.  Although  some of these are the largest and most
recognizable  companies in the food industry,  no single customer  accounted for
more than 10% of ARTRA's consolidated net sales in 1995.

         Sales to customers  are made  pursuant to orders  placed in advance for
periods of up to one year.  In certain  instances  Bagcraft  and a customer  can
enter into an  agreement  to  maintain a  specified  minimum  inventory  for the
customer.  The contracts  entered into by Bagcraft  with its  customers  vary in
length  depending on the customer's  needs and  Bagcraft's  capacity to meet the
customer's requirements.  Generally, Bagcraft's contracts provide advance notice
of from 30 days to one year to  terminate a contract.  The  contracts  typically
provide  for  delivery  of goods  at an  agreed-upon  fixed  price,  subject  to
adjustment upon timely notice in advance.  Bagcraft usually grants its customers
rights of return,  subject to penalty,  except in the case of goods  produced to
specification.  In addition,  Bagcraft  typically  requires payment for goods 30
days after  shipment,  but gives its  customers a 1% discount if payment is made
within 10 days after shipment.

         Bagcraft  believes that it is the  manufacturer of the most diversified
line of flexible packaging products in the United States.  However,  there are a
number of domestic and foreign companies which compete directly with Bagcraft in
each of its major  product  lines,  certain of which have a larger  market share
with respect to specific product lines.  Bagcraft's competitors range from small
companies to divisions of large corporations which have

                                     - 32 -
substantially  greater  financial  resources  than those  available to Bagcraft.
Bagcraft  competes  on the  basis  of  quality,  service  and the  price  of its
products.

         Bagcraft  believes that only a modest level of continuing  research and
development and strict quality and process control will be necessary to maintain
and  improve  its  position  in the  flexible  packaging  industry.  All product
modifications and manufacturing  innovations reflect input from its personnel in
general management, sales, marketing design, R&D and engineering.

         Bagcraft's  products are sold by four marketing  divisions as described
below:

         Paper Division

         Bagcraft  believes it is the industry  leader in specialty  paper bags,
which represented  approximately 32% of Bagcraft's 1995 sales.  Bakeries account
for  approximately  60%  of  the  paper  division's  sales  which  also  include
supermarkets  and various retail food chains.  A number of the paper  division's
products,   including   Dubl-Wax(TM),    Dubl-Panel(TM),    Dubl-Clear(TM)   and
Sealing-Strip(TM)  represent  significant  manufacturing  innovations which have
contributed  to  Bagcraft's  position as the industry  leader.  Major  customers
include  Wal*Mart,  Walgreen's,  Albertson's,  Dunkin' Donuts and Boston Market.
Bagcraft believes the outlook for the future indicates stability and growth.

         Bagcraft's Paper Division stocks  approximately  150 generic  products,
which enables  Bagcraft to lead the industry in providing the widest  variety of
immediately  available  unprinted  and  stock  printed  bags and  sheets  in the
industry.  Stock  products are bought and  inventoried by  distributors  who, in
turn, sell them in varying  quantities to end-users for a multitude of purposes.
The  stock  line  is  sold  mainly  through   Bagcraft  field   salespeople  and
telemarketing from Bagcraft's Chicago home office.

         Food Service Division

         The Food  Service  Division,  which  represented  approximately  47% of
Bagcraft's 1995 sales, is a leader among its  competitors.  Bagcraft's  products
sold to the food  service  industry  include  foil and paper bags and sheets for
sandwiches,  french fries,  chicken and other prepared foods. Major customers in
this  industry  include  Wendy's,  Burger  King,  Taco  Bell,  Dairy  Queen  and
McDonald's.

         The  development of the Honeycomb  sheet helped propel  Bagcraft to its
industry leading position. The Honeycomb sheet incorporates a moisture absorbing
layer which  prevents buns from becoming soggy and tends to keep food warm for a
longer period of time.  Additionally,  when used to replace rigid packaging,  it
represents significant source reduction to the solid waste system.

                                     - 33 -
Specialty Bag Division

         The Specialty Bag Division represented  approximately 15% of Bagcraft's
1995 sales.  Many of the  division's  products  represent  unique  additions  to
Bagcraft's  standard  products.  The  Cue-Pon  Bag(TM)  has a "tear out"  coupon
affixed  near the  window on the bag which  offers  the  shopper  the  immediate
benefit of the coupon upon  purchase.  The Cue-Pon Pocket Bag(TM) has a pouch on
the front of the bag which can be filled with novelty items by the retailer.

         The division  features products for the packaging of bakery goods, such
as cookies and donuts,  coffee, pre- popped popcorn and specialized  promotional
items such as premiums for kids meals sold by food service chains. This division
provides bags with transparent windows, metal tin tie attachments and convenient
self-opening bottoms.

         This  division also produces  theater  popcorn bags,  which provide the
theater  chains with a more  economical  package  that is easy to dispose of and
substantially  reduces the amount of space  needed to  inventory  the product as
well as providing a conveniently  resealable bag by using Tac-Labels(TM) in lieu
of Tin Ties.  Bagcraft is the leading supplier of popcorn bags to theater chains
such as General Cinema  Corporation  and Mann Theaters.  The newest  addition to
this division is the "To Go!"  Bags(TM).  These double wall bags provide many of
the  properties  of  rigid   containers  such  as  tubs  and  cartons  with  the
environmental  and storage  advantages of bags.  Although in the early stages of
production,  "To Go!" Bags(TM) have been  enthusiastically  received and now are
subject  to a  backlog.  Other  customers  for the  division  include  Bake-Line
Products and Interstate Brands.

         Microwave Popcorn Division

         The Microwave Popcorn Division,  which represented  approximately 5% of
Bagcraft's  1995 sales,  represents  an example of  Bagcraft's  high  technology
advancements.  Bagcraft supplies microwave popcorn packaging to several industry
leaders, including Hunt-Wesson (Orville Redenbacher) and U.S.A. Family Foods.

         Bagcraft was  instrumental  in the  development of the first  microwave
popcorn bag and played an important role in developing  "susceptor"  accelerator
technology which it has incorporated into its products. The susceptor technology
involves  placing a metallized  material into the popcorn bag which  accelerates
the heat  transfer  and results in a higher  percentage  of the popcorn  kernels
being popped.

         In recent  years,  Bagcraft has  experienced  a decline in its domestic
microwave  popcorn business due to the acquisition of one of its major customers
by a company with its own packaging ability.  Accordingly, at December 31, 1995,
Bagcraft  incurred  a  charge  to  operations  of  approximately  $1,500,000  to
write-down the carrying  value of idle machinery and equipment  dedicated to the
production of microwave popcorn products.

                                     - 34 -
Discontinued Business - Arcar

         As  discussed  in  Note  3  to  the  Company's  consolidated  financial
statements  for the year  ended  December  28,  1995,  effective  April 8, 1994,
Bagcraft acquired the business assets,  subject to buyer's assumption of certain
liabilities of Arcar Graphics, Inc. ("Arcar"), a manufacturer and distributor of
waterbase inks for the flexographic and rotogravure printing  industries.  Arcar
is one of the larger  waterbase  ink  suppliers in the United  States and serves
over 500 customers.  The principal markets of Arcar's products included printers
of  tags  and  labels,  flexible  packaging  manufacturers  and  polycoated  cup
manufacturers.  As discussed in Note 3 to the Company's  consolidated  financial
statements  for the year ended  December 28, 1995,  effective  October 26, 1995,
Bagcraft  completed  the sale of the  business  assets of Arcar,  subject to the
buyer's assumption of certain liabilities.

Employees

         The Company  currently employs  approximately 940 persons.  The Company
considers its relationships with its employees to be good.

Properties

         The following table sets forth a brief description of the properties of
the Company and its subsidiaries.  The Company and its subsidiaries believe that
all  of  their   facilities  are  adequate  for  their  present  and  reasonably
anticipated future business requirements.
Location                               General Description                                      Ownership
--------                               -------------------                                      ---------
ARTRA:

   Northfield, IL (1)                  Headquarters facility of                                Leased, month to month
                                       approximately 7,000 sq. ft

Bagcraft:

    Chicago, IL                        Administrative and manufacturing facility of            Owned
                                       approximately 148,000 sq. ft.

    Chicago, IL (2)                    Warehouse and office facility of                        Leased, expiring in 2006
                                       approximately 63,000 sq. ft

    Baxter Springs, KS(3)              Manufacturing, warehouse and office facility
                                       of approximately 265,000 sq. ft.                        Owned

    Forest Park, GA(3)                 Warehouse and office facility                           Owned
                                       of approximately 35,000 sq. ft

                                     - 35 -
(1)      In July, 1992  ARTRA sold its headquarters building,  and now leases it
         under a month-to-month lease.
    

(2)      This lease provides for  a ten-year option to renew at the then current
         market rate.

(3)      In September,  1994,  Bagcraft completed  construction of a new 265,000
         sq. ft. production  facility in Baxter Springs,  Kansas.  This facility
         replaced  Bagcraft's   production   facilities  in  Joplin,   Missouri,
         Carteret,  New Jersey and Forest Park,  Georgia.  Bagcraft conveyed the
         former Joplin,  Missouri facility to one of the contractors involved in
         the  construction  of the Baxter  Springs,  Kansas  facility as partial
         consideration for the work performed by this contractor.  Bagcraft sold
         the Carteret,  New Jersey  facility in 1994.  The Forest Park,  Georgia
         facility was retained as a distribution center until June, 1996 and was
         subsequently closed.
Legal Proceedings

         The  Company  and  its  subsidiaries  are  the  defendants  in  various
business-related litigation and environmental matters. At September 26, 1996 the
Company had accrued $1,900,000 for business-related litigation and environmental
liabilities.  While these  litigation  and  environmental  matters  involve wide
ranges of potential liability,  management does not believe the outcome of these
matters will have a material adverse effect on the Company's financial position;
however it may have have an adverse  effect on the results of operations  for an
individual reporting period.  However, ARTRA may not have available funds to pay
liabilities arising out of these  business-related  litigation and environmental
matters or, in certain instances, to provide for its legal defense.

         In  November,  1993,  ARTRA  filed  suit in the  Circuit  Court  of the
Eighteenth Judicial Circuit for the state of Illinois (the "State Court Action")
against Salomon Brothers,  Inc., Salomon Brothers Holding Company, Inc., Charles
K. Bobrinskoy, Michael J. Zimmerman (collectively,  "Salomon Defendants"),  D.P.
Kelly & Associates, L.P. ("DPK"), Donald P. Kelly ("Kelly Defendants" along with
DPK),  James F.  Massey and  William  Rifkind  relating  to the  acquisition  of
Envirodyne in 1989 form Emerald  Acquisition Corp.  ("Emerald").  Envirodyne had
filed a Chapter 11  bankruptcy on January 7, 1993 which  provided  ARTRA with no
value in the Emerald  Stock  received in  connection  with the  acquisition.  On
November 22, 1993, ARTRA filed a First Amended Complaint. The defendants removed
the case to the  Bankruptcy  Court  in  which  the  Emerald  Chapter  11 case is
pending. On July 15, 1994, all but two of ARTRA's causes of action were remanded
to the state court. The Bankruptcy Court retained jurisdiction of ARTRA's claims
against the  defendants  for  breaching  their  fiduciary  duty as  directors of
Emerald  to  Emerald's  creditors  and  interference  with  ARTRA's  contractual
relations with Emerald. On April 7, 1995, the Company's appeal of the Bankruptcy
Court's order  retaining  jurisdiction  over two claims was denied.  On July 26,
1995, the Bankruptcy Court entered an order  dismissing these claims.  On August
4, 1995, ARTRA appealed from the Bankruptcy Court's dismissal order. That appeal
was denied on October 31, 1996 by the United States District Court.  ARTRA has a
right to appeal the District Court's decision. This appeal has been filed in the
United States Court of Appeals for the Seventh Circuit.

         On July 18, 1995,  ARTRA filed a Fourth Amended  Complaint in the State
Court  Action  for  breach  of  fiduciary  duty,  fraudulent  misrepresentation,
negligent misrepresentation,  breach of contract and promissory estoppel. In the
State Court Action, ARTRA seeks compensatory damages of $136.2 million, punitive
damages of $408.6 million and the repayment of approximately $33 million in fees
paid to Salomon.  The causes of action for breach of the  fiduciary  duty of due
care  were  repleaded  to  reserve  ARTRA's  right to appeal  the State  Court's
dismissal of the causes of action in the Third Amended  Complaint.  The cause of
action  against  defendant  Kelly was  dismissed  with  prejudice  pursuant to a
stipulation between ARTRA and the Kelly Defendants.

         On or about March 1, 1996, DPK brought a motion for summary judgment as
to ARTRA's claims for breach of contract and promissory  estoppel.  DPK's motion
was granted on June 4, 1996. The Company has appealed this decision.

         In January,  1985 the United  States  Environmental  Protection  Agency
("EPA") notified  Bagcraft that it was a potentially  responsible  party ("PRP")
under the Comprehensive Environmental  Responsibility Compensation and Liability
Act ("CERCLA") for alleged release of hazardous substances at the Cross Brothers
site near Kankakee,

                                     - 36 -
Illinois.  Although  Bagcraft has denied liability for the site, it has
entered into a  settlement  agreement  with the EPA,  along with the other third
party  defendants,  to resolve  all claims  associated  with the site except for
state claims.  In May,  1994  Bagcraft  paid  $850,000 plus accrued  interest of
$29,000 to formally extinguish the EPA claim. Bagcraft filed suit in 1993 in the
United States District Court for the Northern District of Illinois,  against its
insurers to recover its liability  costs in connection  with the Cross  Brothers
case.  Bagcraft was  subsequently  reimbursed  by its insurers for its liability
costs  incurred  in  connection  with the EPA  claim.  With  regard to the state
action,  Bagcraft is participating in settlement  discussions with the State and
thirteen other potential  responsible  parties to resolve all claims  associated
with  the  State  action.  The  maximum  State  claim  is $1.1  million  for all
participants.  Bagcraft has accrued  $120,000 related to the State action in the
Company's  consolidated  financial  statements  at  September  26,  1996,  which
constitutes Bagcraft's pro rata share of the $1.1 million.

         Bagcraft  was  listed by the EPA as a de  minimis  PRP at the  American
Chemical Services, Inc. off-site disposal location in Griffith,  Indiana and the
Duane Marine off-site disposal location in Perth Amboy, New Jersey.  These sites
are included in the EPA's  National  Priorities  List. On July 22, 1994 Bagcraft
executed  a de minimis  settlement  with the EPA with  respect  to the  American
Chemical  Services,  Inc.  site.  Bagcraft is presently  unable to determine its
liability, if any, with respect to the Duane Marine site.

         Bagcraft  has  been  notified  by  the  EPA  that  it is a  potentially
responsible  party for the disposal of hazardous  substances at the Ninth Avenue
site in Gary,  Indiana.  This site is listed  on the EPA's  National  Priorities
list.  A group of defendant  PRPs,  known as the Ninth  Avenue  Remedial  Group,
settled with the USEPA and agreed to remediate the site. This Group subsequently
sued numerous third party  defendants,  including  Bagcraft,  alleged also to be
responsible  parties at the site.  The  plaintiffs  have  produced  only limited
testamentary  evidence,  and no documentary  evidence,  linking Bagcraft to this
site,  and the Company has neither  discovered any records which  indicate,  nor
located  any  current  or  former  employees  who have  advised,  that  Bagcraft
deposited hazardous  substances at the site. Based on the foregoing,  management
of the Company does not believe  that it is probable  that the Company will have
any liability for the costs of the clean-up of this site. The Company intends to
vigorously defend itself in this case.

         Bagcraft reported a release  associated with solvent tanks located in a
vault at its Chicago  facility.  After seeking approval from the IEPA,  Bagcraft
installed and is currently operating a soil vapor and extraction system designed
to achieve  remedial  objectives which the IEPA has determined to be appropriate
to the site.

         Bagcraft's  Chicago  facility has also been the subject of  allegations
that it violated  laws and  regulations  associated  with the Clean Air Act. The
facility has numerous  sources of air  emissions of volatile  organic  materials
("VOMs") associated with its printing operations and is required to maintain and
comply  with  permits  and  emissions  regulations  with regard to each of these
emission sources.

          In  November  of 1995,  the EPA issued a Notice of  Violation  ("NOV")
against  Bagcraft's  Chicago facility alleging numerous  violations of the Clean
Air Act and related regulations. The NOV alleges that the facility installed and
operated  emission  sources  without  permits,  that it  failed to  operate  air
pollution  control  equipment  at  required  efficiencies  and that  there  were
releases of VOMs above  permitted  limits.  Although  Bagcraft is  attempting to
negotiate a settlement,  the EPA may yet file a federal complaint to enforce its
NOV. The EPA has not demanded a specific penalty but maximum penalties under the
Clean Air Act are $25,000 per day for each demonstrated violation.

         In April 1994,  the EPA  notified the Company that it was a PRP for the
disposal of hazardous  substances  (principally waste oil) at a disposal site in
Palmer, Massachusetts generated by a manufacturing facility formerly operated by
the Clearshield  Plastics Division  ("Clearshield") of Harvel  Industries,  Inc.
("Harvel"),  a majority owned  subsidiary of ARTRA.  In 1985,  Harvel was merged
into  ARTRA's  subsidiary,  Fill-Mor.  This site has been  included on the EPA's
National  Priorities  List.  In  February,  1983,  Harvel  sold  the  assets  of
Clearshield to Envirodyne. The alleged waste disposal occurred in 1977 and 1978,
when Harvel was a majority-owned  subsidiary of ARTRA. In early 1994, a group of
PRP's filed a claim in the Envirodyne  bankruptcy proceeding with respect to the
Palmer  site.  In May  1994,  Envirodyne  and  its  Clearshield  National,  Inc.
subsidiary filed an adversary  proceeding  against ARTRA for  indemnification in
connection  with this claim.  Both the claim and the adversary  proceeding  were
voluntarily dismissed, but the PRP group has requested that ARTRA pay a share of
the response costs. The cost of clean-up at the Palmer,  Massachusetts  site has
been estimated to be approximately $7 million

                                     - 37 -
according  to proofs of claim  filed in the  adversary  proceeding.  A committee
formed by the PRP group has estimated the liability respecting the activities of
Clearshield to be  approximately  $400,000.  ARTRA has not made any  independent
investigation of the amount of its potential  liability and no assurances can be
given that it will not substantially exceed $400,000.

         In a case titled Sherwin-Williams  Company v. ARTRA GROUP Incorporated,
filed in 1991 in the United States District Court for Maryland, Sherwin-Williams
Company  ("Sherwin-Williams") brought suit against ARTRA and other former owners
of a paint manufacturing  facility in Baltimore,  Maryland for recovery of costs
of  investigation  and  clean-up  of  hazardous  substances  which were  stored,
disposed of or otherwise released at this manufacturing  facility. This facility
was owned by Baltimore  Paint and  Chemical  Company,  formerly a subsidiary  of
ARTRA, from 1960 to 1980.  Sherwin-William's  current  projection of the cost of
clean-up is approximately $5 to $6 million.  The Company has filed counterclaims
against  Sherwin-Williams  and cross claims  against  other former owners of the
property.  The Company also is vigorously  defending  this action and has raised
numerous defenses.  Currently,  the case is in its early stages of discovery and
the Company cannot determine what, if any, its liability may be in this matter.

         ARTRA was named as a defendant  in United  States v.  Chevron  Chemical
Company brought in the United States District Court for the Central  District of
California  respecting  the Operating  Industries,  Inc. site in Monterey  Park,
California. This site is included on the EPA's National Priorities List. ARTRA's
involvement  stemmed from the alleged  disposal of hazardous  substances  by The
Synkoloid  Company  ("Synkoloid"),  a subsidiary of Baltimore Paint and Chemical
Company,  which was formerly owned by ARTRA.  Synkoloid  manufactured  spackling
paste, wall coatings and related products,  certain of which generated hazardous
substances as a by-product of the manufacturing process.

         ARTRA entered into a consent  decree with the EPA in which it agreed to
pay $85,000 for one phase of the clean-up  costs for this site;  however,  ARTRA
defaulted on its payment  obligation.  ARTRA is presently unable to estimate the
total  potential  liability for clean-up  costs at this site,  which clean-up is
expected to continue for a number of years.  The consent decree,  even if it had
been honored by ARTRA,  was not  intended to release  ARTRA from  liability  for
costs  associated with other phases of the clean-up at this site. The Company is
presently unable to determine what, if any, additional liability it may incur in
this  matter.  There can be no  assurance  that  ARTRA's  liability  will not be
material in amount.

         Several  cases have  arisen from  ARTRA's  purchase of Dutch Boy Paints
which owned a facility in Chicago which it purchased  from NL  Industries.  In a
case titled City of Chicago v. NL Industries, Inc. and ARTRA GROUP Incorporated,
filed in the Circuit Court of Cook County, Illinois, the City of Chicago brought
a  nuisance  action  and  alleged  that  ARTRA  (and NL  Industries,  Inc.)  had
improperly stored,  discarded and disposed of hazardous  substances at the Dutch
Boy site,  and that ARTRA had conveyed the site to Goodwill  Industries to avoid
clean-up costs. At the time the suit was filed, the City of Chicago claimed that
it would cost $1,000,000 to remediate the site.

         ARTRA and NL  Industries,  Inc.  have  counter sued each other and have
filed third party actions  against the  subsequent  owners of the property.  The
Company is presently  unable to determine its  liability,  if any, in connection
with this case.  The parties were  conducting  discovery but the case was stayed
pending the resolution of the EPA action described below.

         In  1986,  in a case  titled  People  of the  State of  Illinois  v. NL
Industries,  Inc.,  ARTRA GROUP  Incorporated,  et al., the Cook County  State's
attorney  filed suit seeking  response  costs in excess of $2,000,000 and treble
punitive damages for costs expended by IEPA in remediating  contamination at the
Dutch  Boy  site,   alleging   that  all  former  owners   contributed   to  the
contamination. In 1989, the Circuit Court dismissed the action, holding that the
state had failed to exhaust its administrative procedures. In 1992, this holding
was reversed by the Illinois  Supreme  Court.  In 1996,  the Illinois  Appellate
Court affirmed the District  Court's  decision to dismiss the case based on lack
of due diligence on the part of the State of Illinois. The State of Illinois has
filed a Petition for

                                     - 38 -
Rehearing  which was  granted.  The  Company is  presently  unable to  determine
ARTRA's liability, if any, in connection with this case.

         On November 17, 1995,  the EPA issued  letters to ARTRA,  NL Industries
and others alleging that they were potentially  responsible parties with respect
to  releases  at the Dutch Boy  facility  in  Chicago  and  demanding  that they
remediate  the site.  NL  Industries  entered into a consent  decree with EPA in
which it agreed to  remediate  the site.  The  Company  is  presently  unable to
determine its liability, if any, in connection with this case.

         On August 7, 1995, a Second Amended Verified Complaint was filed in the
Supreme  Court of N.Y. by Philip  Elghanian  against  ARTRA,  its  officers  and
directors  (the "ARTRA  Defendants")  and others  alleging  that the  defendants
engaged  in a scheme to defraud  plaintiff  of  approximately  $5 million of the
value of his  investment  in shares of ARTRA.  The  plaintiff  seeks damages and
interest in excess of $38 million and punitive and  exemplary  damages in excess
of $100 million.  On January 19, 1996,  the ARTRA  Defendants  filed a motion to
dismiss the Second  Amended  Complaint.  As of June 7, 1996 that motion is still
pending. Since New York permits interlocutory appeals, the decision, if adverse,
may be appealed.

         On June 14, 1995 Tartan  Resources  brought  suit in the United  States
District  Court for the  Northern  District of  Illinois  against  A.G.  Holding
Corporation,  The  Lori  Corporation  and  Bagcraft.  Bagcraft  was  voluntarily
dismissed from the lawsuit by the plaintiff. Tartan Resources alleges that under
the alter-ego  theory,  A.G.  Holding is liable for a judgment  entered  against
ARTRA and Artra Resources Corp. The plaintiff seeks  $151,215.46  plus interest,
costs and attorneys  fees.  Discovery is complete and all parties are moving for
summary judgment.

         On March 17, 1993, a judgment in the amount of $599,187.52  was entered
against  Artra  Group,  Inc.  in  the  matter  entitled  SW  Associates  Limited
Partnership v. Artra Group, Inc., Case No. 90 L 19514.  Plaintiff commenced post
judgment  collection  proceedings  to  collect  its  debt,  but  in  1994  these
proceedings  were  dismissed for lack of  diligence.  To date, no money has been
recovered from Artra.

         In  connection  with the sale of its former  Sargent  Welch  Scientific
Company  subsidiary,  ARTRA  assumed  liabilities  relating to early  retirement
claims.  ARTRA is  approximately  $120,000 behind in scheduled  payments.  ARTRA
intends to pay the entire liability,  which is a maximum of $320,000,  depending
upon years lived by covered employees.  ARTRA has accrued the entire $320,000 in
its financial statements.

         In 1994, ARTRA entered into a settlement agreement in connection with a
lawsuit  filed  by  Hosiery  Manufacturing  Company.  Under  the  terms  of  the
settlement,  ARTRA  was to  pay  $500,000.  ARTRA  was  unable  to  satisfy  its
obligations under the settlement  agreement and subsequently  entered into a new
settlement agreement reducing the liability to $125,000.

                                     - 39 -
MARKET PRICE OF THE COMPANY'S COMMON STOCK

         ARTRA's  common  stock,  without  par value,  is traded on the New York
("NYSE")  and  Pacific  Stock  Exchanges.  The Company  currently  does not meet
certain of the requirements for maintaining its listing on the NYSE and the NYSE
is  reviewing  the  status  of the  Company's  listing  on the  exchange.  As of
September 26, 1996 and December 28, 1995, the  approximate  number of holders of
its common stock was 2,500.

         The high and low sales prices for ARTRA's common stock,  as reported in
the NYSE Quarterly Market Statistics reports, during the quarter ended September
26, 1996 and the past two fiscal years were as follows:
1996                     1995                       1994
                             --------------------      ---------------------       ---------------------
                               High         Low          High         Low            High         Low   
                             --------    --------      --------    ---------       --------    ---------
First quarter                 6 - 3/4     4 - 5/8       5 - 3/4      3 - 1/2        7 - 3/4      5 - 1/8

Second quarter                9 - 1/4     5 - 3/4       5 - 1/2      3 - 1/4        6 - 1/4      4 - 3/8

Third quarter                 8 - 3/8     4 - 3/4       6            4 - 1/8        7 - 1/4      5

Fourth quarter                   *           *          5 - 1/8      3 - 5/8        5 - 3/8      3 - 3/4
No  dividends  have been  paid thus far in 1996 nor were any  dividends
paid in 1995 or 1994, and no dividends are anticipated in the remainder of 1996.
The Company was prohibited from paying dividends to its stockholders pursuant to
the terms of its bank loan  agreement  that was  discharged in February 1996. In
addition, the Company's operating subsidiaries historically have been prohibited
from or  restricted  in paying  dividends  or making  distributions  under their
respective debt agreements (except for limited overhead  allocations or payments
in accordance with tax sharing agreements with the parent entity).  Accordingly,
current  restrictions  or  limitations on the Company's  Bagcraft  subsidiary in
upstreaming  payments in 1996 and beyond  would make the payment of dividends by
ARTRA unlikely. See "Management's Discussion and Analysis of Financial Condition
and  Results of  Operations"  for a  discussion  of the loan  agreements  of the
Company and its Bagcraft subsidiary.

                                     - 40 -
DESCRIPTION OF THE COMPANY'S SECURITIES

General

         The authorized  capital stock of the Company consists of (i) 20,000,000
shares of Common Stock without par value,  of which  7,694,872  shares have been
issued and are  outstanding as of September 26, 1996, and (ii) 2,000,000  shares
of Preferred  Stock,  par value $1,000 per share,  which may be issued in one or
more series  with such  rights and  preferences  as  determined  by the Board of
Directors,  of which  3,750  shares of a series  designated  "Series A Preferred
Stock"  have been  issued  and are  outstanding  as of the date  hereof  and the
Company has agreed to issue 2,250  shares of "Series E Preferred  Stock".  As of
the date  hereof,  there  were  approximately  2,600  holders  of  record of the
Company's Common Stock. Common Stock

         The  Company  has not paid any cash  dividends  on its Common  Stock in
recent  years  and  does  not  anticipate  paying  any  such  dividends  in  the
foreseeable  future.  In addition,  Bagcraft is prohibited from or restricted in
paying  dividends  or making  distributions  to the Company  under  various loan
agreements (except for limited overhead allocations payable to the parent entity
and payments under tax sharing arrangements where applicable). Accordingly, even
if the  Company  were  permitted  to pay  dividends  to  its  shareholders,  the
restrictions  or  limitations  on Bagcraft in  upstreaming  payments  would make
payment of dividends by the Company unlikely.

         Payment of dividends by the Company is also subject to the  significant
cumulated  dividends on the Company's  Series A Preferred  Stock,  which must be
paid prior to the payment of dividends on the common  stock.  The holders of the
Common Stock are entitled to  dividends or other  distributions  only if, as and
when  declared out of funds  legally  available  therefor  after  payment of any
dividends   required  to  be  paid  in  respect  of  any  preferred  stock  then
outstanding.  Holders of the Series A  Preferred  Stock are  entitled to receive
cumulative  dividends  at the rate of $60.00  per  share per annum  prior to the
payment of dividends on the Common Stock.

         The  Company's  ability to pay dividends in respect of the Common Stock
may be further  limited  since it is  required  to redeem the Series A Preferred
Stock on March 1, 2000 to the extent of legally available funds for a redemption
price of $1,000  per share plus  accrued  and  unpaid  dividends  to the date of
redemption.  In the event legally available funds are insufficient to redeem the
Series A Preferred  Stock on March 1, 2000,  ARTRA must  thereafter  redeem such
stock when and as funds become legally  available.  In addition,  in the event a
"control  transaction"  (as described  below under "-Series A Preferred  Stock")
occurs, which is not approved by the Board of Directors,  the Series A Preferred
Stock is required to be thereupon redeemed.

         Pursuant to the Articles of Incorporation of the Company,  the Board of
Directors  may,  without  shareholder  approval,  authorize the issuance of such
other series of preferred stock with dividend rights and liquidation preferences
prior  and  superior  to those of the  common  stock.  In the event the Board of
Directors  authorizes  one or more  additional  series of Preferred  Stock,  the
ability of the Company to pay dividends or other distributions to the holders of
the Common Stock may be further  limited and could have the effect of making the
acquisition  of the Company more difficult or  unattractive  or uneconomic for a
potential hostile acquirer,  as more fully described under  "Shareholder  Voting
Rights," below.

         The  Common  Stock  is not  subject  to any  conversion  or  redemption
provisions and the holders thereof are not provided any pre-emptive  rights. All
outstanding shares of Common Stock are fully-paid and non-assessable.

         See also  "Shareholder  Voting  Rights," below for a description of the
voting rights of shareholders.

                                     - 41 -
Series A Preferred Stock

         The following is a brief  description of the rights and  preferences of
the Series A  Preferred  Stock.  No Series A  Preferred  Stock is being  offered
hereby, but the rights of the holders of Common Stock are affected by the rights
and preferences of the Series A Preferred Stock.

         Holders  of the  Series A  Preferred  Stock  are  entitled  to  receive
dividends  at the rate of $60.00  per share per  annum,  payable  annually.  The
annual  dividend  shall be  payable in cash or at the sole  option of ARTRA,  in
additional  shares or fractional  shares of the Series A Preferred  Stock having
the  aggregate  redemption  value  equal to the amount of such  dividends.  Such
dividends  shall be  cumulative  and shall  accrue on each share on a day-to-day
basis. No dividends or distributions upon liquidation may be paid to the holders
of common stock if there is any  deficiency in the payment of Series A Preferred
Stock  dividends  and,  in the  case of  distributions  upon  liquidation,  of a
liquidation  preference  of $1,000 per share of  Preferred  Stock.  To date,  no
dividends have been declared or paid on the Series A Preferred Stock.

         The  outstanding  shares of Series A Preferred Stock are required to be
redeemed  by ARTRA on March 1, 2000 to the extent  funds are  legally  available
therefor.  The redemption  price is $1,000 per share plus an amount equal to the
accrued and unpaid  dividends  to the date fixed for  redemption.  Also,  in the
event of a "control transaction" which is not approved by the Board of Directors
of ARTRA, all of the outstanding shares of the Series A Preferred Stock shall be
redeemed at a price of $1,000 per share plus unpaid accrued  dividends  prior to
the consummation of the "control  transaction."  The term "control  transaction"
means the acquisition by a person or group (other than Messrs.  P. Harvey and J.
Harvey and their  affiliates)  of the voting  power over voting  shares of ARTRA
which would  entitle  the holder or holders  thereof to cast at least 40% of the
votes  that  all  shareholders  would  be  entitled  to cast in an  election  of
directors of ARTRA.

         The Series A Preferred Stock is not  convertible  into Common Stock and
no  pre-emptive  rights have been granted with respect to the Series A Preferred
Stock.

         See also  "Shareholder  Voting  Rights," below for a description of the
voting rights of shareholders.

Series E Preferred Stock

         The following is a brief  description of the rights and  preferences of
the Series E  Preferred  Stock.  No Series E  Preferred  Stock is being  offered
hereby, but the rights of the holders of Common Stock are affected by the rights
and preferences of the Series E Preferred Stock.

         Holders of the Series E Preferred  Stock are  entitled to receive  cash
dividends,  payable  quarterly.  Such  dividends  shall be cumulative  and shall
accrue,  whether or not declared from  September 30, 1996. The rate of dividends
shall be 10% per annum of the Class E Preferred Stock liquidation preference per
share. No dividends or distributions upon liquidation may be paid to the holders
of common  stock or any other  stock  ranking  junior to this Series E Preferred
Stock, other than a dividend or distribution  payable in shares of common stock,
or in any other stock ranking junior to this Series E Preferred  Stock, if there
is any deficiency in the payment of Series E Preferred Stock dividends.

         The Company may at any time redeem all or any number of the outstanding
shares of Series E Preferred  Stock.  The  redemption  price is $1,000 per share
plus an amount  equal to the accrued and unpaid  dividends to the date fixed for
redemption. 

         Each share of Series E Preferred  Stock is convertible  into 200 shares
of Common Stock.

         Series  E  Preferred  Stock  is not  entitled  to vote  on any  matters
required or permitted to be submitted to the shareholders of the Corporation.

Shareholder Voting Rights

         Each share of Common  Stock has equal  voting  rights and each share is
entitled to one vote in all matters in which  shareholders  shall be entitled to
vote.  The  Articles  of  Incorporation  provide  for  cumulative  voting in the
election  of  directors.  Therefore,  every  shareholder  entitled  to vote  for
directors has the right,  in person or by proxy, to multiply the number of votes
to which the shareholder is entitled to cast by the total number of directors to
be elected in the same election.  The  shareholder  may cast the whole number of
such  votes  for one  candidate  or may  distribute  them  among any two or more
candidates.

                                     - 42 -
Generally, the holders of shares of Common Stock and Series A Preferred
Stock are entitled to one vote per share on a combined  basis and not on a class
basis except in limited  circumstances.  Under the Articles of  Incorporation of
the Company,  the affirmative  vote of a majority of the holders of Common Stock
and Series A Preferred Stock (voting as a single class) represented in person or
by proxy at a meeting at which a quorum is  present,  is  generally  required to
approve matters  submitted to the  shareholders,  subject to certain  exceptions
under  both  the  Articles  of  Incorporation  and  the  Pennsylvania   Business
Corporation Law of 1988, as amended (the "BCL"), described below.

         Under the BCL,  the  holders  of the stock of each  class or series are
entitled to vote, as a class, on the following: (i) an amendment to the Articles
of  Incorporation  authorizing  the board to fix the rights and  preferences  of
preferred stock; (ii) an amendment to the Articles of Incorporation  authorizing
a new class or series of shares,  or increasing the number of authorized  shares
of any class or series of shares  having a preference  as to dividends or assets
which is  senior to an  existing  class of  shares;  (iii) an  amendment  to the
Articles of  Incorporation  making a change in the  preferences,  limitations or
special  rights of any class of shares which is adverse to such class;  and (iv)
adoption of a plan authorizing the division, merger, consolidation or conversion
of the corporation or the sale by the corporation of all or substantially all of
its assets if the plan  effects a change in the Articles of  Incorporation  such
that a vote would have been required under any of the preceding three clauses.

         Under  the  Company's  Articles  of  Incorporation,  shareholders  have
certain special voting rights.  The Articles provide that if required by the BCL
(as summarized in the preceding  paragraph),  the holders of stock of each class
or series are entitled to vote as a class.  Since the designations of rights and
preferences  of the Series A Preferred  Stock  provide  that the holders of such
stock shall vote with the  holders of the common  stock as a single  class,  the
holders of Series A Preferred  Stock  would vote as a separate  class only where
required by the BCL.
These special voting rights are as follows:

         (1) Removal of the entire Board of  Directors  or any class  thereof or
any individual  director without assigning any cause requires the vote of 80% of
the shares of all shareholders entitled to vote on the election of directors.

         (2) Approval of (a) a proposal  that the Company enter into a merger or
consolidation with a person who, together with his affiliates,  owns or controls
5% or more of the voting stock of the Company,  or (b) a proposal to  reclassify
securities,  recapitalize  or  other  transaction  (except  certain  redemptions
permitted by the terms of the security to be redeemed)  designed to decrease the
number of shares of voting stock outstanding after any person has acquired 5% or
more of the Company's voting stock,  requires the affirmative vote of 80% of the
shares of all  shareholders  entitled to vote on the  proposal,  except that the
foregoing  provisions do not apply to a merger,  consolidation or sale of assets
and property (i) which shall have been approved by a resolution  duly adopted by
a  majority  of the  directors  in the office  and the  affirmative  vote of the
holders of shares of voting  stock of the  Corporation  representing  at least a
majority of the shares of all  shareholders  entitled to vote on the proposal or
(ii)  between the Company  and  another  corporation,  50% or more of the voting
stock of  which is owned by the  Company,  if the  Company  is the  survivor  or
purchaser.

         (3) The  affirmative  vote  of 80% of the  shares  of all  shareholders
entitled  to vote on the  amendment  of the  Articles of  Incorporation  or of a
majority  of the  shares  of all  shareholders  entitled  to vote and 80% of the
directors  in office is  required  to amend the  provisions  of the  Articles of
Incorporation described in paragraphs (1) and (2).

                                     - 43 -
These  provisions could have the effect of deterring a hostile takeover
attempts in several respects. First, the takeover of the Company would certainly
be made more difficult (and thus the Company would be a less attractive  target)
in that  removal  of a member or class of  members  of, or the  entire  board of
directors  requires  approval  of the  holders  of 80% of the  Company's  stock.
Second, the requirement that the holders of 80% of the Company's stock approve a
merger with a 5% stockholder unless the Company's board approves the transaction
(in which case the  affirmative  vote of the  holders of only a majority  of the
Company's stock is needed to approve the transaction)  could also make a hostile
takeover quite  difficult,  while  increasing the probability that a transaction
with a person  controlling  the board or with another  friendly  suitor would be
approved.

"Blank Check" Preferred Stock

         The Articles of  Incorporation  of the Company  authorize  its Board of
Directors to establish  series or classes of preferred stock and fix the rights,
preferences,  privileges and  restrictions  thereof.  The Board is authorized to
issue up to 2,000,000 shares of preferred stock, of which 3,750 shares of Series
A Preferred Stock have been issued and are are oustanding as of the date hereof.
Effective  September  1996, the Company agreed to issue 2,250 shares of Series E
Preferred Stock in settlement of certain liabilities.

         The BCL provides that if any proposed  amendment to the  certificate of
incorporation of a corporation adversely affects the preferences, limitations or
special rights of any class of shares,  then the holders of shares of such class
are entitled to vote as a class as to such amendment. However, since the holders
of Common Stock  approved an amendment to the Articles of  Incorporation  of the
Company  which  permits the Board of Directors to authorize  the issuance of new
series of  preferred  stock  with such  rights  (including  voting  rights)  and
preferences as fixed by the Board of Directors, the holders of Common Stock will
not have the right to vote,  whether as class or  otherwise,  to  authorize  the
issuance of new series of preferred  stock with  preferences as to dividends and
distributions on liquidation.

         By authorizing and issuing preferred stock with particular  rights, the
Company might be able to deter a hostile  acquisition.  For example, the Company
could  issue  shares of  preferred  stock with  extraordinary  voting  rights or
liquidation preferences to make it more difficult for a hostile acquirer to gain
control of the Company. In addition to the anti-takeover  effect of the issuance
of preferred  stock,  holders of preferred stock have a preferred  position over
holders of common stock on liquidation, the right to a fixed or minimum dividend
before any  dividend  is paid (or  accrued)  on common  stock,  and the right to
approve certain extraordinary corporate matters.

         See also "Description of the Company's  Securities - Series A Preferred
Stock."

Put Options

         From time to time the Company has issued  shares of its Common Stock to
private   investors   in   transactions   in  which   the   investors   received
non-transferable put options to resell such shares to the Company for prescribed
periods at prices in excess of the purchase  price paid by them for such shares.
As of September 26, 1996,  private investors held in the aggregate 98,734 shares
of the Common Stock  subject to put options  requiring the Company to repurchase
shares for $3,565,000 in the aggregate.

Warrants and Options

         From time to time the  Company  has  issued  warrants  and  options  to
purchase its Common Stock for an exercise  price  generally  based on the market
price of the Common  Stock as of the date of grant of the option or warrant.  As
of September 26, 1996,  investors held warrants to purchase  1,584,514 shares in
the aggregate of Common Stock. In addition, as of such date, employees or former
employees of the Company held options  granted  under the  Company's  1985 Stock
Option Plan to purchase 932,350 shares in the aggregate of Common Stock.

                                     - 44 -
MANAGEMENT

Information Regarding Directors

         The  following  table lists the name and age of each director of ARTRA,
his business experience during the past five (5) years, his positions with ARTRA
and certain directorships.

Name                          Age         Positions and Experience
----                          ---         ------------------------
                                           
John Harvey                   64          Chairman of the Board of Directors and
                                          Chief  Executive   Officer  of  ARTRA;
                                          Director  since 1968;  Chairman of the
                                          Board  of  Directors,  since  1985,  a
                                          Director  from 1982 to  December  1995
                                          and the Chief  Executive  Officer from
                                          1990  to  November  1995  of  COMFORCE
                                          Corporation  (temporary   professional
                                          employment,    formerly    The    Lori
                                          Corporation);  an  equity  holding  of
                                          ARTRA  representing  19%  of  COMFORCE
                                          outstanding   stock;   a  Director  of
                                          Plastic  Specialties and Technologies,
                                          Inc.  ("PST")   (textiles,   hose  and
                                          tubing);   and   Director   of   Ozite
                                          Corporation   (textiles,    hose   and
                                          tubing).     Director    of    PureTec
                                          Corporation,  the  successor by merger
                                          to  Ozite.  Former  Director  of Rymer
                                          Foods,   Inc.  (portion  control  meat
                                          products and seafood).

Peter R. Harvey              61           President and Chief Operating  Officer
                                          and a Director  since  1968;  Director
                                          of  COMFORCE  (temporary  professional
                                          employment,     formerly   The    Lori
                                          Corporation)from 1985 to December 1995
                                          and a vice  president through  January
                                          1996, an equity   holding   of   ARTRA
                                          representing    19%    of     COMFORCE
                                          outstanding  common  stock;  a  former
                                          Director  and Chief Operating  Officer
                                          of SoftNet Systems,  Inc. ("SoftNet").
                                          During   1995,   Mr.   Harvey resigned
                                          from  all  of  the  Softnet   offices,
                                          formerly The Vader  Group  Inc. (image
                                          processing   and   health  care   cost
                                          containment);   Vice   President   and
                                          Director  of   Ozite  Corporation, the
                                          majority parent of PST (textiles, hose
                                          and tubing).   Director   of   PureTec
                                          Corporation, the successor by   merger
                                          to Ozite.  Former   Director  of Rymer
                                          Foods Inc.,   (portion   control  meat
                                          products and seafood).

Gerard M. Kenny               44          Director  since  1988;  Executive Vice
                                          President  and Director  since 1982 of
                                          Kenny Construction  Company since 1982
                                          (diversified   heavy    construction);
                                          General Partner of Clinton  Industries
                                          (investments),  a limited partnership,
                                          since 1972.

Edward A. Celano              57          Executive   Vice   President   of  the
                                          Atlantic Bank of New York since May 1,
                                          1996,   Senior   Vice   President   of
                                          National  Westminster,  USA from  1984
                                          through April 1996, corporate finance.

Howard R. Conant              71          Retired  Chairman  of  the   Board  of
                                          Interstate  Steel  Co.,  1970 to 1990,
                                          and a consultant to Interstate through
                                          1992.

                                     - 45 -
Maynard K. Louis              66          Retired Chairman of  the Board of Lord
                                          Label   (now   known   as   Porter   &
                                          Chatburn),  a printing  company,  from
                                          1965 to 1989, Vice President,  1989 to
                                          1993,  director  of  ARTRA  from  1993
                                          through 1995.

Robert L. Johnson             60          Chairman  and Chief  Executive Officer
                                          of  Johnson  Bryce,   Inc.,   flexible
                                          packaging  materials of food  products
                                          since 1991, and  previously,  for many
                                          years,   a  vice  president  of  Sears
                                          Roebuck & Co.

         John  Harvey and Peter R.  Harvey are  brothers.  COMFORCE  was a 64.3%
owned subsidiary of ARTRA until October,  1995. ARTRA now owns approximately 19%
of COMFORCE. PureTec International, Inc. and PST are affiliates of ARTRA.

Information Regarding Executive Officers

         Set forth below is information  concerning  the executive  officers and
other key  employees  of ARTRA who were in office or  employed as of the date of
this Prospectus.

Name                   Age                      Position
----                   ---                      --------

John Harvey            64         Chairman of the Board and Chief Executiv0
                                  Officer of ARTRA

Peter R. Harvey        61         President and Chief Operating Officer of ARTRA

John G. Hamm           57         Executive Vice President of ARTRA

Robert S. Gruber       63         Vice President - Corporate Relations of ARTRA

James D. Doering       59         Vice President, Treasurer and Chief  Financial
                                  Officer of ARTRA

John Conroy            52         Vice President  - Corporate  Administration of
                                  ARTRA

Lawrence D. Levin      44         Controller of ARTRA

Edwin G. Rymek         66         Secretary of ARTRA

         John  Harvey,  Chairman  and Chief  Executive  Officer  of  ARTRA.  See
"Information  Concerning  Directors"  above for a  description  of Mr.  Harvey's
relevant business experience.

         Peter R. Harvey,  President and Chief Operating  Officer of ARTRA.  See
"Information  Concerning  Directors"  above for a  description  of Mr.  Harvey's
relevant business experience.

         John G. Hamm, Executive Vice President of ARTRA. Mr. Hamm has served as
Executive  Vice  President,  since  February 1988, and Vice President - Finance,
from 1975 until 1988,  of ARTRA.  Mr.  Hamm has also served as Vice  President -
Finance,  from August 1990 until July 1995,  and as a Director,  from 1984 until
July

                                     - 46 -
1995,  of Ozite  Corporation.  Mr.  Hamm also  serves as a Director  of
SoftNet  Systems,  Inc. since 1985 and served as Director of PST from 1985 until
January, 1996.

         Robert S. Gruber,  Vice President - Corporate  Relations of ARTRA.  Mr.
Gruber has served as Vice  President - Corporate  Relations  of ARTRA since 1975
and The  Lori  Corporation  from  1975 to  1995.  Mr.  Gruber  has  served  as a
consultant to COMFORCE during 1996.

         James D. Doering, Vice President, Treasurer and Chief Financial Officer
of ARTRA. Mr. Doering has served as Vice President, since 1980, Treasurer, since
1987, Chief Financial Officer, since February 1988, and Controller, from 1980 to
1987. Mr. Doering has also served as Vice President and Chief Financial  Officer
of COMFORCE from February 1988 through January 1996.

         John Conroy,  Vice President - Corporate  Administration  of ARTRA. Mr.
Conroy has served as Vice President - Corporate Administration since March 1990.
Prior  thereto,  he served as Vice  President  -  Corporate  Administration,  of
Sargent-Welch  Scientific  Company from  September  1988 to December  1989.  Mr.
Conroy  previously  served in various risk management  positions with ARTRA from
1978 to September 1988, most recently as Corporate Risk Director.

         Lawrence  D.  Levin,  Controller  of ARTRA.  Mr.  Levin  has  served as
Controller, since 1987, Assistant Treasurer and Assistant Secretary, since 1980,
and  Assistant  Controller,  from 1980 to 1987.  Mr.  Levin  has also  served as
Controller  of COMFORCE  since  December  1989  through  January 1996 and as the
Assistant  Chief  Financial  Officer of COMFORCE  from May 1993 through  January
1996.

         Edwin G. Rymek,  Secretary of ARTRA.  Mr. Rymek has served as Secretary
of ARTRA since 1987 and of COMFORCE from 1982 through 1995.

         Officers  are  appointed  by the boards of  directors  of ARTRA and its
subsidiaries and serve at the pleasure of each respective board.  Except for the
relationship  of Peter R. Harvey (a director  and  executive  officer)  and John
Harvey (a director and executive officer), who are brothers, there are no family
relationships  among the executive officers and/or directors,  nor are there any
arrangements or  understandings  between any officer and another person pursuant
to which he was appointed to office except as may be hereinafter described.

                             EXECUTIVE COMPENSATION

Directors' Compensation

         Directors  who are not  employees of ARTRA  ("Outside  Directors")  are
entitled to receive an annual retainer of $4,000 and $250 per meeting  attended;
however,  no fees were paid to Outside  Directors in 1995. Each Outside Director
who sits on an  established  committee  of ARTRA is entitled to receive $150 per
committee  meeting  attended.  Employees  of ARTRA who also  serve as  directors
receive no additional compensation for such service.

Executive Officer Compensation

         The  following  table  shows  all  compensation  paid by ARTRA  and its
subsidiaries for the fiscal years ended December 28, 1995, December 29, 1994 and
December 30, 1993, to the chief executive officer of ARTRA and each of its other
most  highly  compensated  executive  officers  who were  serving  as  executive
officers  of ARTRA as of  December  28,  1995 and  whose  compensation  exceeded
$100,000 in 1995.

                                     - 47 -
SUMMARY COMPENSATION TABLE
Annual Compensation(1)       Long Term Compensation(1)
                                            ----------------------       -------------------------
                                                                           Securities          All
                                                                          Underlying(3)       Other
          Name and                      Salary       Salary                 Options -        Compen-
    Principal Positions       Year       Paid      Deferred(2)   Bonus    No. of Shares      sation
    -------------------       ----       ----      -----------   -----    -------------      ------
John Harvey,         1995     $126,200      $  -0-      $ -0-         -0-          $2,520(4)
      Chairman and Chief      1994      126,200         -0-        -0-         -0-           2,520(5)
      Executive Officer       1993      126,200         -0-        -0-       4,000           2,431(5)
  

      James D. Doering,       1995       49,900       83,500       -0-         -0-           3,470(4)
        V.P. and Chief        1994      111,333       22,267       -0-         -0-           3,000(5)
      Financial Officer       1993      111,133       22,267       -0-      31,000           3,054(5)
          
                                       
        John G. Hamm,         1995       49,900       83,500       -0-         -0-           3,470(4)
          Executive           1994      111,133       22,267       -0-         -0-           3,000(5)
        Vice President        1993       55,667       22,267       -0-      13,200           2,210(5)
           
                                     
      Robert S. Gruber,       1995       92,000       69,000        -0-        -0-           2,868(4)
        Vice President        1994          -0-       18,400        -0-        -0-           3,000(5)
     Corporate Relations      1993       62,753      110,400        -0-     12,000           4,831(5)

-----------------------
(1)      No additional annual compensation was paid, no restrictive stock awards
         or stock appreciation  rights were granted,  and no long term incentive
         plan payouts were made to any of the officers listed in the table. Only
         compensation earned in 1995 (irrespective of the year in which paid) is
         considered in determining inclusion in this table.

(2)      Salaries  are  shown as paid (or  deferred)  in the  year  earned.  Any
         deferred  salaries paid in a year subsequent to the year earned are not
         shown as paid in such  subsequent  year.  All salary  deferrals for the
         years 1993, 1994 and 1995 have been paid as of the date hereof.

(3)      All of the  options  shown  in  this  column  were  granted  under  the
         Company's  1985 Stock  Option  Plan at an  exercise  price of $3.75 per
         share, being the closing price of the Company's common stock on the New
         York Stock  Exchange  on the date of grant  (January  8,  1993).  These
         options expire January 8, 2003.

(4)      These amounts  include the Company's  contributions  to the 401(k) plan
         and amounts contributed to the ARTRA GROUP Incorporated  Employee Stock
         Ownership  Plan  (the  "ESOP")  during  1995.  See note (5) below for a
         further discussion of the ESOP.

(5)      These  amounts  represent  the  closing  price  on the New  York  Stock
         Exchange  of  Common  Stock as of the date the  named  officers  became
         entitled to receive the stock (i.e., December 29, 1994 and December 30,
         1993) pursuant to the ESOP. Annual  contributions were made to the ESOP
         at the discretion of the Board of Directors.  ARTRA contributed  15,000
         common  shares to the Plan with a fair market  value of $71,250  ($4.75
         per share) for the plan year ending December 29, 1994 and 65,000 common
         shares to the Plan with a fair  market  value of  $423,000  ($6.50  per
         share) for the plan year ending December 30, 1993.  Effective August 1,
         1995,  the Company  terminated the ESOP and is currently is the process
         of distributing the related Employee accounts to participants.
- 48 -
No options to  purchase  capital  stock of the  Company or other  stock
appreciation  rights were granted by the Company in 1995 to any other  executive
officers of the Company named in the Summary Compensation Table.

         The following  table sets forth  information  concerning  the aggregate
number and values of options held by the Chief  Executive  Officer and the other
executive officers of the Company listed in the Summary Compensation Table as of
December 28, 1995 which were granted to such officers in  consideration of their
services as officers or directors  of the Company.  No options held by the Chief
Executive  Officer or any other executive  officers of the Company listed in the
Summary Compensation Table were exercised in 1995.

                     AGGREGATED OPTION EXERCISES IN 1995 AND
                      OPTION VALUES AS OF DECEMBER 28, 1995
Number of           Value of Unexercised
                                                                    Unexercised             In-the-Money
                                                                Options at 12-28-95      Options at 12-28-95
                           Shares Acquired          Value           Exercisable/            Exercisable/
      Name                   on Exercise          Realized        Unexercisable(1)         Unexercisable(2)
------------------         ---------------        ---------     -------------------       ------------------
John Harvey                       0                $    0              80,000/               $ 117,600/None
                                                                           0

James D. Doering                  0                     0              62,000/                  88,350/None
                                                                           0

John G. Hamm                      0                     0              39,200/                  56,500/None
                                                                           0

Robert S. Gruber                  0                     0              21,000/                  29,775/None
                                                                           0
-------------------------------
(1)      See the notes under  "Principal  Shareholders" for a description of the 
         options (including  exercise prices) granted  to each  of the executive 
         officers listed in this table.

(2)      The listed  options  were issued at per share  exercise  prices of from
         $3.65 per share to $3.75 per share. The market price of Common Stock as
         of the close of  trading  on  December  28,  1995 on the New York Stock
         Exchange was $5.125 per share.
- 49 -
Compensation Committee Interlocks And Insider Participation

         Authority  to  determine  the  compensation  of  executive  officers is
conferred upon the Company's Board of Directors or, in the case of officers paid
by  Bagcraft  Corporation  of  America  ("Bagcraft"),  by  Bagcraft's  Board  of
Directors. The salary of John Harvey was paid by Bagcraft.

         ARTRA's  Board did not  consider  the  compensation  of its officers in
1995. The decisions concerning the cash compensation of these executive officers
(including of John Harvey,  the Chairman and Chief  Executive  Officer of ARTRA,
who was  compensated  by Bagcraft for his services as its Chairman) were made by
Peter R. Harvey,  the President and Chief Operating  Officer of ARTRA.  Although
ARTRA has an Option and  Compensation  Committee  formed to  consider  and award
options  under  ARTRA's 1985 Stock Option Plan,  this  committee did not meet in
1995. In December,  1995, the ARTRA Board awarded options to the Chief Executive
Officer  and  to  certain   executive   officers  subject  to  approval  by  the
shareholders  of the  proposed  1996 Stock Option  Plan.  Peter R. Harvey,  John
Harvey and Gerard  Kenny  executed the consent  approving  these  awards.  These
awards were granted as  compensation  for late salary payments during the period
1991 to 1995. See "Transactions with Management and Others" for a description of
various  transactions  and  relationships  between the Company and each of these
directors.

                                     - 50 -
PRINCIPAL SHAREHOLDERS

         As of October 31,  1996,  there were  7,694,872  shares of Common Stock
issued and outstanding. The following table sets forth the number and percentage
of Common  Stock known by  management  of ARTRA to be  beneficially  owned as of
October 31, 1996 by (i) all stockholders  known by management of ARTRA to own 5%
or more of  ARTRA's  Common  Stock,  (ii) all  directors  of ARTRA,  (iii)  each
executive  officer  included  in the  Summary  Compensation  Table  and (iv) all
directors,  executive  officers  and other key  employees of ARTRA as a group (9
persons).  Unless stated  otherwise,  each person so named exercises sole voting
and investment power as to the shares of Common Stock so indicated.
         
         As of October 31,  1996,  3,750  shares of Series A Preferred  Stock of
ARTRA, par value $1,000 per share,  were issued and  outstanding.  Each share of
this Series A Preferred  Stock entitles the holder to one vote on an equal basis
with each share of Common Stock. Accordingly,  for purposes of showing ownership
of Common Stock in the table below,  the Series A Preferred  Stock is treated as
Common Stock.

Name of Beneficial Owner                      Number           Percent
                                             of Shares
                                           Beneficially
                                               Owned

Research Center of Kabbalah(1)                 600,772            7.7%
Peter R. Harvey(2)     Common                  440,243            5.7%
                       Preferred                 1,523           40.6%
John Harvey(3)                                 523,796            6.6%
Gerard M. Kenny(4)                             240,048            3.1%
Maynard K. Louis(5)                            110,000            1.4%
Howard R. Connant(6)                           120,000            1.6%
Robert L. Johnson                                2,873              *
John G. Hamm(7)                                143,498            1.8%
Robert S. Gruber(8)                            141,104            1.8%
James D. Doering(9)                            124,311            1.6%
All directors and executive officers
  as a group (12 persons)                    2,072,567           23.5%

*        Less than 1% of the outstanding shares.

         Ozite  Corporation,  an affiliate of ARTRA by reason of Peter R. Harvey
and John Harvey  being  directors  of the parent  corporation,  Puretec,  is the
record holder of 2,227 shares (59.4%) of the ARTRA Series A Preferred.

(1)  The address of Research  Center of Kabbalah  ("RCK") is 83-84 115th Street,
     Richmond Hill, New York 11418. The shares beneficially owned by RCK consist
     of 514,522 shares of Common Stock owned  directly,  21,250 shares of Common
     Stock  issuable  under a  warrant  which  expires  October  29,  1998 at an
     exercise  price of $6.00 per  share,  and  65,000  shares  of Common  Stock
     issuable  under a warrant  which  expires  December 31, 1998 at an exercise
     price of $7.00 per share.

                                     - 51 -
(2)  Mr. Peter R. Harvey's  business address is 500 Central Avenue,  Northfield,
     Illinois  60093.  The shares  beneficially  owned by Mr. Harvey  consist of
     375,138  shares held directly by him (of which 373,615 are Common Stock and
     1,523 are  shares of  Series A  Preferred  Stock),  23,001  shares  held as
     trustee  for the benefit of his  nieces,  800 shares  owned by his wife and
     children,  634 shares  held in his 401(k)  plan,  7,193  shares held in his
     individual retirement account, 20,000 shares issuable under an option which
     expires  September  19,  2001 at an  exercise  price of $3.65 per share and
     15,000 shares  issuable under an option which expires January 8, 2003 at an
     exercise price of $3.75 per share.

(3)  Mr.  John  Harvey's  business  address is 500 Central  Avenue,  Northfield,
     Illinois 60093. The shares of Common Stock beneficially owned by Mr. Harvey
     consist of 123,100  shares held  directly by him,  1,705 shares held in his
     401(k)  plan,  5,746  shares  held in his  individual  retirement  account,
     100,000 shares held by Mr. Harvey's daughters, 75,000 shares issuable under
     an option which expires December 19, 2000 at an exercise price of $3.65 per
     share,  1,000 shares  issuable under an option which expires  September 19,
     2001 at an exercise price of $3.65 per share,  4,000 shares  issuable under
     an option which expires  January 8, 2003 at an exercise  price of $3.75 per
     share,  141,000 shares  issuable  under an option which expires  October 4,
     2006 at an  exercise  price of $5.25 per share and an  aggregate  of 72,245
     shares  issuable under warrants  expiring at various dates in 2000 and 2001
     received  in 1995 and  1996 as  additional  compensation  for 1995 and 1996
     short-term loans at exercise prices of $3.75 per share to $6.25 per share.

(4)  The shares  beneficially  owned by Mr.  Kenny  consist  of 2,000  shares of
     ARTRA's  common stock issuable upon the exercise of an option at $10.00 per
     share  expiring  November 28, 1996,  75,652 shares held by (or issuable to)
     Kenny Construction Company,  14,411 shares held by Clinton Industries,  and
     75,001 shares  issuable  under a warrant held by Clinton  Industries  which
     expires  November 10, 1997 at an exercise  price of $5.00 per share.  Kenny
     Construction  Company  holds put options to sell to ARTRA (i) 23,004 shares
     of Common Stock for a put price of $56.76 per share plus an amount equal to
     15% per annum for each day from  March 1,  1991 to the date of  payment  by
     ARTRA,  which put option expires  December 31, 1997, and (ii) 49,980 shares
     of Common  Stock for a put price of $15.00 per share,  subject to an annual
     increase of $2.25, which put option is exercisable on the later of the date
     ARTRA's obligations to Bank of America are repaid or the $2,500,000 note of
     ARTRA  payable to Kenny  Construction  Company (as described in paragraph 5
     under  "Transactions  with  Management and Others." If the stock subject to
     the put is sold at a price  less  than the put  price,  the  Company  would
     remain  liable  to the  holder  of the put for the  amount by which the put
     price of the shares exceeds the selling price.  Mr. Kenny is Executive Vice
     President,  Director  and  beneficial  owner of  16.66% of the  issued  and
     outstanding  stock of Kenny  Construction  Company.  He is also the General
     Partner  and a 14.28%  beneficial  owner of Clinton  Industries,  a limited
     partnership. See paragraphs 4 and 5 under "Transactions with Management and
     Others."

(5)  Mr.  Louis is the holder of warrants to  purchase  110,000  shares of ARTRA
     common stock at prices of $4.50 to $8.00 which  warrants  expire on various
     dates  commencing  in 1997 and ending June 13, 2001.  Comforce is currently
     indebted to Mr. Louis in the sum of $50,000. Mr. Louis owns 5,000 shares of
     Comforce  common  stock and  warrants to purchase  5,000 shares of Comforce
     common stock at $2 per share expiring September 11, 2000.

(6)  Mr. Conant holds 90,000 ARTRA common  shares  directly,  Mrs.  Conant holds
     5,000 ARTRA common shares and Mr. Conant holds a warrant to acquire  25,000
     shares  of ARTRA  common  stock at $5.00 per share  which  warrant  expires
     August 26, 2001. Mr. Conant owns 130,000 shares of Comforce and warrants to
     purchase 30,000 shares of Comforce common stock at $2.00 per share expiring
     September  11,  2000 and 50,000  shares  Comforce at $3.375 per share which
     warrant  expires  October 17,  2000.  A. G. Holding  Inc.,  a  wholly-owned
     subsidiary  of ARTRA,  is indebted to Mr. Conant in the sum of $200,000 and
     Comforce was formerly  indebted to Mr. Conant in the sum of $300,000  which
     was repaid in May 1996.

                                     - 52 -
(7)  The shares of Common  Stock  beneficially  owned by Mr. Hamm  consist of 50
     shares held  directly  by him, 93 shares held by him and his wife  jointly,
     2,905  shares held in his 401(k)  plan,  25,000  shares  issuable  under an
     option which  expires  December 19, 2000 at an exercise  price of $3.65 per
     share,  1,000 shares  issuable under an option which expires  September 19,
     2001 at an exercise price of $3.65 per share,  13,200 shares issuable under
     an option which expires  January 8, 2003 at an exercise  price of $3.75 per
     share, and 101,250 shares issuable under an option which expires October 4,
     2006, at an exercise price of $5.25 per share.

(8)  The shares of Common  Stock  beneficially  owned by Mr.  Gruber  consist of
     20,190  shares held  directly by him,  943 shares held in his 401(k)  plan,
     1,221  shares  held in his  individual  retirement  account,  8,000  shares
     issuable  under an option  which  expires  December 19, 2000 at an exercise
     price of $3.65 per  share,  1,000  shares  issuable  under an option  which
     expires September 19, 2001 at an exercise price of $3.65 per share,  12,000
     shares  issuable  under an  option  which  expires  January  8,  2003 at an
     exercise  price of $3.75 per  share and  97,750  shares  issuable  under an
     option which  expires  October 4, 2006,  at an exercise  price of $5.25 per
     share.

(9)  The shares of Common Stock  beneficially  owned by Mr.  Doering  consist of
     2,000 shares held by him in joint tenancy with his wife,  1,693 shares held
     in his 401(k) plan, 1,118 shares held in his individual retirement account,
     25,000 shares  issuable under an option which expires  December 19, 2000 at
     an exercise price of $3.65 per share, 6,000 shares issuable under an option
     which expires  September 19, 2001 at an exercise  price of $3.65 per share,
     31,000 shares  issuable under an option which expires January 8, 2003 at an
     exercise  price of $3.75 per  share and  57,500  shares  issuable  under an
     option which  expires  October 4, 2006,  at an exercise  price of $5.25 per
     share.

                                     - 53 -
TRANSACTIONS WITH MANAGEMENT AND OTHERS

         Effective October 17, 1995,  COMFORCE,  formerly a 64% owned subsidiary
of ARTRA, acquired all of the capital stock of Comforce Global, Inc. ("Global"),
formerly Spectrum Global Services, Inc. d/b/a YIELD Global, for consideration of
approximately $6.4 million, net of cash acquired.  This consideration  consisted
of cash to the  seller of  approximately  $5.1  million,  fees of  approximately
$700,000,  including a fee of $500,000 to a related party, and 500,000 shares of
COMFORCE  common stock valued at $843,000 (at a price per share of $1.68) issued
as   consideration   for  various  fees  and  guarantees   associated  with  the
transaction.  The  500,000  shares of COMFORCE  common  stock  consisted  of (i)
100,000 shares issued to an unrelated party for  guaranteeing the purchase price
to  the  seller,  (ii)  100,000  shares  issued  to  ARTRA,  then  the  majority
stockholder of the Company,  in  consideration  of its guaranteeing the purchase
price to the seller and  agreeing  to enter into the  Assumption  Agreement,  as
discussed  below,  (iii) 150,000  issued to two  unrelated  parties for advisory
services in connection with the  acquisition,  and (iv) 150,000 shares issued to
Peter R. Harvey, then a Vice President and director of COMFORCE for guaranteeing
the payment of the $6.4 million purchase price to the seller.  Additionally,  in
conjunction  with the  Global  acquisition,  ARTRA  entered  into an  Assumption
Agreement  whereby  it agreed  to assume  substantially  all  pre-existing  Lori
liabilities  and indemnify  COMFORCE in the event any future  liabilities  arise
concerning  pre-existing  environmental matters and business related litigation.
Accordingly,   at  September  26,  1996,  $764,000  of  such  pre-existing  Lori
liabilities were classified in ARTRA's condensed consolidated balance as current
liabilities of discontinued operations.

         Effective July 4, 1995,  Lori's  management agreed to issue up to a 35%
common  stock  interest  in  the  COMFORCE  to  certain  individuals  to  manage
COMFORCE's entry into the  telecommunications  and computer  technical  staffing
business.  COMFORCE  recognized a non-recurring  charge of $3,425,000 related to
this stock  since these stock  awards  were 100%  vested when  issued,  and were
neither conditioned upon these individuals'  service to the Company as employees
nor the  consummation  of the COMFORCE  Global  acquisition.  Accordingly,  this
compensation  charge was fully recognized in 1995. The shares of COMFORCE common
stock issued in  accordance  with the above  agreements  were valued at $.93 per
share.  COMFORCE's  management  valued  COMFORCE based on its  discussions  with
market  makers and other  advisors,  taking  into  account  (i) that the Jewelry
Business, which was discontinued at the end of the second quarter of 1995, had a
negligible value, and (ii) the value of COMFORCE was principally  related to the
potential effect that a purchase of COMFORCE Global, if successfully  concluded,
would have market value of COMFORCE common stock. COMFORCE's management believed
this  value of $.93 per  share to be a fair and  appropriate  value  based  upon
COMFORCE's financial condition as of the date COMFORCE became obligated to issue
these shares. After the issuance of the COMFORCE common shares, plus the effects
of other  transactions,  ARTRA's  common  stock  ownership  interest in COMFORCE
common stock was reduced to approximately  19% and 25% at September 26, 1996 and
December 28, 1995, respectively.  Accordingly,  in October 1995, the accounts of
COMFORCE and its majority-owned  subsi diaries were  deconsolidated from ARTRA's
consolidated  financial  statements.  See  Note  5 to  the  Company's  condensed
consolidated  financial  statements for the nine months ended September 26, 1996
for a further  discussion of the accounting  treatment of ARTRA's  investment in
COMFORCE.

         A  disagreement  has  arisen  between  ARTRA  and  COMFORCE   regarding
interpretations of the July 4, 1995 agreement,  as amended, to issue up to a 35%
common stock interest in COMFORCE to certain  individuals  to manage  COMFORCE's
entry into the  telecommunications and computer technical staffing business; the
Global acquisition agreement;  and the Assumption Agreement whereby ARTRA agreed
to assume substantially all pre-existing Lori liabilities and indemnify COMFORCE
in the event any future liabilities arise concerning pre-existing  environmental
matters and business  related  litigation.  The disputed  issues include (i) the
number of  COMFORCE  common  shares  issued to the above  individuals  to manage
COMFORCE's entry into the  telecommunications  and computer  technical  staffing
business. Accordingly, ARTRA voted against ratification of the issuance of these
shares at COMFORCE's  Annual Meeting of  Stockholders  held on October 28, 1996;
(ii) the number of COMFORCE  common stock options  issued to COMFORCE's  current
management  group subsequent to the Global  acquisition;  (iii) 100,000 COMFORCE
common shares to be issued to ARTRA in  consideration  of its  guaranteeing  the
Global purchase price to the seller and agreeing to assume certain  pre-existing
Lori  liabilities;  (iv) 150,000 COMFORCE common shares to be issued to Peter R.
Harvey for  guaranteeing the payment of the Global purchase price to the seller,
and (v) certain  stock  options  granted in 1993 under  provisions of COMFORCE's
Long-Term Stock Investment Plan. As a result of the above  disagreements,  ARTRA
has not exchanged its Lori Series C preferred stock with a liquidation  value of
$19.5 million for 100,000 COMFORCE common shares,  as required by the Assumption
Agreement,  and will not  consummate  the exchange until all of the disputes are
resolved.  ARTRA's financial  statements have reflected the exchange of the Lori
Series C preferred  stock for 100,000  COMFORCE common shares in accordance with
the  Assumption  Agreement.  Based  on the  above  disputed  matters,  ARTRA  is
withholding  delivery  of the Lori  Series C  preferred  shares  and is  seeking
appropriate   resolution  in  conformity  with  the  Assumption   Agreement  and
resolution of the other obligations owed by COMFORCE to ARTRA and its employees,
or ARTRA  will  seek to  rescind  this  aspect of the  agreement.  Additionally,

                                     - 54 -
ARTRA's  financial  statements  have reflected the issuance of 100,000  COMFORCE
common shares to ARTRA as  compensation  for  guaranteeing  the Global  purchase
price to the seller and  entering  into the  Assumption  Agreement.  COMFORCE is
withholding  issuance  of such  shares  to ARTRA,  in  violation  of the  Global
acquisition  agreement.  ARTRA has aggressively attempted to resolve its dispute
with  COMFORCE  without  success  and at this  point,  ARTRA can not predict the
ultimate   resolution,   nor  whether  such  dispute  can  be  resolved  without
litigation.

         During 1995,  ARTRA  received  $399,000 of advances from  COMFORCE.  In
1996,  COMFORCE advanced ARTRA an additional  $54,000.  As of September 26, 1996
ARTRA  repaid the above  advances and paid down,  assumed or  otherwise  settled
substantially all of the known pre-existing  COMFORCE  liabilities it assumed in
conjunction with the COMFORCE Global acquisition.

         John Harvey was the chief executive officer,  the chairman of the board
of COMFORCE until November 1995 and a director to December 1995. Peter R. Harvey
was a a director of COMFORCE to December  1995 and a vice  president of COMFORCE
through  January 1, 1996.  James D.  Doering  was the vice  president  and chief
financial  officer of COMFORCE  through January 1996.  Lawrence D. Levin was the
controller and assistant  chief  financial  officer of COMFORCE  through January
1996. Edwin Rymek was the secretary of COMFORCE through November 1995.

         In  January  1995,  ARTRA  borrowed  $100,000  from  John  Harvey  on a
short-term  basis evidenced by a note due March 20, 1995 and bearing interest at
8% per  annum.  This  loan,  as well as other  short-term  borrowings  from John
Harvey,  aggregating  $175,000 at December 28,  1995,  have been renewed as they
matured during 1995. In February 1996 ARTRA repaid $50,000 to Mr. Harvey. In May
1996 ARTRA  repaid Mr.  Harvey's  loans and  related  accrued  interest in their
entirety.  As  additional  compensation  the loans  provided for the issuance of
warrants to purchase  ARTRA common  shares,  as determined by the number of days
the  loans are  outstanding.  John  Harvey  received  warrants  to  purchase  an
aggregate of 66,045 shares of ARTRA common stock at prices ranging from $3.75 to
$6.125 per share as additional compensation for his loans to ARTRA.

         During 1990 and 1991, ARTRA made advances to Peter R. Harvey,  of which
$820,000  (including  $112,000  in accrued  interest)  remained  outstanding  at
December 30, 1993.  The  outstanding  principal  balance of these advances bears
interest at the prime rate plus 2%. ARTRA had previously borrowed funds from Mr.
Harvey  evidenced by a $2,000,000  ARTRA note payable to him. Upon Mr.  Harvey's
surrender of this note to ARTRA (which note had  previously  been pledged by him
to secure obligations he owed to another company),  ARTRA applied the $2,000,000
to amounts due from him.

         In addition to the advances  made directly by ARTRA,  certain  advances
were previously made to Mr. Harvey by Bagcraft prior to its acquisition by ARTRA
in 1990. In December 1993,  $1,894,000,  representing  the total amount of these
advances  (including  accrued interest of $120,000) was transferred from ARTRA's
Bagcraft subsidiary to ARTRA as a dividend (a portion of which interest has been
reserved on ARTRA's books).

         In February  1996,  a bank agreed to  discharge  all amounts  under its
ARTRA notes  ($14,563,639.39  including  accrued  interest and fees) and certain
obligations  of ARTRA's  president,  Peter R. Harvey.  In  connection  with said
discharge, ARTRA obtained a $2,150,000 participation right in a $3 million note,
which was offset by the discharge of $2,150,000 in prior Harvey indebtedness. In
addition,  ARTRA recorded a receivable of $1,089,000  for Mr.  Harvey's pro rata
share of the debt  discharge  funded  by the  Company.  See  "Transactions  with
Management and Others -- Settlement of the Bank of America Illinois Debt."

         In May 1991,  ARTRA's  Fill-Mor  subsidiary  made  advances to Peter R.
Harvey. The advances, made out of a portion of the proceeds of a short-term bank
loan,  bear interest at the prime rate plus 2%. The amount of these  advances at
March 30,  1995 was  $1,540,000  (including  $398,000 of accrued  interest).  In
April, 1995, these advances from ARTRA's Fill-Mor  subsidiary to Peter R. Harvey
were transferred to ARTRA as a dividend.

         The aggregate  amount of all amounts due from Mr. Harvey which remained
outstanding as of September 26, 1996 was $5,861,000.  ARTRA has accrued interest
in the sum of $1,371,000 on the principal owed to it by Mr.  Harvey.  Commencing
January 1, 1993 to date,  interest on these amounts due from Peter R. Harvey has
been accrued and fully reserved.

         As partial collateral for amounts due from Peter R. Harvey, the Company
has  received  the pledge of 1,523 shares of ARTRA  redeemable  preferred  stock
(with a liquidation value of $1,523,000, plus accrued dividends) which are owned
by Mr. Harvey. In addition,  Mr. Harvey has pledged a 25% interest in Industrial

                                     - 55 -
Communication Company (a private company). Such interest is valued by Mr. Harvey
at $800,000 to  $1,000,000.  During 1995,  Peter R. Harvey entered into a pledge
agreement with ARTRA whereby Mr. Harvey pledged additional collateral consisting
of 42,067  shares  of ARTRA  common  stock and  707,281  shares of  PureTec.  In
addition, in connection with a discharge of certain bank indebtedness  discussed
below,  ARTRA  received  rights under a mortgage of certain real estate owned by
Mr. Harvey.  The mortgage  secures  $2,150,000 of the amount owed by Mr. Harvey.
The  bank  has a  senior  security  interest  in the  amount  of  $850,000.  See
"Transactions  With  Management And Others - - Settlement of the Bank of America
Illinois Debt."

         Peter R. Harvey has not received  compensation  for his services  other
than  nominal  amounts  as an  officer  or  director  of  ARTRA  or  any  of its
subsidiaries  since  October  1990.  Additionally,  Mr. Harvey has agreed not to
accept any  compensation  for his services as an officer or director of ARTRA or
any of its  subsidiaries  until his obligations to ARTRA,  described  above, are
fully  satisfied.  Additionally,  since  December 31, 1986,  Peter R. Harvey has
guaranteed  approximately  $40,000,000  of  ARTRA  obligations  to  private  and
institutional lenders (John Harvey also was a co-guarantor of a $26,700,000 loan
included in that total with Peter R. Harvey), and has also hypothecated personal
assets as security for the ARTRA  obligations  which are described in this proxy
statement.

         Under  Pennsylvania   Business   Corporation  Law  of  1988,  ARTRA  (a
Pennsylvania  corporation) is permitted to make loans to officers and directors.
Further,  under the  Delaware  General  Corporation  Law,  Fill-Mor  (a Delaware
corporation) is permitted to make loans to an officer (including any officer who
is also a  director,  as in the  case of  Peter  R.  Harvey),  whenever,  in the
judgment  of the  directors,  the loan can  reasonably  be  expected  to benefit
Fill-Mor.

         At the September 19, 1991 meeting, ARTRA's Board of Directors discussed
but did not act on a proposal to ratify the  advances  made by ARTRA to Peter R.
Harvey.  The 1992  advances  made by ARTRA to Peter R. Harvey  were  ratified by
ARTRA's Board of Directors. In the case of the loan made by Fill-Mor to Peter R.
Harvey,  the Board of Directors of Fill-Mor approved the borrowing of funds from
Fill-Mor's  bank loan  agreement,  a condition of which was the application of a
portion of the proceeds  thereof to the payment of certain of Peter R.  Harvey's
loan obligations to the bank.  However,  the resolutions did not acknowledge the
use of such  proceeds  for this purpose and the formal loan  documents  with the
bank did not set forth this  condition  (though in fact,  the  proceeds  were so
applied by the bank).

         Please see the section  entitled "Artra  Participation  in Peter Harvey
Note,  Collateral  Provided to Artra"  hereafter for a  description  of pledges,
mortgage  and  security  interests  granted to ARTRA on assets owned by Peter R.
Harvey.

         In June 1996,  Peter R.  Harvey  loaned the Company  100,000  shares of
ARTRA common stock with (with a then fair market value of $587,000). The Company
principally  issued  these  common  shares  to  certain  lenders  as  additional
consideration  for  short-term  loans.  In September  1996,  after the Company's
shareholders approved an increase in the number of authorized common shares, the
Company repaid this loan. At Peter R. Harvey's direction,  the 100,000 shares of
the  Company's  common stock were issued in blocks of 25,000  shares to the four
daughters of the Company's  Chairman of the Board, John Harvey.  John Harvey and
Peter R. Harvey are brothers.

         During 1986 and through August 10, 1988, ARTRA entered into a series of
short-term borrowing  agreements with private investors.  Each agreement granted
an investor a put option,  principally  due in one year,  that required ARTRA to
repurchase  any or all of the  shares  sold  at a 15% to 20%  premium  during  a
specified put period.  Kenny  Construction  Company ("Kenny") entered into a put
option  agreement  with ARTRA,  which has been extended from time to time,  most
recently on November 11, 1992. At such time ARTRA and Kenny agreed to extend the
put option  whereby  Kenny  received the right to sell to ARTRA 23,004 shares of
ARTRA  common  stock at a put  price of $56.76  plus an amount  equal to 15% per
annum for each day from  March 1, 1991 to the date of  payment  by ARTRA,  which
option expires December 31, 1997.

         Gerard M. Kenny, a director of ARTRA,  is the Executive  vice-president
and Chief Executive Officer and a director of Kenny and beneficially owns 16.66%
of Kenny's capital stock.

         On March 21,  1989,  ARTRA  borrowed  $5,000,000  from its bank  lender
evidenced by a  promissory  note.  This note has been amended and extended  from
time to time.  The borrowings on this note were  collateralized  by, among other
things, a $2,500,000 personal guaranty by Kenny. Kenny received  compensation in
the form of 833 shares of ARTRA  common  stock for each month that its  guaranty
remained  outstanding  through  March 31, 1994.  Under this  arrangement,  Kenny
received 49,980 shares of ARTRA common stock as compensation for its guaranty.

        
                                     - 56 -
On March 31, 1994,  ARTRA entered into a series of agreements  with its
bank lender and with Kenny. Under the terms of these agreements, Kenny purchased
a  $2,500,000  participation  in the  $5,000,000  note  payable to ARTRA's  bank
lender.  Kenny's  participation  is evidenced  by a  $2,500,000  ARTRA note (the
"Kenny  Note")  bearing  interest at the prime rate.  As  consideration  for its
purchase  of this  participation,  the  bank  lender  released  Kenny  from  its
$2,500,000 loan guaranty. As additional consideration,  Kenny received an option
to put back to ARTRA  the  49,980  shares  of ARTRA  common  stock  received  as
compensation  for its  $2,500,000  ARTRA loan  guaranty at a price of $15.00 per
share.  The put option is subject to increase at the rate of $2.25 per share per
annum ($19.50 at May 31, 1996).  The put option is  exercisable  on the later of
the date the Kenny Note is repaid or the date  ARTRA's  obligations  to its bank
lender are fully paid. During the first quarter of 1996, the $2,500,000 note and
related accrued  interest was paid in full,  principally  with the proceeds from
additional short-term borrowings. The put option remains outstanding.

         On September 27, 1989,  ARTRA received a proposal to purchase  Bagcraft
from Sage Group, Inc. ("Sage"), a privately-owned  corporation.  Effective March
3, 1990, a wholly-owned subsidiary of ARTRA indirectly

acquired  from Sage 100% of the  issued  and  outstanding  common  shares of BCA
Holdings,  Inc.,  which in turn owned 100% of the stock of  Bagcraft,  for total
consideration  which was  delivered to Ozite as the successor by merger to Sage,
upon  approval  of ARTRA's  shareholders.  The  consideration  for the  Bagcraft
acquisition consisted of 772,000 shares of ARTRA's common stock and 3,750 shares
of its $1,000 par value junior non-convertible  payment-in-kind  preferred stock
bearing a dividend  rate of 6%. The issuance of the ARTRA  Common and  Preferred
Stock as consideration was approved by ARTRA's shareholders at the December 1990
annual meeting of shareholders. Upon the merger of Sage into Ozite on August 24,
1990,  Ozite became  entitled to receive this  consideration,  which right Ozite
assigned to its PST subsidiary.  Peter R. Harvey,  ARTRA's  President,  and John
Harvey,  ARTRA's  Chairman  of  the  Board  of  Directors,  were  the  principal
shareholders  of Sage and Ozite as of the times that the merger  agreements were
executed and the mergers consummated.

         Ozite  subsequently  repurchased the 3,750 shares of preferred stock in
February 1992, 1,523 of which shares were subsequently  assigned to Peter Harvey
in  consideration  of his discharge of certain  indebtedness  of Ozite to him in
April 1992.  Mr.  Harvey  pledged  these 1,523  preferred  shares to ARTRA.  The
$4,750,000  price of the  772,000  shares  of common  stock and 3,750  shares of
preferred  stock was equal to the fair  market  value  thereof as of January 31,
1991 as determined by an independent  investment  banking firm engaged by PST to
make such determination.

         Peter R. Harvey and John Harvey are  significant  stockholders of PST's
parent,  PureTec,  as  described  in  Note  1  to  the  table  under  "Principal
Shareholders."  Peter R. Harvey is a Vice  President and a director of PST and a
director of PureTec. John Harvey is a director of PST and PureTec.

         In 1987, the predecessor of PST acquired a $5,000,000 subordinated note
bearing  interest  at a rate of 13.5%  per annum and  50,000  shares of  13-1/2%
cumulative redeemable preferred stock of Bagcraft with a liquidation  preference
of $5,000,000 with $10,000,000 of the net proceeds of the PST public offering in
May 1987.  Interest  accrued on the note at a rate of 13.5% per  annum.  No cash
payments of  interest  were made  during the term of the note.  However,  during
1992,  per agreement  with PST, the interest  payments for 1992 were remitted by
Bagcraft  to ARTRA  and the  noteholder  received  Series A  preferred  stock of
Bagcraft's  parent,  BCA Holdings,  Inc.  ("BCA") having a liquidation  value of
$675,000. In December 1993, the principal outstanding under this note was repaid
in full in  cash  from  proceeds  of  Bagcraft's  new  credit  facility  with an
institutional  lender and PST accepted  additional BCA preferred  stock having a
liquidation  value of $3,000,000 in satisfaction of all unpaid accrued  interest
thereon.

         The BCA  preferred  stock  provides  a  $1,000  per  share  liquidation
preference and annual  cumulative cash dividends of $60.00 per share when and if
declared by BCA. The Bagcraft redeemable  preferred stock remains outstanding as
of the date hereof. As of May 30, 1996, dividends in the amount of $ 560,000 had
cumulated thereon.

Settlement of the Bank of America Illinois Debt

         As of February  26,  1996,  ARTRA was  indebted to B of A in the sum of
$14,563,639.59  including accrued interest and fees (the "Prior  Indebtedness").
As of February 26, 1996, Peter R. Harvey,  an officer and director of ARTRA, was
indebted to B of A in the sum of  $7,496,830  including  accrued  interest  (the
"Prior  Harvey  Indebtedness"),  (the Prior  Indebtedness  and the Prior  Harvey
Indebtedness are collectively referred to as the "Debt", or "Prior Notes").

         On February 26, 1996,  for an aggregate  purchase  price of  $5,150,000
(the "Purchase Price") Arabella,  S.A.  ("Arabella")  purchased from B of A (the
"Debt Purchase") all of B of A's interest in the Debt except that B of A 

                                     - 57 -
retained the rights to $3 million of the Prior Harvey Indebtedness.  B of A then
entered  into a  Participation  Agreement  with ARTRA  pursuant  to which B of A
transferred  to ARTRA the right to  receive  $2.15  million of the  retained  $3
million  indebtedness.  The $3 million  indebtedness is secured by a mortgage on
certain  real  estate  owned by Mr.  Harvey.  B of A's  rights to the  remaining
$850,000 of the  indebtedness  have  priority  over ARTRA's  rights to the $2.15
million.

         The Prior ARTRA  Indebtedness  and the Prior Harvey  Indebtedness  were
satisfied as follows.

         1. ARTRA paid Arabella cash in the amount of $2,650,000, 100,000 shares
of ARTRA  common  stock  (valued at  $440,667  after a discount  for  restricted
marketability)  and 25,000 shares of COMFORCE common stock held by ARTRA (with a
then fair market value of $200,000).

         2. BCA executed a note in favor of Arabella in the principal  amount of
$1,900,000  with a maturity  date of May 26,  1996 (the "New ARTRA  Note,")  and
Peter R. Harvey executed a note in favor of Arabella in the principal  amount of
$2,296,830 (the "New Harvey Note"). The amount of the Harvey Note was reduced to
$100,000 if payment was made by May 26, 1996.  Arabella was entitled to up to an
additional  100,000  shares of ARTRA common stock and 25,000  shares of COMFORCE
stock  depending on when ARTRA and Peter R. Harvey repaid the new debt.  The New
ARTRA and Harvey Notes were repaid in April, 1996, principally from the proceeds
of a private placement completed in July (and commenced in April).  Based on the
date of the repayment,  Arabella  received an additional  50,000 shares of ARTRA
stock,   which  had  a  value  of  $220,000  after  a  discount  for  restricted
marketability.  Arabella  also  received an  additional  $125,000 in lieu of the
additional  12,500 shares of COMFORCE to which it was entitled based on the date
of repayment.

         3. ARTRA gave Arabella an option to purchase 40% of the common stock of
Bagcraft for nominal  consideration.  The option was valued at $500,000. Per the
terms of the  agreement,  ARTRA  repurchased  the option for  $550,000 in April,
1996.

         ARTRA  recognized a gain on the discharge of indebtedness of $9,424,000
($1.23 per share) in the first quarter of 1996 and recorded a receivable for Mr.
Harvey's  pro rata  share  ($1,089,000)  of the  debt  discharge  funded  by the
Company.  In addition,  ARTRA forgave  $2,150,000  debt previously owed to it by
Peter Harvey,  which offset ARTRA's right to receive  $2,150,000 from Mr. Harvey
pursuant to the Participation Agreement discussed above.

         In order to  obtain  access to the  $2,650,000  paid to  Arabella,  the
following transactions occurred.

         1. Bagcraft  purchased from BCA all of the authorized shares of a newly
created BCA Class B Redeemable  Preferred stock (the "BCA B Pref") consisting of
8,135 shares, a $1,000 per share  liquidation  preference and annual  cumulative
cash  dividends  of $135 per  share for  $4,135,000  which  was  borrowed  under
Bagcraft's line of credit.

         2. BCA distributed the $4,135,000 to ARTRA.  ARTRA  paid  $2,650,000 to
Arabella and used the remaining  $1,485,000  to pay down other debt  obligations
and for working capital.

         3. Bagcraft then exchanged the BCA B Pref for 82.7% of the  outstanding
shares of Bagcraft  preferred stock (the "Bagcraft  Preferred") which were owned
by Ozite  Corporation,  a wholly owned  subsidiary  of PureTec.  Following  this
exchange, Ozite held all of the outstanding BCA B Pref. Bagcraft then held 82.7%
of the outstanding  shares of its Preferred which was canceled.  There are 8,650
shares of Bagcraft Preferred remaining outstanding held by PST.

                                     - 58 -
Other Transactions

         On March 9, 1990, Maynard K. Louis, a member of the Board of Directors,
made a loan to ARTRA in the principal amount of $500,000 bearing interest at the
rate of 10% per annum.  This loan was repaid in 1992 through the issuance to Mr.
Louis of 68,198 shares of ARTRA's common stock. On April 2, 1992, Mr. Louis made
a loan to ARTRA in the principal amount of $100,000 bearing interest at the rate
of 9% per annum, which loan, due April 1, 1994, has been extended. On October 1,
1993,  Mr.  Louis  made a short  term loan in the  principal  amount of  $75,000
bearing  interest at the rate of 8% per annum to ARTRA's BCA Holdings Inc. and A
G Holding Corp.  subsidiaries  due October 22, 1993,  which loan was repaid.  As
consideration  for making or agreeing to extend these loans,  Mr. Louis received
the warrants to purchase  ARTRA's common stock  described in note 5 to the table
under "Principal Shareholders."

         During  1993,  The  Research  Center of Kabbalah  ("RCK"),  which holds
approximately  8% of  ARTRA's  outstanding  Common  Stock  (including  the stock
issuable upon the exercise of warrants) as of September  26, 1996,  made certain
short-term loans to the Company of which  $2,000,000,  with interest at 10%, was
outstanding  at December  31, 1993.  As  additional  compensation,  RCK received
warrants  to purchase  an  aggregate  of 86,250  ARTRA  common  shares at prices
ranging  from $6.00 to $7.00 per share  based upon the market of ARTRA's  common
stock at the date of issuance.  The warrants  expire five years from the date of
issuance.  In January 1994,  Kabbalah made an additional  $1,000,000  short-term
loan to the Company,  also with  interest at 10%. The proceeds of this loan were
used to pay down various ARTRA short-term loans and other debt  obligations.  In
December,  1995, RCK received  126,222 shares of ARTRA common in payment of past
due  interest  through  October 31, 1995.  In August  1996,  RCK received a cash
payment of $240,000 representing past due interest through June, 1996.

        In May,  1996,  ARTRA  borrowed  $100,000  from Mr.  Celano,  a private
investor,  evidenced by an unsecured  short-term  note,  due August 7, 1996, and
renewed to January 6, 1997,  bearing  interest at 10%. At the  Company's  annual
meeting of  shareholders,  held August 29, 1996,  Mr.  Celano was elected to the
Company's board of directors. The $100,000 loan is currently outstanding.

         In August,  1996,  ARTRA borrowed  $500,000 from Mr. Conant,  a private
investor,  evidenced by an  short-term  note,  due  December  23, 1996,  bearing
interest at 10%. The loan is collateralized by 125,000 shares of COMFORCE common
stock owned by the Company's Fill-Mor subsidiary. As additional compensation for
the loan, the lender  received a warrant,  expiring in 2001, to purchase  25,000
ARTRA  common  shares at a price of $5.00 per  share.  At the  Company's  annual
meeting of  shareholders,  held August 29, 1996,  Mr.  Conant was elected to the
Company's board of directors. The $500,000 loan is currently outstanding.

                                     - 59 -
SELLING SHAREHOLDERS

The following  table sets forth certain  information,  as of September 26, 1996,
when 7,694,872 shares of Common Stock were issued and outstanding  regarding the
shares of Common  Stock held by the persons  ("Selling  Shareholders")  offering
shares pursuant to this Prospectus.  Included in certain of the shares owned and
offered by  Selling  Shareholders  are  shares  issuable  upon the  exercise  of
warrants, as described in the notes to the table.

In cases  where the  Selling  Shareholder  serves or has served  within the past
three  years as an  officer,  director  or employee of the Company or any of its
subsidiaries,  this  relationship is noted. In most instances in which shares of
Common Stock  issuable upon the exercise of Warrants are being  registered,  the
Selling  Shareholder  acquired  the  Warrant  as  additional  consideration  for
extending  credit to the Company or in connection with another  transaction.  In
certain  instances,  shares  of  Common  Stock  of  Selling  Shareholders  being
registered were acquired in exchange for debt securities  (promissory  notes) of
the Company  previously held by the Selling  Shareholders,  or otherwise to pay,
compromise or discharge indebtedness  (including interest) of the Company due to
the Selling Shareholder.  Because the Selling Shareholders may offer all or some
part of the Common Stock that they hold pursuant to the offering contemplated by
this Prospectus,  and because this offering is not being underwritten (on a firm
commitment  or any other  basis),  no estimate  can be given as to the amount of
Common Stock that will be held by Selling  Shareholders upon termination of this
offering.

                                     - 60 -
Before the Offering
                                                 -------------------------------------------------
                                                     Number of        Percent of       Shares
                                                       Shares        Total Shares      Offered
      Name of Beneficial Owner                      Beneficially      Outstanding       Hereby
                                                    Owned (1)(2)          (1)
--------------------------------------------------------------------------------------------------
Robert Abrams (22)                                          4,724            *             4,724
Donald Arends (22)                                          2,847            *             2,847
Donald Arends Pension Plan (3)                              2,200            *             2,200
Baytree Associates, Inc. (15)                              15,000            *            15,000
James F. Beedie (4)                                         5,000            *             5,000
James A. Belushi (4)                                        5,000            *             5,000
Morris Belzberg (4)                                        25,000            *            25,000
William Belzberg (4)                                       25,000            *            25,000
K. Reed Berkey (4)                                          2,500            *             2,500
Berkshire Capital/Partners Ltd. (4)                         5,000            *             5,000
Julius Berman (24)                                          6,250            *             6,250
Evelyn Bishop, Trustee (5)                                157,440          2.0%          157,440
Richard Blackmore (28)                                     17,500            *            17,500
Violet M. Blank Living Trust (15)                           7,500            *             7,500
Blacksmith Books, Ltd. (22)                                 2,873            *             2,873
Barry W. Blank (15)                                        75,000            *            75,000
John Bramsen (4)                                           10,000                         10,000
Fred Broling (22)                                          14,234            *            14,234
Robert A. Calabrese (27)                                   15,000            *            15,000
Thomas J. Carroll (34)                                     28,461            *            28,461
Edward A Celano (12)                                       16,327            *            16,327
Woodrow Chamberlain (4)                                    10,000            *            10,000
Cipka S.A. (6)                                            642,790          7.7%          642,790
Clinton Industries (7)                                     75,001          1.0%           75,001
- 61 -
Before the Offering
                                                 -------------------------------------------------
                                                     Number of        Percent of       Shares
                                                       Shares        Total Shares      Offered
      Name of Beneficial Owner                      Beneficially      Outstanding       Hereby
                                                    Owned (1)(2)          (1)
--------------------------------------------------------------------------------------------------
Marilyn Cohen (15)                                          3,750            *            3,750
Stanley Cohen (24)                                          6,250            *            6,250
Earle Combs (22)                                            4,724            *            4,724
Howard R. Conant (20)                                     120,000          1.6%         120,000
Leo Denslow (15)                                            9,000            *            9,000
Ronald Di Martino (15)                                     15,000            *           15,000
David J. Doerge Trust (34)                                 20,677            *           20,677
David J. Doerge Trust (4)                                  45,000            *           45,000
Richard A. Dolan (23)                                      33,263            *           33,263
Mark Dorian (4)                                             5,000            *            5,000
Stephen N. Engberg (4)                                     10,000            *           10,000
Kelly Erickson (15)                                         7,500            *            7,500
Paul Farmer IRA (4)                                         2,500            *            2,500
Leonard Feldman (4)                                        10,000            *           10,000
Barry M. Ferrigno & B. Allan P/S Plan (15)                  7,500            *            7,500
Field Container Corp. (8)                                 150,943          1.9%         150,943
William F. Foster Jr. (32)                                  5,000            *            5,000
Rudolph Frank (22)                                          2,363            *            2,363
Paul H. Fricke (22)                                         2,873            *            2,873
William Gallagher (22)                                      4,724            *            4,724
Gibralt Holdings, Ltd. (4)                                  5,000            *            5,000
Howard Grafman (4)                                          5,000            *            5,000
Ilse W. Grafman (4)                                         5,000            *            5,000
James E. Grieger (22)                                       5,693            *            5,693
- 62 -
Before the Offering
                                                 -------------------------------------------------
                                                     Number of        Percent of       Shares
                                                       Shares        Total Shares      Offered
      Name of Beneficial Owner                      Beneficially      Outstanding       Hereby
                                                    Owned (1)(2)          (1)
--------------------------------------------------------------------------------------------------
Robert S. Gruber (22)                                     141,104          1.8%             2,874
Morton J. Harris (22)                                       2,873            *              2,873
Bucky W.F. Fong (15)                                        3,750            *              3,750
Joseph Giamanco (15)                                       30,000            *             30,000
Myron and Donna Goldstein (15)                             11,250            *             11,250
GHM, Inc. (15)                                              3,750            *              3,750
Clark Gunderson (30)                                        5,000            *              5,000
John Harvey (9)                                           523,796          6.6%            82,206
Peter R. Harvey (21)                                      440,243          5.7%            42,067
Kim Eliabeth Harvey (40)                                   25,000            *             25,000
Julie Harvey Valeriote (40)                                25,000            *             25,000
Lori Ann Harvey (40)                                       25,000            *             25,000
Kim Eliabeth Harvey (40)                                   25,000            *             25,000
Norton Herrick (34)                                        41,333            *             41,333
Austin Iodice (10)                                         17,873            *             17,873
Dane Johnson, IRA (15)                                      3,750            *              3,750
Carol M. Jacobsohn (11)                                     8,250            *              8,250
Robert Johnson (22)                                         2,873            *              2,873
Robert Jones (31)                                           8,321            *              8,321
Catherine Joyce (22)                                        4,745            *              4,745
Karel Private Mangers Fund (24)                            25,000            *             25,000
Karel Private Managers Fund -                              25,000            *             25,000
    Series TE (24)
Robert Kartheiser (22)                                      6,641            *              6,641
- 63 -
Before the Offering
                                                 -------------------------------------------------
                                                     Number of        Percent of       Shares
                                                       Shares        Total Shares      Offered
      Name of Beneficial Owner                      Beneficially      Outstanding       Hereby
                                                    Owned (1)(2)          (1)
--------------------------------------------------------------------------------------------------
Stephen Kaufman (24)                                        6,250            *              6,250
Thomas Kigin (4)                                            2,500            *              2,500
Craig Kubacki (22)                                          4,724            *              4,724
David Kubacki (22)                                          4,724            *              4,724
Kenneth L. Kwiatt (22)                                     12,687            *             12,687
Kwiatt, Silverman & Ruben, Ltd. (38)                       40,000            *             40,000
Michael Laundrie  (12)                                      8,958            *              8,958
R. D. Levy (22)                                             5,364            *              5,364
Steven M. Levy (29)                                        12,500            *             12,500
Robert Lofblad (22)                                        16,154            *             16,154
Frank N. Magid (4)                                          2,500            *              2,500
Maynard K. Louis (13)                                     110,000          1.4%           110,000
MH Capital Partners, L.P. (15)                              7,500            *              7,500
Richard McLean (22)                                         3,320            *              3,320
M. A. Berman Partners, L.P. (24)                           25,000            *             25,000
M. A. Berman Trading (24)                                  12,500            *             12,500
David MacDonald (22)                                        4,726            *              4,726
Maser Sosinski & Assoc. P.A. (15)                           7,500            *              7,500
Thomas L. Mason (22)                                          959            *                959
D. Michael Meyer (4)                                       10,000            *             10,000
John E. Mc Connnaughy (15)                                 75,000          1.0%            75,000
James McHugh (4)                                            5,000            *              5,000
James B. McGill (4)                                         5,000            *              5,000
Johanna B. McGill (4)                                       5,000            *              5,000
- 64 -
Before the Offering
                                                 -------------------------------------------------
                                                     Number of        Percent of       Shares
                                                       Shares        Total Shares      Offered
      Name of Beneficial Owner                      Beneficially      Outstanding       Hereby
                                                    Owned (1)(2)          (1)
--------------------------------------------------------------------------------------------------
Alfred Mendelson (22)                                       9,513            *             9,513
Ira Mendelson (22)                                          4,724            *             4,724
Mesirow Financial Inc., Custodian for                       5,000            *             5,000
    Thomas Philipsborn IRA (4)
Richard Meyer (22)                                          2,873            *             2,873
Jerry Michelson IRA (4)                                     3,750            *             3,750
Jerry Michelson (4)                                         1,250            *             1,250
Mid America Hospital Group Inc. (24)                       12,500            *            12,500
William J. Mirch (4)                                        5,000            *             5,000
Dr. John H. Muehlstein IRA (4)                              5,000            *             5,000
Jerry Pillard (22)                                            385            *               385
Pollack Family L.L.C. (15)                                  3,750            *             3,750
Janet M. Portelly (15)                                      6,000            *             6,000
Ravinia Investors LLC (4)                                   2,500            *             2,500
Charles Reeder (4)                                         20,000            *            20,000
Research Center of Kabbalah (14)                          600,772          7.2%          600,772
William G. Reynolds, Jr. (4)                                1,250            *             1,250
J.E. Rich (22)                                             14,239            *            14,239
Richard Richter, IRA (15)                                  22,500            *            22,500
Evan D. Ritchie Living Trust (4)                            2,500            *             2,500
Robert Rittmaster (22)                                      3,321            *             3,321
Philip E. Ruben (22)                                       12,687            *            12,687
Barry Rymer (35)                                          113,481          1.5%          113,481
- 65 -
Before the Offering
                                                 -------------------------------------------------

                                                     Number of        Percent of       Shares
                                                       Shares        Total Shares      Offered
      Name of Beneficial Owner                      Beneficially      Outstanding       Hereby
                                                    Owned (1)(2)          (1)
--------------------------------------------------------------------------------------------------
B. Rymer Insurance Trust (22)                              48,715            *            48,715
Lenore M. Schnick dtd 12/30/70 (4)                         15,000            *            15,000
Harvey Schuster (33)                                       25,000            *            25,000
Fred Schwartz (24)                                          6,250            *             6,250
James Scott (4)                                             5,000            *             5,000
Martha T. Seelbach (4)                                      3,750            *             3,750
William Seelbach (4)                                        5,000            *             5,000
William G. Reynolds, Jr. (4)                                1,250            *             1,250
Marshall Rodin  (41)                                       18,184            *            18,184
Sherwood Securities Corp. (15)                             15,000            *            15,000
Sigma Pairs (24)                                           87,500          1.1%           87,500
Michael Silverman (22)                                     12,687            *            12,687
Lloyd Singer (22)                                           4,724            *             4,724
Alfred Slatin (22)                                          3,257            *             3,257
Paul Smeets (4)                                            10,000            *            10,000
Eva Staley Residential Trust (4)                            5,000            *             5,000
Henry M. Staley Trust u/a/d 11/13/73 (4)                    7,500            *             7,500
Staley Family Agency Account (4)                           20,000            *            20,000
Avery J. StoneTrust (4)                                    20,000            *            20,000
Josef Strahammer (16)                                     127,512            *           127,512
Shepard C. Swift Trust (4)                                 10,000            *            10,000
Dieter E.A. Tannenberg (39)                                30,000            *            30,000
Michael Targoff (24)                                      125,000          1.6%          125,000
- 66 -
Before the Offering
                                                 -------------------------------------------------
                                                     Number of        Percent of       Shares
                                                       Shares        Total Shares      Offered
      Name of Beneficial Owner                      Beneficially      Outstanding       Hereby
                                                    Owned (1)(2)          (1)
--------------------------------------------------------------------------------------------------
Emanuel Tarrson (36)                                       37,500           *             37,500
Ronald Tarrson (37)                                        27,500           *             27,500
Steven Tarrson (4)                                         10,000           *             10,000
Joann Timbanard (15)                                        3,750           *              3,750
John Tull (17)                                             13,122           *             13,122
James C. Tull (22)                                          2,873           *              2,873
Thomas Urich (22)                                             448           *                448
Kenneth D. Vander Weele (22)                                2,873           *              2,873
Alexander Verde (18)                                      245,561         3.1%           245,561
Billy Walker Enterprises (15)                               7,500           *              7,500
Martin Weinstein, IRA (15)                                 15,000           *             15,000
Ginette Weiss (22)                                          1,403           *              1,403
Roger Weissenberg (22)                                      1,406           *              1,406
Westminster Capital (34)                                   41,333           *             41,133
Thomas Whitney (4)                                         10,000           *             10,000
Roger D. and Gail L. Williams (15)                          7,500           *              7,500
Diane Wilson (4)                                            1,250           *              1,250
D. R. Zaccone (19)                                        174,000           *            174,000
Marc L. Werner (25)                                        90,000         1.2%            90,000
Manufacturers Indemnity and Insurance                                                           
Co. of America (26)                                         5,000           *              5,000
                                                          -------          ---           -------
         TOTAL                                          5,607,968        63.6%         4,629,972
-------------------------------------
                 *Less than 1% of the total shares outstanding.
- 67 -
(1) The ownership  percentages  are calculated  based on the assumption
that all shares issuable to the Selling Shareholder upon the exercise of options
or warrants by such shareholder (but only such shareholder) have been issued.

         (2) Unless  otherwise  indicated in the notes to this table, all shares
shown as beneficially  owned by the named individual are owned of record by such
person.

         (3)  Consists  of 2,200  shares of Common  Stock  issuable  to the D.L.
Arends Pension Plan upon the exercise of a warrant at an exercise price of $8.00
per share, which expires May 5, 2001.

         (4) Consists of shares of Common Stock  issuable upon the exercise of a
warrant at an exercise  price of $6.00 per share and  expiring  April 15,  1999.
These  warrants  were issued under the Company's  1996 Private  Placement of 12%
Secured Promissory Notes.

         (5)  Consists  of  111,657  shares of Common  Stock  owned of record by
Evelyn  Bishop as trustee under the Bishop Living Trust dated 10/4/94 and 45,783
shares issuable to the trustee upon the exercise of the following warrants:

 Number of Shares         Exercise Price Per Share    Expiration Date of Warrant
          6,685                     8.625                      11-28-96
          4,457                     8.375                      11-16-96
          1,560                     5.375                      05-16-97
          7,023                     5.000                      05-28-97
          7,383                     4.750                      11-28-97
          7,764                     3.750                      05-28-98
         10,911                     8.000                      06-13-01

(6) Consists of 450,000 shares of Common Stock issuable upon conversion of 2,250
shares of ARTRA  Series E Preferred  Stock to be issued to Cipka S.A.  ("Cipka")
and 192,790 shares of Common Stock owned of record by Cipka.

         (7)  Consists  of 75,001  shares of Common  Stock  issuable  to Clinton
Industries  upon the  exercise  of a warrant at an  exercise  price of $5.00 per
share,  which  warrant  expires  November  10,  1997.  Clinton  Industries  is a
partnership,  the general partners of which are the controlling  shareholders of
Kenny Construction Company, also a holder of shares of the Common Stock.

         (8)  Consists  of  150,943  shares of Common  Stock  issuable  to Field
Container  Corp.  upon the exercise of a warrant at an exercise  price of $5.375
per share, which warrant expires May 15, 1997.

         (9) The shares of Common Stock beneficially owned by Mr. Harvey consist
of 123,100  shares held  directly by him,  1,705 shares held in his 401(k) plan,
5,746 shares held in his individual  retirement account,  100,000 shares held by
Mr.  Harvey's  daughters,  75,000 shares  issuable under an option which expires
December 19, 2000 at an exercise price of $3.65 per share, 1,000 shares issuable

                                     - 68 -
under an option which expires  September 19, 2001 at an exercise  price of $3.65
per share,  4,000 shares  issuable under an option which expires January 8, 2003
at an  exercise  price of $3.75  per  share and an  aggregate  of 72,245  shares
issuable under the following  warrants  issued as additional  consideration  for
short-term loans:

    Number of          Exercise Price       Expiration Date
      Shares              per Share           of Warrant

      4,700                $5.500              02-01-99
      1,500                 5.625              03-30-99
      6,000                 4.750              01-20-00
      11,667                3.750              04-28-00
      7,800                 4.750              04-28-00
      8,426                 4.250              07-27-00
      4,019                 4.625              09-30-00
      4,019                 4.875              10-31-00
      4,019                 4.375              11-30-00
      8,038                 6.125              12-31-00
      4,019                 6.125              02-29-01
      4,019                 6.250              03-31-01
      4,019                 6.000              04-30-01

         (10) Consists of  2,873 owned of record by Mr. Iodice and 30,000 shares
of Common  Stock  issuable  to Mr.  Iodice upon the  exercise  of the  following
warrants:

    Number of           Exercise Price       Expiration Date
      Shares               per Share           of Warrant

      3,000                  5.375              09-30-09
      4,500                  5.375              10-07-98
      7,500                  5.375              10-14-98

         (11)  Consists of 38,000  shares of Common Stock owned of record by Ms.
Jacobsohn and 8,250 shares of the Common Stock  issuable to Ms.  Jacobsohn  upon
the exercise of the following warrants:

    Number of           Exercise Price        Expiration Date
      Shares               per Share            of Warrant

      5,500                 $9.875               01-28-97
      2,750                  5.000               12-02-97

                                     - 69 -
(12) Consists of shares of  Common Stock  issuable  upon  conversion of
 a $100,000 short-term note. Mr. Celano is a director of the Company.

         (13) Consists of 110,000  shares of the Common  Stock  issuable to  Mr.
Louis upon the exercise of the following warrants:

    Number of              Exercise Price       Expiration Date
      Shares                  per Share           of Warrant

       3,000                   $7.000              04-02-97
      15,000                    5.625              09-29-97
      15,000                    4.500              04-01-98
      15,000                    5.125              10-01-98
       1,500                    5.375              10-01-98
       2,250                    5.375              10-08-98
       3,750                    5.375              10-15-98
       2,500                    6.000              02-16-99
      15,000                    5.375              04-01-99
      15,000                    5.125              10-01-99
      22,000                    8.000              06-13-01

         Mr. Louis is a director of the Company.

         (14)  Consists  of 514,522  shares of Common  Stock  owned of record by
Research  Center of  Kabbalah  and 21,250  shares of Common  Stock  issuable  to
Research  Center of Kabbalah upon the exercise of a warrant at an exercise price
of $6.00 per share,  which warrant expires October 29, 1998 and 65,000 shares of
Common Stock  issuable  upon the  exercise of a warrant at an exercise  price of
$7.00 per share which warrant expires December 31, 1998.

         (15)  Consists  of shares of Common  Stock of record  issued  under the
Company's  December  1995,  Private  Placement of $2,500,000 of 12%  convertible
subordinated  promissory  notes.  As additional  consideration  the  noteholders
received  15,000 ARTRA common shares per each  $100,000 of notes  issued,  or an
aggregate of 375,000 ARTRA common shares.

         (16) Consists of 20,812 shares of Common Stock issued to Mr. Strahammer
in lieu of interest on certain  borrowings.  These  borrowings  are evidenced by
25,750  shares of Common Stock owned of record by Mr.  Strahammer,  which shares
are subject to a put option  requiring the Company to repurchase such shares (if
the shares  are put to the  Company)  at a price of $26.36 per share.  If at the
time Mr. Strahammer  desires to sell any of the 25,750 shares subject to the put
option, the market price thereof is less than the put price, it is expected that
the Company will enter into an arrangement with Mr.  Strahammer  whereby he will
sell the shares in a regular way brokerage  transaction and the Company will pay
to him an amount  equal to the  difference  by which the put price of the shares
exceeds the selling price. Additionally, Mr. Strahammer has the right to convert
a note due him by ARTRA in the principal  amount of $678,000 which is payable on
demand on December 31, 1998 into 106,702  shares of Common Stock plus the 25,750
shares of Common Stock subject to the put option.
                                     - 70 -
(17)  Consists of 11,622  shares of Common Stock owned of record by Mr.
Tull and 1,500 shares of Common Stock  issuable to Mr. Tull upon the exercise of
a warrant  at an  exercise  price of $6.375  per share,  which  warrant  expires
September 9, 1997.

         (18)  Consists of 49,153  shares of Common Stock owned of record by Mr.
Verde and 196,408 shares of Common Stock issuable to Mr. Verde upon the exercise
of the following warrants:

    Number of            Exercise Price          Expiration Date
      Shares                per Share              of Warrant

      76,480                  6.000                 09-09-97
      37,258                  3.750                 02-09-98
      36,651                  4.125                 08-09-98
      35,555                  5.500                 02-09-99
      10,464                  6.625                 08-09-99

         (19) Consists of 174,000  shares of the  Common  Stock  issuable to Mr.
Zaccone upon the exercise of the following warrants:

    Number of             Exercise Price            Expiration Date
       Shares                per Share                of Warrant

       10,000                 $6.250                   07-05-02
          600                  6.250                   09-03-02
       10,600                  6.250                   09-03-02
       17,000                  5.375                   10-31-02
       16,800                  7.750                   12-17-02
       17,000                  3.750                   01-30-03
       17,000                  7.000                   03-31-03
       17,000                  4.000                   05-01-03
        5,667                  3.500                   07-31-03
       11,333                  5.125                   09-01-03
       25,667                  3.500                   09-16-03
       25,333                  5.875                   10-26-03

         (20)  Consists of 90,000  shares of Common Stock owned of record by Mr.
Conant,  25,000 shares of Common Stock  issuable to Mr. Conant upon the exercise
of a warrant at an  exercise  price of $5.00 per share,  which  warrant  expires
August 26, 2001 and 5,000 shares held by Mrs.  Conant.  Mr. Conant is a director
of the Company.

                                     - 71 -
(21) The  shares  of  Common  Stock  beneficially  owned by Mr.  Harvey
consist of 375,138  shares  held  directly  by him (of which  373,615 are Common
Stock and 1,523 are shares of Series A Preferred  Stock),  23001  shares held as
trustee  for the  benefit  of his  nieces,  800  shares  owned  by his  wife and
children,  634  shares  held  in his  401(k)  plan,  7,193  shares  held  in his
individual  retirement  account,  20,000 shares  issuable  under an option which
expires  September  19, 2001 at an exercise  price of $3.65 per share and 15,000
shares  issuable  under an option which  expires  January 8, 2003 at an exercise
price of $3.75 per share.  

         (22) As part of the consideration for ARTRA's March 1990 acquisition of
Bagcraft, a subsidiary of Ozite Corporation ("Ozite") received 772,000 shares of
ARTRA common stock. In 1995, Ozite distributed  certain of these shares of ARTRA
common stock to the listed owner of record in  connection  with a settlement  of
certain Ozite liabilities.

         (23) Consists of 33,263  shares of record owned by Mr. Dolan,  of which
7,500 were in payment of the  principal  amount of a short-term  loan,  of which
7,246  were in  payment of an ARTRA loan  guarantee  fee and which  18,517  were
distributed  to Mr. Dolan by Ozite in  connection  with a settlement  of certain
Ozite liabilities.

         (24)  Consists of shares of Common Stock of record sold to the owner in
a private  placement,  the proceeds of which were used to fund  working  capital
obligations.

         (25) Consists of 45,000  shares of Common Stock  issuable to Mr. Werner
upon the  exercise of a warrant at an exercise  price of $4.88 per share,  which
warrant expires  December 24, 1999 and 45,000 shares of Common Stock issuable to
Mr.  Werner upon the  exercise  of a warrant at an exercise  price of $4.125 per
share,  which warrant  expires  August 16, 2000.  These  warrants were issued as
additional compensation for short-term loans.

         (26) Consists of 5,000 shares of Common Stock issuable to Manufacturers
Indemnity  and  Insurance  Co. of America  upon the  exercise of a warrant at an
exercise  price of $6.00 per share,  which warrant  expires April 15, 1999.  The
warrant was issued as additional compensation for a short-term loan.

         (27)  Consists of:

               (a) 5,000 shares of Common Stock owned of record by Mr.Calabrese.

               (b)10,000 shares of Common Stock  issuable to  Mr.Calabrese  upon
                   the  exercise of a warrant at an exercise  price of $6.00 per
                   share,  which warrant expires September 18, 2001. The warrant
                   was issued as additional compensation for a short-term loan.
         (28) Consists of:

               (a) 10,000  shares  of  Common  Stock  owned  of  record  by  Mr.
                   Blackmore.

               (b) 7,500 shares of Common Stock  issuable to Mr.  Blackmore upon
                   the  exercise of a warrant at an exercise  price of $6.00 per
                   share,  which warrant expires September 18, 2001. The warrant
                   was issued as additional compensation for a short-term loan.

         (29)  Consists of 12,500  shares of Common  Stock  issuable to Mr. Levy
upon the  exercise of a warrant at an exercise  price of $4.50 per share,  which
warrant  expires  December  29,  2000.  The  warrant  was  issued as  additional
compensation for a short-term loan.

         (30) Consists of 5,000 shares of Common Stock issuable to Mr. Gunderson
upon the  exercise of a warrant at an exercise  price of $6.00 per share,  which
warrant expires May 28, 2001. The warrant was issued as additional  compensation
for a short-term loan.

         (31)  Consists of 3,321  shares of Common  Stock owned of record by Mr.
Jones and 5,000 shares of Common  Stock  issuable to Mr. Jones upon the exercise
of a warrant at an exercise price of $6.75 per share,  which warrant expires May
28, 2001.

                                     - 72 -
(32) Consists of 5,000 shares of Common Stock  issuable to Mr.  Foster
upon the  exercise of a warrant at an exercise  price of $6.00 per share,  which
warrant expires May 28, 2001. The warrant was issued as additional  compensation
for a short-term loan.

          (33) Consists  of  25,000  shares  of  Common  Stock  issuable  to Mr.
Schuster upon the exercise of a warrant at an exercise price of $4.00 per share,
which warrant expires June 13, 2001.

          (34) Consists  of  shares of record  issued  in  payment  of notes and
accrued interest thereon.

          (35) Consists  of  shares  of  Common   Stock  of  record   issued  as
consideration for guarantees of ARTRA bank borrowings.

          (36) Consists of:

               (a) 12,500 shares of Common Stock issuable to Mr. Tarson upon the
                   exercise  of a  warrant  at an  exercise  price of $5.00  per
                   share,  which warrant expires September 12, 2001. The warrant
                   was issued as additional compensation for a short-term loan.

               (b) 25,000 shares of Common Stock issuable upon the exercise of a
                   warrant at an exercise  price of $6.00 per share and expiring
                   April  15,  1999.   These  warrants  were  issued  under  the
                   Company's  1996 Private  Placement of 12% Secured  Promissory
                   Notes.

          (37) Consists of:

               (a) 12,500 shares of Common Stock issuable to Mr. Tarson upon the
                   exercise  of a  warrant  at an  exercise  price of $5.00  per
                   share,  which warrant expires September 12, 2001. The warrant
                   was issued as additional compensation for a short-term loan.

               (b) 15,000 shares of Common Stock issuable upon the exercise of a
                   warrant at an exercise  price of $6.00 per share and expiring
                   April  15,  1999.   These  warrants  were  issued  under  the
                   Company's  1996 Private  Placement of 12% Secured  Promissory
                   Notes.

         (38)  Consists  of 40,000  shares of  Common  Stock  owned of record by
Kwiatt, Silverman & Ruben, Ltd. issued in payment of profession fees.

         (39)  Consists of 30,000  shares of Common Stock owned of record by Mr.
Tannenberg.

         (40)  Consists of shares of Common Stock owned of record by the selling
shareholder.  These 100,000 shares of the Company's  Common Stock were loaned to
the Company by its president,  Peter R. Harvey, in June 1996. In September 1996,
after  the  Company's  shareholders  approved  an  increase  in  the  number  of
authorized  common  shares,  the  Company  repaid  this  loan.  At Mr.  Harvey's
direction,  the 100,000 shares of the Company's  Common Stock were issued to the
following individuals:
 
               Kim Eliabeth Harvey           25,000 shares
               Julie Harvey Valeriote        25,000 shares
               Lori Ann Harvey               25,000 shares
               Kim Eliabeth Harvey           25,000 shares

Kim Eliabeth Harvey,  Julie Harvey  Valeriote,  Lori Ann Harvey and Kim Eliabeth
Harvey are the  daughters of the Company's  Chairman of the Board,  John Harvey.
John Harvey and Peter Harvey are brothers.

         (41)  Consists  of 6,084  shares  of  Common  Stock  issuable  upon the
exercise of a warrant at an exercise  price of $4.00 per share and 12,100 shares
of Common Stock  issuable  upon the warrant at an  excercise  price of $5.75 per
share. These warrants expire September 20, 2001.

                                     - 73 -
PLAN OF DISTRIBUTION

         The manner in which the Common Stock covered by this  Prospectus are to
be distributed is set forth on the cover page hereof. Any sales effected through
securities  brokers or dealers will be on an "agency" basis,  unless as a result
of a  privately  negotiated  transaction  a  broker  or  dealer  enters  into an
agreement with a Selling  Shareholder to purchase shares for its own account. At
the  date  of this  Prospectus,  none of the  Selling  Shareholders  contemplate
entering into such a contractual  relationship with a broker or dealer, although
one or more of them may decide to do so in the future.

         To comply with certain  states'  securities  laws, if  applicable,  the
Common  Stock will be sold in such states only  through  brokers or dealers.  In
addition,  in certain  states the Common  Stock may not be sold unless they have
been  registered  or  qualify  for  sale in such  states  or an  exemption  from
registration  or  qualification  is available and is complied with. From time to
time,  to the  extent  required  by the  rules of the  Securities  and  Exchange
Commission, the Company will distribute Prospectus Supplements.

         The Selling  Shareholders and any  broker-dealers  who participate in a
sale of their shares of Common Stock may be deemed to be  "underwriters"  within
the meaning of Section 2(11) of the Securities Act, and any commissions received
by them,  and  proceeds  of any such  sales as  principal,  may be  deemed to be
underwriting discounts and commissions under the Securities Act.

         All  expenses  of the  registration  of Common  Stock  offered  hereby,
estimated to be approximately $225,000 will be borne by the Company. As and when
the  Company is  required to update  this  Prospectus,  it may incur  additional
expenses in excess of this  estimated  amount.  Normal  commission  expenses and
brokerage  fees,  as  well  as  any  applicable   transfer  taxes,  are  payable
individually by the Selling Shareholders.

         Since the Selling Shareholders will be subject to the anti-manipulation
rules promulgated under the Exchange Act, including Rule 10b-2, 10b-6 and 10b-7,
in connection with  transactions in the Common Stock during the effectiveness of
the  Registration  Statement  of which this  Prospectus  is a part,  the Company
advised the Selling  Shareholders to consult competent  securities counsel prior
to  initiating  any such  transaction.  The Company  will  notify  each  Selling
Shareholder  of the  Commission's  rules and,  as a condition  to  agreeing  the
register  the shares of a Selling  Shareholder,  will  require that such Selling
Shareholder agree to comply with such rules.

         The Company will not receive any  proceeds  from the sale of the Common
Shares  offered  hereby by the  Selling  Shareholders.  However,  insofar as the
holders  of options  or  warrants  to  purchase  shares of the Common  Stock are
expected to exercise  their  warrants or options in order to sell the underlying
shares (which are registered hereby), the Company will receive the amount of the
exercise  prices of any  warrants or options so  exercised.  The Company  cannot
predict  when or if it will  receive  proceeds  from the exercise of warrants or
options,  or the amount of any such  proceeds.  The  Company  intends to use the
proceeds, if any, received from the exercise of warrants or options to retire or
reduce  indebtedness,  to pay certain  expenses of the  offering and for working
capital purposes. The offering is being conducted to satisfy certain contractual
obligations  to holders of options,  as well as to provide a vehicle for certain
of its officers,  directors  and advisors to exercise  their options to purchase
the  Company's  stock (at  exercise  prices which are  currently  lower than the
market  price of the  Company's  stock)  and sell the stock  acquired  upon such
exercise. See "Selling Shareholders."

                    INDEMNIFICATION OF OFFICERS AND DIRECTORS

         The  Company's  By-laws  provide  that the Company  will  indemnify  an
officer  or  director,  and may  indemnify  any  other  employee  or  agent,  in
connection  with any pending or  threatened  suit or  administrative  proceeding
against

                                     - 74 -
any such  person  by reason  of such  person  serving  as a  director,  officer,
employee or agent of the  Company,  or, at the request of the  Company,  in such
capacity for another entity. However, no indemnification will be made if the act
giving rise to the claim for  indemnification  is  determined by a court to have
constituted willful misconduct or recklessness. In addition, the By-laws provide
that the above indemnification  provisions are not exclusive of any other rights
to  indemnification  any such  person  may have  under any  contract  or vote of
shareholders  or  disinterested  shareholders  or as determined by a court.  The
By-laws   expressly   provide  that  it  is  the  Company's   policy  to  permit
indemnification  to the fullest  extent  permitted by law.  The By-laws  further
provide that the  indemnification  provisions  will be deemed to be amended upon
any amendment of the BCL,  which expands or enlarges the powers of  corporations
to indemnify.

         The BCL provides  that a  corporation  will have the power to indemnify
any  representative  of a corporation,  or of any other entity at the request of
the  corporation,  if  such  person  acted  in good  faith  and in a  manner  he
reasonably  believed  to be in, or not  opposed  to, the best  interests  of the
corporation  and,  with respect to any criminal  proceeding,  had no  reasonable
cause to believe his conduct was unlawful.

         The BCL further  provides that  indemnification  is mandatory where the
representative  is  "successful  on the  merits or  otherwise"  in defense of an
action or  proceeding,  and in  addition,  the BCL  provides  that the method of
indemnification provided by the act is not exclusive of rights under any by-law,
vote of shareholders or disinterested shareholders or otherwise,  unless the act
giving rise to the claim for  indemnification  is  determined by a court to have
constituted willful misconduct or recklessness.

         Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors,  officers or persons  controlling the Company
pursuant to the foregoing provisions,  the Company has been informed that in the
opinion of the  Securities  and  Exchange  Commission  such  indemnification  is
against  public  policy as  expressed  in the  Securities  Act and is  therefore
unenforceable.

                                     EXPERTS

         The  consolidated  balance  sheets  of  ARTRA  GROUP  Incorporated  and
Subsidiaries  as of December 28, 1995 and  December  29,  1994,  and the related
consolidated  statements of operations,  shareholders' equity (deficit) and cash
flows for each of the three years in the period ended December 28, 1995 included
in this Prospectus  have been audited by Coopers & Lybrand  L.L.P.,  independent
accountants,  as stated in their  report  appearing  herein  which  includes  an
explanatory  paragraph  referring to an  uncertainty  concerning  the  Company's
abilitiy to continue as a going concern.

         The  above-referenced  financial statements of ARTRA GROUP Incorporated
have been included in reliance upon the report of Coopers & Lybrand L.L.P. given
upon the authority of that firm as experts in accounting and auditing.
                                     - 75 -
No  dealer,  salesman  or any  other  person  has  been  authorized  to give any
information or to make any  representations  other than those  contained in this
Prospectus,  and, if given or made, such information or representations must not
be relied upon as having been  authorized by the Company.  This  Prospectus does
not  constitute  an  offer  to sell or a  solicitation  of any  offer to buy any
securities in any  jurisdiction in which such an offer or solicitation  would be
unlawful.  Neither the delivery of this  Prospectus  nor any sale made hereunder
shall  under any  circumstances  create any  implication  that there has been no
change in the affairs of the Company since the date hereof.

                                 LEGAL MATTERS

The validity of the shares of Common Stock offered by the Company hereby will be
passed upon for the  Company by Kwiatt,  Silverman  & Ruben,  Ltd.,  Northfield,
Illinois.  The law firm of Kwiatt,  Silverman & Ruben, Ltd. own 40,000 shares of
Common  Stock of the Company this  represents  less than one (1%) percent of the
total shares outstanding.

                                TABLE OF CONTENTS

                                                          

                  Heading                     Page

Additional Information                           2

Prospectus Summary                               3

Risk Factors                                     7

Capitalization                                  14

Management's Discussion and Analysis            16
of Financial Condition and Results of
Operations

Business and Properties                         30

Legal Proceedings                               36

Market Price of the Company's                   40
Common Stock

Description of the Company's                    41
Securities

Management                                      45

Executive Compensation                          47     ARTRA GROUP Incorporated

Principal Shareholders                          51

Transactions with Management and                54            PROSPECTUS
Others

Selling Shareholders                            60        November 26, 1996

Plan of Distribution                            74

Indemnification of Officers                     74
and Directors

Experts                                         75

Index to Financial Statements                  F-1
INDEX TO FINANCIAL STATEMENTS

                                                                          Page

 Condensed Consolidated Balance Sheet as of
     September 26, 1996 (Unaudited)                                    

 Condensed Consolidated Statements of Operations
     Nine Months Ended September 26, 1996 and 
     September 28, 1995 (Unaudited)                           

 Condensed Consolidated Statement of Changes in 
     Shareholders' Equity (Deficit)
     Nine Months Ended September 26, 1996 (Unaudited)   

 Condensed Consolidated Statements of Cash Flows
     Nine Months Ended September 26, 1996 
     and September 28, 1995 (Unaudited)                                 

 Notes to Condensed Consolidated Financial Statements (Unaudited)  

 Report of Independent Accountants  

 Consolidated Balance Sheets as of December 28, 1995
     and December 29, 1994    

 Consolidated Statements of Operations
     for each of the three fiscal years
     in the period ended December 28, 1995                  

 Consolidated Statements of Changes in 
     Shareholders' Equity (Deficit)
     for each of the three fiscal years
     in the period ended December 28, 1995                  

 Consolidated Statements of Cash Flows
     for each of the three fiscal years 
     in the period ended December 28, 1995                  

 Notes to Consolidated Financial Statements   

  Financial Statement Schedules:

        I.      Condensed Financial Information  of Registrant 

       II.      Valuation and Qualifying Accounts 

Schedules  other than those  listed are  omitted as they are not  applicable  or
required or equivalent information has been included in the financial statements
or notes thereto.
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEET
                            (Unaudited in thousands)

                                                     September 26,
                                                         1996
                                                       --------
                                     ASSETS
Current assets:
   Cash and equivalents                                  $   99       
   Restricted cash and equivalents                          --        
   Receivables, less allowance for doubtful
      accounts of $301                                    9,071       
   Inventories                                           15,211       
   Other                                                  1,108       
                                                       --------       
               Total current assets                      25,489       
                                                       --------       

Property, plant and equipment                            45,645       
Less accumulated depreciation and amortization           19,795       
                                                       --------       
                                                         25,850       
                                                       --------       

Other assets:
   Available -for-sale securities                        31,728       
   Excess of cost over net assets acquired,
      net of accumulated amortization of
      $2,007                                              3,029       
   Other                                                     35       
                                                       --------       
                                                         34,792       
                                                       --------       
                                                        $86,131       
                                                       ========       

The  accompanying  notes  are an  integral  part of the  condensed  consolidated
financial statements.
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEET
                            (Unaudited in thousands)

                                                     September 26,    
                                                         1996         
                                                       --------       

                                   LIABILITIES
Current liabilities:
   Notes payable, including amounts due to related
      parties of $3,600                                 $15,518       
   Current maturities of long-term debt                   2,407       
   Accounts payable                                       7,645       
   Accrued expenses                                       9,667       
   Income taxes                                             367       
   Liabilities of discontinued operations                   764       
                                                        -------       
               Total current liabilities                 36,368       
                                                        -------       

Long-term debt                                           34,541       
Other noncurrent liabilities                              1,750       
Commitments and contingencies

Redeemable common stock,
   issued 98,734 shares                                   3,565       
ARTRA redeemable preferred stock:
   Series  A,  $1,000  par  value,
      6%  cumulative  payment-in-kind, including
      accumulated dividends, net of unamortized
      discount of $1,349; redeemable March 1, 2000
      at $1,000 per share plus accrued dividends;
      authorized 2,000,000 shares all series;
      issued 3,750 shares                                 4,157       
   Series E, $1,000 par value, 10% cumulative,
      liquidation  preference equal to $1,000
      or 200 shares of common stock per
      share, plus accrued dividends;
      convertible, at the holder's option into
      200 shares of common stock per share                2,250       
Bagcraft redeemable preferred stock
   payable  to a related  party,
   cumulative $.01 par value, 13.5%; including
   accumulated dividends; redeemable in 1997
   with a liquidation preference equal to
   $100 per share; issued 8,650 shares                    1,978       
BCA Holdings preferred stock:
   Series A, $1.00 par value, 6% cumulative,
      including accumulated dividends;
      liquidation preference of $1,000 per share;
      10,000 shares authorized;
      issued 3,675 shares                                 4,308       
   Series B payable to a related party,
      $1.00 par value, 13.5% cumulative,
      including accumulated  dividends;
      redeemable in 1997 with a liquidation
      preference of $1,000 per share;
      8,135 shares authorized and issued                  8,818       

                         SHAREHOLDERS' EQUITY (DEFICIT)
Common stock, no par value;
    authorized  20,000,000 shares                         5,777       
Additional paid-in capital                               40,140       
Unrealized appreciation of investments                   34,960       
Receivable from related party,
    including accrued interest                           (5,861)      
Accumulated deficit                                     (86,568)      
                                                       --------       
                                                        (11,552)      
Less treasury stock (7,628 shares), at cost                  52       
                                                       --------       
                                                        (11,604)      
                                                       --------       
                                                        $86,131       
                                                       ========       

The  accompanying  notes  are an  integral  part of the  condensed  consolidated
financial statements.
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                 (Unaudited in thousands, except per share data)

                                                          Nine Months Ended
                                                       ----------------------
                                                        Sept 26,     Sept 28,
                                                          1996         1995*
                                                       ---------     --------

Net sales                                               $ 90,162     $ 90,703
                                                        --------     --------

Costs and expenses:
   Cost of goods sold,
      exclusive of depreciation and amortization          71,710       76,871
   Selling, general and administrative                    10,967       15,972
   Depreciation and amortization                           2,954        3,306
                                                        --------     --------
                                                          85,631       96,149
                                                        --------     --------

Operating earnings (loss)                                  4,531       (5,446)
                                                        --------     --------

Other income (expense):
   Interest expense                                       (5,370)      (6,392)
   Realized gain on disposal
      of available-for-sale securities                     4,823          --
   Other income (expense), net                              (205)           1
                                                        --------     --------
                                                            (752)      (6,391)
                                                        --------     --------

Earnings (loss) from continuing operations
   before income taxes and minority interest               3,779      (11,837)
Provision for income taxes                                   (87)         (35)
Minority interest                                           (169)        (671)
                                                        --------     --------
Earnings (loss) from continuing operations                 3,523      (12,543)
Loss from discontinued operations                           --         (9,156)
                     
                                                        --------     --------
Earnings (loss) before extraordinary credit                3,523      (21,699)
Extraordinary credit, net discharge of indebtedness        9,424        9,113
                                                        --------     --------
Net earnings (loss)                                       12,947      (12,586)
Dividends applicable to
   redeemable preferred stock                               (463)        (422)
Reduction of retained earnings
   applicable to redeemable common stock                    (297)        (246)
                                                        --------     --------
Earnings (loss) applicable to common shares             $ 12,187     ($13,254)
                                                        ========     ========

Earnings (loss) per share:
   Continuing operations                                $   0.32     ($  1.96)
   Discontinued operations                                  --          (1.36)
                                                        --------     --------
   Earnings (loss) before extraordinary credit              0.32        (3.32)
   Extraordinary credit                                     1.23         1.35
                                                        --------     --------
   Net earnings (loss)                                  $   1.55     ($  1.97)
                                                        ========     ========

Weighted average number of shares of common stock and
   common stock equivalents outstanding                    7,870        6,712
                                                        ========     ========

The  accompanying  notes  are an  integral  part of the  condensed  consolidated
financial statements.

--------------------
*  As reclassified for discontinued operations.
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
  CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
                        (In thousands, except share data)
Unrealized  Receivable                                      Total
                                     Common Stock   Additional Appreciation    From                  Treasury Stock    Shareholders'
                                 ------------------   Paid-in       of        Related  Accumulated -------------------     Equity
                                   Shares   Dollars   Capital   Investments    Party    (Deficit)    Shares   Dollars     (Deficit)
                                 ---------  -------   -------   -----------  --------   ---------  --------- ---------   ---------
Balance at December 28, 1995     7,102,979   $5,540   $38,526    $  21,047   ($4,318)   ($98,755)     57,038   ($  805)  ($ 38,765)
 Net earnings                         --       --        --           --        --        12,947        --        --        12,947
 Common stock issued
   to pay liabilities              125,012       94       362         --        --          --      (120,554)      818       1,274
 Common stock as
   additional consideration
   for short-term borrowings        50,544       38      (398)        --        --          --       (99,456)    1,021         661
 Increase in receivable from
   related party,
   including accrued interest         --       --        --           --      (1,543)       --          --        --        (1,543)
 Common stock loaned
   by related party                   --       --        --           --         587        --       100,000      (587)       --
 Repay common stock
   loaned by related party         100,000       75       512         --        (587)       --          --        --          --
 Increase in unrealized
   appreciation of investments        --       --        --         13,913      --          --          --        --        13,913
 Exercise of stock options
   and warrants                     40,000       30       142         --        --          --       (16,900)      109         281
 Common stock received
   as consideration
   for short-term note                --       --        --           --        --          --        87,500      (608)       (608)
 Reclassification of
   redeemable common stock         185,231     --         996         --        --          --          --        --           996
 Redeemable common
   stock accretion                    --       --        --           --        --          (297)       --        --          (297)
 Redeemable preferred
   stock dividends                    --       --        --           --        --          (463)       --        --          (463)
                                 ---------   ------   -------    ---------   -------    --------   ---------   -------   ---------
Balance at September 26, 1996    7,603,766   $5,777   $40,140    $  34,960   ($5,861)   ($86,568)      7,628   ($   52)  $ (11,604)
                                 =========   ======   =======    =========   =======    =========  =========   ========  =========
The accompanying  notes are an integral part of the condensed consolidated financial statements.
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (Unaudited in thousands)

                                                         Nine Months Ended
                                                    -------------------------
                                                    September 26, September 28,
                                                          1996        1995
                                                       ---------   ---------

Net cash flows used by operating activities,           ($  4,516)  ($    284)
                                                       ---------   ---------

Cash flows from investing activities:
   Additions to property, plant and equipment             (1,797)     (1,892)
   Retail fixtures                                          --          (631)
   Proceeds from collection of Welch notes                   342       3,000
   Proceeds from sale of COMFORCE common stock             3,717        --
   Investment in COMFORCE Global                            --          (753)
   Payment of liabilites with restricted cash               --           550
   Decrease in unexpended plant construction funds           552         224
   Other                                                      91        --
                                                       ---------   ---------
Net cash flows from investing activities                   2,905         498
                                                       ---------   ---------

Cash flows from financing activities:
   Net increase (decrease) in short-term debt               (577)      1,564
   Proceeds from long-term borrowings                     99,497     101,406
   Reduction of long-term debt                           (99,327)   (104,813)
   Exercise of stock options and warrants                    281        --
   Redeemable common stock options exercised                (510)        (70)
   Other                                                      (1)       (289)
                                                       ---------   ---------
Net cash flows used by financing activities                 (637)     (2,202)
                                                       ---------   ---------

Decrease in cash and cash equivalents                     (2,248)     (1,988)
Cash and equivalents, beginning of period                  2,347       2,070
                                                       ---------   ---------
Cash and equivalents, end of period                    $      99   $      82
                                                       =========   =========

Supplemental cash flow information:
   Cash paid during the period for:
      Interest                                         $   4,388   $   4,793
      Income taxes paid, net                                   8          18

Supplemental schedule of noncash
  investing and financing activities:
    ARTRA Series E redeemable preferred stock
       issued for payment of short-term notes              2,250        --
    BCA Holdings redeemable preferred stock
       issued in exchange for Bagcraft
       redeemable preferred stock                          8,135        --
    Issue common stock
       to pay down current liabilities                     1,274         208
    Issue common stock as additional
       consideration for short-term borrowings               661        --

The  accompanying  notes  are an  integral  part of the  condensed  consolidated
financial statements.
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.       BASIS OF PRESENTATION AND FINANCIAL RESTRUCTURING

ARTRA GROUP  Incorporated's  ("ARTRA" or the "Company")  condensed  consolidated
financial  statements are presented on a going concern basis, which contemplates
the  realization  of assets and the  satisfaction  of  liabilities in the normal
course of business.  In the opinion of the Company,  the accompanying  condensed
consolidated  financial  statements  reflect  all normal  recurring  adjustments
necessary to present fairly the financial position as of September 26, 1996, and
the results of  operations  and changes in cash flows for the nine month periods
ended  September 26, 1996 and  September 28, 1995. In recent years,  the Company
has suffered recurring losses from operations and has a net capital  deficiency.
As a result  of  these  factors,  the  Company  has  experienced  difficulty  in
obtaining  adequate  financing to replace certain  current credit  arrangements,
certain  of  which  are in  default,  to fund  its debt  service  and  liquidity
requirements in 1996. These factors raise  substantial doubt about the Company's
ability to continue as a going concern.  The financial statements do not include
any adjustments that might result from the outcome of this uncertainty. See Note
7 Notes Payable, and Note 8 Long Term Debt, for further discussion of the status
of  credit  arrangements  and  restrictions  on the  ability  of  the  Company's
operating  subsidiary to fund ARTRA  corporate  obligations.  Due to its limited
ability to receive  operating  funds from its  operating  subsidiary,  ARTRA has
historically met its operating  expenditures with funds generated by alternative
sources,  such as private  placements of ARTRA common stock and notes,  sales of
ARTRA common stock with put options,  loans from  officers/directors and private
investors,  as well as through  sales of assets  and/or other equity  infusions.
ARTRA plans to continue  to seek such  alternative  sources of funds to meet its
future operating expenditures.

ARTRA,  through its  wholly-owned  subsidiary,  Bagcraft  Corporation of America
("Bagcraft"),  currently  operates in one industry  segment as a manufacturer of
packaging products principally serving the food industry. Prior to September 28,
1995, ARTRA's then majority owned subsidiary,  COMFORCE Corporation ("COMFORCE",
formerly The Lori Corporation "Lori"), operated as a designer and distributor of
popular-priced  fashion  costume  jewelry and  accessories.  In  September  1995
COMFORCE adopted a plan to discontinue its jewelry business.

On October 17,  1995,  COMFORCE  acquired  all of the capital  stock of COMFORCE
Global Inc.  ("Global"),  formerly  Spectrum Global  Services,  Inc. d/b/a YIELD
Global.  Global  provides  telecommunications  and computer  technical  staffing
services  worldwide to Fortune 500 companies and maintains an extensive,  global
database of technical  specialists  with an emphasis on wireless  communications
capability.

Effective July 4, 1995, COMFORCE and ARTRA entered into employment or consulting
services  agreements  with certain  individuals  to manage Lori's entry into and
development of the  telecommunications  and computer technical staffing services
business. As additional  compensation,  the agreements provided for the issuance
in aggregate of a 35% common stock  interest in COMFORCE.  After the issuance of
the COMFORCE common shares,  plus the effects of the issuance of COMFORCE common
shares sold by private  placements  and other  COMFORCE  common shares issued in
conjunction with the Global acquisition, ARTRA's common stock ownership interest
in COMFORCE common stock was reduced to approximately  25% at December 28, 1995.
Accordingly,  in October 1995,  the accounts of COMFORCE and its  majority-owned
subsidiaries were deconsolidated from ARTRA's consolidated  financial statements
and ARTRA's  investment  in COMFORCE was  accounted  for under the equity method
through the end of fiscal  1995.  At  September  26, 1996  ARTRA's  common stock
ownership  interest in COMFORCE common stock was reduced to  approximately  19%.
See Notes 2 and 5 for a further discussion of ARTRA's investment in COMFORCE.

Effective October 26, 1995,  Bagcraft completed the sale of the business assets,
subject to the buyer's  assumption of certain  liabilities,  of its wholly-owned
subsidiary,   Arcar  Graphics,   Inc.  ("Arcar"),   for  cash  of  approximately
$20,300,000.  The net  proceeds,  after  extinguishment  of  certain  Arcar debt
obligations,  of  approximately  $10,400,000,  were used to reduce Bagcraft debt
obligations.

In February  1996, a bank agreed to discharge  all amounts under its ARTRA notes
($12,063,000 plus accrued interest and fees) and certain  obligations of ARTRA's
president,  Peter R. Harvey,  resulting  in a gain to ARTRA on the  discharge of
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

this  indebtedness  of $9,424,000 in the first quarter of 1996. The cash payment
due the bank was funded  principally  with  proceeds  received from a short-term
loan  agreement  along with proceeds  received  from the Bagcraft  subsidiary in
conjunction  with the  issuance  of BCA  Holdings,  Inc.  ("BCA"  the  parent of
Bagcraft)  preferred  stock.  See Notes 6, 7 and 10 for further  discussions  of
these transactions.

ARTRA intends to continue to negotiate with its creditors to extend due dates to
allow  ARTRA to  maximize  value  from  possible  sale of assets  and to explore
various other sources of funding to meet its future operating  expenditures.  If
ARTRA is unable to negotiate  extensions with its creditors and complete certain
transactions,  ARTRA could suffer severe adverse consequences,  and as a result,
ARTRA may be forced to  liquidate  its assets or file for  protection  under the
Bankruptcy Code.

These condensed  consolidated  financial  statements are presented in accordance
with the  requirements  of Form 10-Q and  consequently  do not  include  all the
disclosures  required in the Company's annual report on Form 10-K.  

Reported  interim results of operations are based in part on estimates which may
be subject to year-end  adjustments.  In addition,  these  quarterly  results of
operations are not necessarily indicative of those expected for the year.

The Company  has  adopted a 52/53 week  fiscal year ending the last  Thursday of
December.

2.       CHANGE OF BUSINESS

         Arcar Graphics, Inc.

Effective  April 8, 1994,  Bagcraft  purchased the business  assets,  subject to
buyer's  assumption  of  certain  liabilities,  of  Arcar,  a  manufacturer  and
distributor of waterbase  inks.  Effective  October 26, 1995,  Bagcraft sold the
business assets,  subject to the buyer's assumption of certain  liabilities,  of
Arcar  for  cash  of  approximately  $20,300,000,  resulting  in a net  gain  of
$8,483,000.  The net  proceeds,  after  extinguishment  of  certain  Arcar  debt
obligations,  of  approximately  $10,400,000,  were used to reduce Bagcraft debt
obligations.

         COMFORCE

In September,  1995, COMFORCE adopted a plan to discontinue its jewelry business
and recorded a provision of $1,000,000  for the estimated  costs to complete the
disposal of its jewelry business.

Effective  October 17,  1995,  COMFORCE  acquired  all of the  capital  stock of
COMFORCE Global, Inc. ("Global"),  formerly Spectrum Global Services, Inc. d/b/a
YIELD Global,  for  consideration  of  approximately  $6.4 million,  net of cash
acquired.  This  consideration  consisted of cash to the seller of approximately
$5.1 million, fees of approximately  $700,000,  including a fee of $500,000 to a
related party,  and 500,000  shares of COMFORCE  common stock valued at $843,000
(at a price per share of $1.68)  issued as  consideration  for various  fees and
guarantees  associated  with the  transaction.  The  500,000  shares of COMFORCE
common stock  consisted of (i) 100,000  shares issued to an unrelated  party for
guaranteeing  the purchase  price to the seller,  (ii) 100,000  shares issued to
ARTRA,  then the majority  stockholder of the Company,  in  consideration of its
guaranteeing  the  purchase  price to the seller and  agreeing to enter into the
Assumption Agreement,  as discussed below, (iii) 150,000 issued to two unrelated
parties for  advisory  services in  connection  with the  acquisition,  and (iv)
150,000 shares issued to Peter R. Harvey,  then a Vice President and director of
COMFORCE for guaranteeing the
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

payment of the $6.4  million  purchase  price to the  seller.  Additionally,  in
conjunction  with the  Global  acquisition,  ARTRA  entered  into an  Assumption
Agreement  whereby  it agreed  to assume  substantially  all  pre-existing  Lori
liabilities  and indemnify  COMFORCE in the event any future  liabilities  arise
concerning  pre-existing  environmental matters and business related litigation.
Accordingly,   at  September  26,  1996,  $764,000  of  such  pre-existing  Lori
liabilities were classified in ARTRA's condensed consolidated balance as current
liabilities of discontinued operations.

Global provides  telecommunications  and computer  technical  staffing  services
worldwide to Fortune 500 companies and maintains an extensive,  global  database
of technical specialists with an emphasis on wireless communications capability.

Effective  July 4, 1995,  Lori's  management  agreed to issue up to a 35% common
stock  interest in COMFORCE to certain  individuals to manage  COMFORCE's  entry
into the telecommunications  and computer technical staffing business.  COMFORCE
recognized  a  non-recurring  charge of  $3,425,000  related to this stock since
these stock  awards were 100% vested when issued,  and were neither  conditioned
upon these individuals' service to the Company as employees nor the consummation
of the COMFORCE Global  acquisition.  Accordingly,  this compensation charge was
fully  recognized  in 1995.  The  shares  of  COMFORCE  common  stock  issued in
accordance with the above  agreements were valued at $.93 per share.  COMFORCE's
management valued COMFORCE based on its discussions with market makers and other
advisors,  taking  into  account  (i)  that  the  Jewelry  Business,  which  was
discontinued  at the end of the second quarter of 1995, had a negligible  value,
and (ii) the value of COMFORCE was principally  related to the potential  effect
that a purchase of COMFORCE Global, if successfully concluded, would have market
value of COMFORCE  common stock.  COMFORCE's  management  believes this value of
$.93  per  share  to be a fair  and  appropriate  value  based  upon  COMFORCE's
financial  condition  as of the date  COMFORCE  became  obligated to issue these
shares.  After the issuance of the COMFORCE  common shares,  plus the effects of
other  transactions,  ARTRA's common stock ownership interest in COMFORCE common
stock  was  reduced  to  approximately  19% and 25% at  September  26,  1996 and
December 28, 1995, respectively.  Accordingly,  in October 1995, the accounts of
COMFORCE and its majority-owned  subsidiaries were  deconsolidated  from ARTRA's
consolidated  financial  statements.  See Note 5 for a further discussion of the
accounting treatment of ARTRA's investment in COMFORCE.

A disagreement has arisen between ARTRA and COMFORCE  regarding  interpretations
of the July 4, 1995  agreement,  as amended,  to issue up to a 35% common  stock
interest in COMFORCE to certain  individuals to manage COMFORCE's entry into the
telecommunications   and  computer  technical  staffing  business;   the  Global
acquisition  agreement;  and the  Assumption  Agreement  whereby ARTRA agreed to
assume substantially all pre-existing Lori liabilities and indemnify COMFORCE in
the event any future  liabilities  arise concerning  pre-existing  environmental
matters and business  related  litigation.  The disputed  issues include (i) the
number of  COMFORCE  common  shares  issued to the above  individuals  to manage
COMFORCE's entry into the  telecommunications  and computer  technical  staffing
business. Accordingly, ARTRA voted against ratification of the issuance of these
shares at COMFORCE's  Annual Meeting of  Stockholders  held on October 28, 1996;
(ii) the number of COMFORCE  common stock options  issued to COMFORCE's  current
management  group subsequent to the Global  acquisition;  (iii) 100,000 COMFORCE
common shares to be issued to ARTRA in  consideration  of its  guaranteeing  the
Global purchase price to the seller and agreeing to assume certain  pre-existing
Lori  liabilities;  (iv) 150,000 COMFORCE common shares to be issued to Peter R.
Harvey for  guaranteeing the payment of the Global purchase price to the seller,
and (vi) certain  stock options  granted in 1993 under  provisions of COMFORCE's
Long-Term Stock Investment Plan. As a result of the above  disagreements,  ARTRA
has not exchanged its Lori Series C preferred stock with a liquidation  value of
$19.5 million for 100,000 COMFORCE common shares,  as required by the Assumption
Agreement,  and will not  consummate  the exchange until all of the disputes are
resolved.  ARTRA's financial  statements have reflected the exchange of the Lori
Series C preferred  stock for 100,000  COMFORCE common shares in accordance with
the  Assumption  Agreement.  Based  on the  above  disputed  matters,  ARTRA  is
withholding delivery of the Lori Series C preferred shares and is seeking
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

appropriate   resolution  in  conformity  with  the  Assumption   Agreement  and
resolution of the other obligations owed by COMFORCE to ARTRA and its employees,
or ARTRA  will  seek to  rescind  this  aspect of the  agreement.  Additionally,
ARTRA's  financial  statements  have reflected the issuance of 100,000  COMFORCE
common shares to ARTRA as  compensation  for  guaranteeing  the Global  purchase
price to the seller and  entering  into the  Assumption  Agreement.  COMFORCE is
withholding  issuance  of such  shares  to ARTRA,  in  violation  of the  Global
acquisition  agreement.  ARTRA has aggressively attempted to resolve its dispute
with  COMFORCE  without  success  and at this  point,  ARTRA can not predict the
ultimate   resolution,   nor  whether  such  dispute  can  be  resolved  without
litigation.

The Company's consolidated financial statements have been reclassified to report
separately  the  results  of  operations  of Arcar and  COMFORCE's  discontinued
jewelry business prior to the deconsolidation of COMFORCE and its majority-owned
subsidiaries  effective  October 1995.  The operating  results (in thousands) of
Bagcraft's  discontinued  Arcar subsidiary and COMFORCE's  discontinued  jewelry
business  and the  provision  for loss on  disposal of  COMFORCE's  discontinued
jewelry  business for the nine months ended September 28, 1995 consist
of:

    Net sales                                         $ 16,932
                                                      ========

    Loss from discontinued operations
      before income taxes                             $ (8,151)

    (Provision) credit for income taxes                     (5)
                                                      -------- 
    Loss from operations                              $ (8,156)
                                                      ======== 

    Provision for disposal of COMFORCE's
      jewelry business                                  (1,000)

    Provision for income taxes                             --  
                                                      -------- 
    Provision for disposal of  business                 (1,000)
                                                      -------- 
    Loss from discontinued operations                 $ (9,156)
                                                    ========== 

3.       CONCENTRATION OF RISK

The accounts  receivable of the Company's  Bagcraft  subsidiary at September 26,
1996 consist primarily of amounts due from companies in the food industry.  As a
result, the collectibility of these receivables is dependent, to an extent, upon
the economic condition and financial stability of the food industry. Credit risk
is minimized as a result of the large  number and diverse  nature of  Bagcraft's
customer base.  Bagcraft's major customers include some of the largest companies
in the food  industry.  At September  26, 1996,  Bagcraft had 10 customers  with
accounts receivable balances that aggregated  approximately 29% of the Company's
total  trade  accounts  receivable.  In  fiscal  year  1995 no  single  customer
accounted for 10% or more of Bagcraft's sales.
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

4.       INVENTORIES

Inventories at September 26, 1996, (in thousands) consist of:
                                               

     Raw materials and supplies                   $ 5,762       
     Work in process                                  302       
     Finished goods                                 9,147       
                                                  -------       
                                                  $15,211       
                                                  =======       

5.            INVESTMENT IN COMFORCE CORPORATION

In prior years and until October 1995, COMFORCE was a majority-owned  subsidiary
of ARTRA and,  accordingly,  the  accounts  of COMFORCE  and its  majority-owned
subsidiaries were included in the consolidated financial statements of ARTRA. As
discussed in Note 2, primarily due to the issuances of COMFORCE common shares in
conjunction  with the  acquisition of Global,  ARTRA's common stock ownership in
COMFORCE was reduced to approximately 25% at December 28, 1995. Accordingly,  in
October 1995, the accounts of COMFORCE and its majority-owned  subsidiaries were
deconsolidated  from  ARTRA's  consolidated  financial  statements  and  ARTRA's
investment in COMFORCE was accounted for under the  requirements  of APB Opinion
No. 18 "The Equity Method of Accounting for Investments in Common Stock" through
the end of fiscal 1995.

Effective  December 28, 1995, John Harvey and Peter R. Harvey,  ARTRA's chairman
and  president,  respectively,  resigned as  directors  of COMFORCE and Peter R.
Harvey  resigned as a vice president of COMFORCE.  Due to such factors as a lack
of board of directors  representation and participation in policy formulation by
ARTRA, as well as a lack of interchange of managerial personnel, ARTRA no longer
was able to exercise any influence over the operating and financial  policies of
COMFORCE.  Additionally,  assuming contemplated additional issuances of COMFORCE
common shares, on a fully diluted basis ARTRA's  ownership  interest in COMFORCE
at December 28, 1995 would have been reduced to less than 20%. In the opinion of
the Company,  effective December 28, 1995, ARTRA's investment in COMFORCE ceased
to conform to the requirements of APB Opinion No. 18. Accordingly, ARTRA adopted
SFAS No. 115 "Accounting for Certain Investments in Debt and Equity Securities."
Under this statement,  at December 28, 1995,  ARTRA's investment in COMFORCE was
reclassified as available for sale and was stated at fair value. The adoption of
SFAS No. 115  resulted  in an  increase  to  shareholders'  equity in the fourth
quarter of 1995 of $21,047,000.

In January 1996, the Company's  Board of Directors  approved the sale of 200,000
of  ARTRA's  COMFORCE  common  shares to  certain  officers,  directors  and key
employees of ARTRA for non-interest bearing notes totaling $400,000.  The notes,
collateralized by the 200,000 COMFORCE common shares sold, are not payable until
the earlier of the registration of these shares under the Securities Act of 1993
or the expiration of the applicable  resale waiting period under  Securities Act
Rule 144.  Additionally,  the  noteholders  have the right to put their COMFORCE
shares back to ARTRA in full payment of the balance of their  notes.  Based upon
the preceding factors,  the Company has concluded that, for reporting  purposes,
it has effectively sold options to certain officers, directors and key employees
to acquire 200,000 of ARTRA's COMFORCE common shares. Accordingly, these 200,000
COMFORCE  common  shares  have been  removed  from the  Company's  portfolio  of
"Available-for-sale  securities"  and are classified in the Company's  condensed
consolidated balance sheet at September 26, 1996 as other current assets with an
aggregate value of $400,000, based upon the value of proceeds to be
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

received upon future  exercise of the options.  The disposition of these 200,000
COMFORCE  common  shares will result in a gain which has been  deferred and will
not be  recognized in the Company's  financial  statements  until the options to
purchase these 200,000 COMFORCE common shares are exercised. As of September 26,
1996, no options to acquire any of the 200,000  COMFORCE  common shares had been
exercised.

As additional consideration for a February 1996 short-term loan (see Notes 6 and
7) a lender received 25,000 COMFORCE common shares held by ARTRA. In March 1996,
ARTRA  sold  93,000  COMFORCE  shares  in  the  market,  with  the  proceeds  of
approximately  $630,000 used for working  capital.  The above mentioned  118,000
COMFORCE  common shares were  classified in the Company's  consolidated  balance
sheet at December 28, 1995 in current assets as "Available-for-sale securities."
The disposition of these 118,000  COMFORCE shares during the quarter ended March
28, 1996  resulted in realized  gains of  $1,043,000,  with cost  determined  by
average cost.

In June  1996,  ARTRA  sold  100,000  COMFORCE  shares in the  market,  with the
proceeds  of  approximately   $3,100,000  used  principally  to  pay  down  debt
obligations. As additional consideration for two short-term loans, in April 1996
the  lenders   received  20,000  COMFORCE  common  shares  held  by  ARTRA.  The
disposition of these 120,000  COMFORCE  shares during the quarter ended June 27,
1996 resulted in additional  realized gains of $3,452,000,  with cost determined
by average cost.

As additional  consideration for a short-term loan, in September 1996 the lender
received  50,000 COMFORCE common shares held by ARTRA resulting in an additional
realized gain of $328,000, with cost determined by average cost.

At  September  26, 1996  ARTRA's  remaining  investment  in COMFORCE  (1,813,036
shares,  currently a common stock ownership  interest of approximately  19%) was
classified in the Company's condensed  consolidated  balance sheet in noncurrent
assets as  "Available-for-sale  securities."  At  September  26,  1996 the gross
unrealized  gain  relating to ARTRA's  investment  in  COMFORCE,  reflected as a
separate component of shareholders' equity, was $34,960,000.

As  discussed in Note 7, at September  26,  1996,  1,175,000  shares of COMFORCE
common stock owned by the  Company's  Fill-Mor  subsidiary  have been pledged as
collateral for various short-term borrowings.

6.       EXTRAORDINARY GAINS

         ARTRA Debt Restructuring

In February  1996, a bank agreed to discharge  all amounts under its ARTRA notes
($12,063,000 plus accrued interest and fees) and certain  obligations of ARTRA's
president,  Peter R. Harvey for consideration consisting of ARTRA's cash payment
of $5,050,000, Mr. Harvey's cash payment of $100,000 and Mr. Harvey's $3,000,000
note  payable  to the  bank  (the  "Harvey  Note").  The bank  assigned  ARTRA a
$2,150,000  interest in the Harvey  Note,  subordinated  to the bank's  $850,000
interest in the Harvey Note.  ARTRA then  discharged  $2,150,000 of Mr. Harvey's
prior  advances  in  exchange  for  its  $2,150,000  interest  in  Mr.  Harvey's
$3,000,000  note payable to the bank. The amount of the $5,050,000  cash payment
to the bank  applicable to Peter R. Harvey  ($1,089,000)  was charged to amounts
due from Peter R.  Harvey.  ARTRA  recognized  a gain on the  discharge  of this
indebtedness  of $9,424,000  ($1.23 per share) in the first quarter of 1996. The
cash payment due the bank was funded principally with proceeds received from the
Bagcraft  subsidiary  in  conjunction  with the  issuance  of BCA (the parent of
Bagcraft)  preferred  stock along with proceeds  received from a short-term loan
agreement with an unaffiliated company that was subsequently repaid. See Notes 7
and 10 for further discussions of these transactions. As additional compensation
for its loan and for  participating  in the above discharge of indebtedness  the
unaffiliated  company received 150,000 shares of ARTRA common stock (with a then
fair market value of $661,000 after a discount for restricted marketability) and
25,000  shares of COMFORCE  common  stock held by ARTRA (with a then fair market
value of $200,000).
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

The  extraordinary  gain resulting from the discharge of bank debt is calculated
(in thousands) as follows:

     Amounts due the bank:
       ARTRA notes                                               $  12,063
       Accrued interest                                              2,656
                                                                  --------
                                                                    14,719
     Cash payment to  the bank                       $   5,050
     Less amount applicable to 
       Peter R. Harvey indebtedness                     (1,089)
                                                      --------
                                                                    (3,961)
                                                                  -------- 
     Bank debt discharged                                           10,758
     Less fair market value of ARTRA 
       common stock issued as consideration
       for a loan used in par to fund  
       the discharge of bank debt                                     (661)
     Less fair market value of COMFORCE 
       common stock issued as  consideration
       for a loan used in par to fund  
       the discharge of bank debt                                     (200)
     Other fees and expenses                                          (473)
                                                                  --------
              Net extraordinary gain                             $   9,424
                                                                  ======== 

         COMFORCE Debt Restructuring

Per terms of a debt settlement  agreement,  borrowings due a bank under the loan
agreements  of COMFORCE  and its  discontinued  jewelry  business  and  Fill-Mor
(approximately  $25,000,000 as of December 23, 1994),  plus amounts due the bank
for accrued  interest and fees were reduced to $10,500,000 (of which  $7,855,000
pertained  to  COMFORCE's  obligation  to the bank and  $2,645,000  pertained to
Fill-Mor's  obligation to the bank). As a result of the reduction of amounts due
the bank, in December  1994,  the Company  recognized an  extraordinary  gain of
$8,965,000 ($1.57 per share) in December 1994.

On March 31, 1995, the bank was paid $750,000 and the remaining  indebtedness of
COMFORCE and Fill-Mor was discharged,  resulting in an additional  extraordinary
gain to the  Company of  $9,113,000  ($1.35  per share) in the first  quarter of
1995.
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

7.       NOTES PAYABLE

     Notes payable at September 26, 1996, (in thousands) consist of:

         ARTRA bank notes payable,
           at various interest rates                $  2,500    
                                                                
         
         ARTRA 12% secured promissory notes            7,575    
         
         ARTRA 12% convertible  
           subordinated promissory notes                  -     
         
         Amounts due to related parties, 
           interest principally at 10%                 3,600    
           
         Other, interest from 10% to 20%               1,843    
                                                    --------    
                                                    $ 15,518    
                                                    ========    

         Bank Notes Payable

On August 15, 1996, ARTRA and its 100% owned Fill-Mor  subsidiary entered into a
$2,500,000 term loan agreement with a bank. The loan,  payable by Fill-Mor in 90
days, bears interest,  payable  monthly,  at the bank's reference rate (8.25% at
September 26, 1996). Fill-Mor has an option to extend the loan for an additional
90 days. The loan,  guaranteed by ARTRA, is  collateralized by 800,000 shares of
COMFORCE  common stock owned by Fill-Mor.  If an Event of Default (as defined in
the loan  agreement)  shall  occur,  the  bank has the  right to sell all of its
rights and interest in the loan to an  unaffiliated  individual for an aggregate
price  equal to the  outstanding  principal  balance  of the loan  plus  accrued
interest. The proceeds of the loan were used for working capital.

At December 28, 1995,  $12,063,000  of ARTRA  notes,  plus accrued  interest and
fees, were payable to a bank. The notes provided for interest at the prime rate.
These bank notes were  collateralized by, among other things, 100% of the common
stock of ARTRA's BCA subsidiary, the parent of Bagcraft, a secondary position on
the assets of BCA and any and all net proceeds  arising from its lawsuit against
Salomon  Brothers,  Inc.,  Salomon Brothers Holding Company Inc.  (collectively,
"Salomon") D.P. Kelly & Associates,  L.P.  ("Kelly") and all of the directors of
Emerald  Acquisition  Corporation  ("Emerald") for breaches of fiduciary duty by
the directors of Emerald,  induced by Salomon and Kelly,  in connection with the
reorganization  of Envirodyne  Industries,  Inc.  ("Envirodyne") as discussed in
Note 13.  Additionally,  the bank  notes  were  collateralized  by a  $5,500,000
personal guaranty of a private investor. As additional compensation, the private
investor received 1,833 shares of ARTRA common stock for each month the guaranty
was  outstanding.  Among other things,  the bank notes prohibited the payment of
cash dividends by ARTRA.

In February  1996, a bank agreed to discharge  all amounts under its ARTRA notes
($12,063,000 plus accrued interest and fees) and certain  obligations of ARTRA's
president,  Peter R. Harvey for consideration consisting of ARTRA's cash payment
of $5,050,000, Mr. Harvey's cash payment of $100,000 and Mr. Harvey's $3,000,000
note  payable  to the  bank  (the  "Harvey  Note").  The bank  assigned  ARTRA a
$2,150,000  interest in the Harvey  Note,  subordinated  to the bank's  $850,000
interest in the Harvey Note,  and ARTRA  discharged  $2,150,000 of Mr.  Harvey's
prior advances. ARTRA recognized a gain on the discharge of this indebtedness of
$9,424,000  ($1.23  per  share)  in the first  quarter  of 1996 and  recorded  a
receivable for Mr.  Harvey's  prorata share  ($1,089,000)  of the debt discharge
funded by the Company. The cash
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

payment due the bank was funded  principally  with  proceeds  received  from the
Bagcraft  subsidiary  in  conjunction  with the  issuance  of BCA (the parent of
Bagcraft)  preferred  stock (see Note 10) along with  proceeds  received  from a
short-term loan agreement with an unaffiliated  company.  As collateral for this
advance and other previous  advances (see Note 14), Mr. Harvey  provided ARTRA a
$2,150,000 security interest in certain real estate,  subordinated to the bank's
$850,000 security interest in this real estate.

         Secured Promissory Notes

In April 1996, ARTRA commenced a private  placement of $7,575,000 of 12% secured
promissory notes due April 15, 1997. As additional consideration the noteholders
received  warrants to purchase an aggregate of 413,750  ARTRA common shares at a
price of $6.00 per share.  The warrants expire April 15, 1999.  These promissory
notes are  collateralized  by ARTRA's interest in all of the common stock of BCA
(the parent of Bagcraft). The proceeds from the private placement,  completed in
July 1996, were used principally to pay down other debt obligations.

         Convertible Subordinated Promissory Notes

In December  1995,  ARTRA  completed a private  placement of  $2,500,000  of 12%
convertible  subordinated  promissory  notes due March 21, 1996.  As  additional
consideration  the  noteholders  received  15,000 ARTRA  common  shares per each
$100,000 of notes issued,  or an aggregate of 375,000 ARTRA common  shares.  The
ARTRA common shares were valued at $1,266,000  ($3.375 per share) based upon the
closing market value of ARTRA common stock on the date of issue,  discounted for
restricted  marketability.  The  proceeds  from the private  placement,  held in
escrow at December 28,  1995,  were used to pay down other debt  obligations  in
January,  1996. In March and April 1996 the notes were repaid,  principally with
proceeds from the private  placement of the secured  promissory  notes discussed
above.

         Amounts Due To Related Parties

At September 26, 1996 and December 28, 1995, ARTRA had outstanding borrowings of
$3,000,000 from an unaffiliated  company currently  holding  approximately 7% of
ARTRA's   outstanding  common  stock.  The  loans  are  evidenced  by  unsecured
short-term  notes bearing  interest at 10%. As additional  compensation  for the
above loans, the lender received five year warrants expiring in 1998 to purchase
an aggregate of 86,250 ARTRA common shares at prices ranging from $6.00 to $7.00
per share. In December 1995 the unaffiliated  company received 126,222 shares of
ARTRA common in payment of past due interest through October 31, 1995.

In May, 1996, ARTRA borrowed $100,000 from a private  investor,  evidenced by an
unsecured  short-term  note,  due  August 7, 1996  renewed  to  January 6, 1997,
bearing interest at 10%. At the Company's  annual meeting of shareholders,  held
August 29,  1996,  the private  investor was elected to the  Company's  board of
directors. At September 26, 1996, the $100,000 loan was outstanding.

In August, 1996, ARTRA borrowed $500,000 from a private investor, evidenced by a
short-term  note,  due December 23, 1996,  bearing  interest at 10%. The loan is
collateralized by 125,000 shares of COMFORCE common stock owned by the Company's
Fill-Mor  subsidiary.  As  additional  compensation  for the  loan,  the  lender
received a warrant,  expiring in 2001, to purchase 25,000 ARTRA common shares at
a price of $5.00 per share.  At the Company's  annual  meeting of  shareholders,
held August 29, 1996, the private investor was elected to the Company's board of
directors. At September 26, 1996, the $500,000 loan was outstanding.

At December 28, 1995, the Company had outstanding  borrowings from its Chairman,
John Harvey, of $175,000.  John Harvey's  borrowings were evidenced by unsecured
short-term notes bearing interest at 12%. As additional compensation
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

the loans provided for the issuance of warrants to purchase ARTRA common shares,
the  number  of which  was  determined  by the  number  of days the  loans  were
outstanding.  The  warrants  expire five years from the date of  issuance.  John
Harvey  received  warrants to purchase an  aggregate  of 66,045  shares of ARTRA
common  stock at prices  ranging  from $3.75 to $6.125  per share as  additional
compensation  for his loans to ARTRA.  In May 1996,  ARTRA repaid all borrowings
from John Harvey.

On March 31,  1994,  ARTRA  entered  into a series of  agreements  with its bank
lender and with a private  corporation  that had  guaranteed  $2,500,000  of the
ARTRA bank notes discharged in February 1996 as noted above. A major shareholder
and executive officer of the private corporation is an ARTRA director. Per terms
of the agreements,  the private corporation  purchased $2,500,000 of ARTRA notes
from  ARTRA's  bank and the  bank  released  the  private  corporation  from its
$2,500,000 loan guaranty.  As consideration  for purchasing  $2,500,000 of ARTRA
bank notes,  the private  corporation  received a  $2,500,000  note payable from
ARTRA bearing interest at the prime rate.

As additional  consideration,  the private corporation received an option to put
back to ARTRA the 49,980 shares of ARTRA common stock  received as  compensation
for its former  $2,500,000  ARTRA loan  guaranty at a price of $15.00 per share.
The put option is exercisable  on the later of the day that the $2,500,000  note
payable to the private  corporation becomes due or the date the ARTRA bank notes
have been paid in full.  The option price  increases by $2.25 per share annually
($20.063 per share at September 26, 1996).  The  $2,500,000  note payable to the
private  corporation  was  reflected  in the above table at December 28, 1995 as
amounts due to related parties. During the first quarter of 1996, the $2,500,000
note and related  accrued  interest was paid in full  principally  with proceeds
from additional short-term borrowings.

         Other

In  conjunction  with the discharge of bank debt  discussed  above,  the Company
entered into a $1,900,000  short-term loan agreement,  due May 26, 1996, with an
unaffiliated  company.  The loan, with interest at 12%, was  collateralized  by,
among other things,  the common stock of ARTRA's BCA  subsidiary.  As additional
compensation  for its loan  and for  participating  in the  above  discharge  of
indebtedness  the  unaffiliated  company received 150,000 shares of ARTRA common
stock (with a then fair market value of $661,000 after a discount for restricted
marketability)  and 25,000 shares of COMFORCE common stock held by ARTRA (with a
then  fair  market  value  of  $200,000).  Additionally,  for  consideration  of
$500,000,  the  lender  purchased  an option to  acquire up to 40% of the common
stock  of  Bagcraft  for  nominal  consideration.   The  borrowings  under  this
short-term loan agreement were repaid in April,  1996 and, per terms of the loan
agreement, ARTRA repurchased the option for a cash payment of $550,000.

In October  1996 the Company and its Fill-Mor  subsidiary  entered into a margin
loan agreement with a financial  institution under which provided for borrowings
of $600,000,  with interest  approximating the prime rate.  Borrowings under the
loan agreement are  collateralized  by 125,000  shares of COMFORCE  common stock
owned by the Company's Fill-Mor subsidiary.

At  September  26, 1996 and  December 28,  1995,  other notes  payable  includes
short-term borrowings of $1,843,000 and $5,062,000,  respectively, payable under
various  short-term  loan  agreements  with  unaffiliated  companies and private
investors.  These loans bear interest at varying rates from 10% to 20%.  Certain
of these loans,  aggregating  $500,000 in  outstanding,  are  collateralized  by
125,000  shares  of  COMFORCE  common  stock  owned  by the  Company's  Fill-Mor
subsidiary.
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

8.       LONG-TERM DEBT

         Long-term debt at September 26, 1996, (in thousands) consists of:

                                               
   Bagcraft Credit Agreement:
       Term loan A, 
         interest at the prime rate plus 1.75%      $ 12,000   
       Term loan B, 
         interest at the prime rate plus 3%            2,800   
       Revolving credit loan,
         interest at the prime rate plus 1.5%         12,311   
       Unamortized discount                             (847)  
   Bagcraft
       City of Baxter Springs, 
         Kansas loan agreements,
         interest at varying rates                    10,684   
                                                    --------   
                                                      36,948   
   Current scheduled maturities                      (2,407)   
                                                    --------   
                                                    $ 34,541   
                                                    ========   

         Bagcraft

Bagcraft's  Credit  Agreement that provides for a revolving  credit loan and two
separate term loans. The term loans are separate  facilities  initially totaling
$12,000,000  (Term Loan A) and $8,000,000 (Term Loan B), bearing interest at the
lender's  index rate plus 1.75% and 3%,  respectively.  At  September  26, 1996,
interest rates on Term Loan A and Term Loan B were 10 % and 11.25% respectively.

The amount available to Bagcraft under the revolving credit loan is subject to a
borrowing base, as defined in the agreement, up to a maximum of $18,000,000.  At
September  26,  1996,  approximately  $1,900,000  was  available  and  unused by
Bagcraft under the revolving credit loan.  Borrowings under the revolving credit
loan bear  interest at the  lender's  index rate plus 1.5% and are payable  upon
maturity of the Credit Agreement,  unless  accelerated under terms of the Credit
Agreement.  At September 26, 1996 the interest rate on the revolving credit loan
was 9.75%.

Effective  February 1, 1996,  the Credit  Agreement was amended  whereby,  among
other  things,  the maturity  date of the Credit  Agreement  was extended  until
September 30, 1997, certain loan covenants were amended.  The principal payments
under Term Loan B were modified to include  twenty-three monthly installments of
$200,000  from  November 15, 1995 to  September  30,  1997,  with the  remaining
balance payable at maturity (September 30, 1997).  Additionally,  in conjunction
with a preferred stock exchange  agreement between BCA (the parent of Bagcraft),
Bagcraft and the holder of  Bagcraft's  13.5%  cumulative  redeemable  preferred
stock,  the lender  consented to an advance to Bagcraft of $4,135,000  under the
revolving credit loan to be transferred to ARTRA as a dividend (see Note 10).

As additional compensation for borrowings under the Credit Agreement, the lender
received a detachable warrant, expiring in December 1998, allowing the holder to
purchase up to 10% of the fully diluted common equity of Bagcraft at a nominal
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

value. Under certain  conditions  Bagcraft is required to repurchase the warrant
from the lender.  The determination of the repurchase price of the warrant is to
be based on the warrant's pro rata share of the highest of book value, appraised
value or market  value of  Bagcraft.  In  connection  with the  February 1, 1996
amendment to the Credit  Agreement,  the warrant agreement was amended to permit
the holder to purchase 13% of the fully diluted common equity of Bagcraft at the
original  nominal  purchase price and to extend the expiration  date to December
17, 1999.

Borrowings under the Credit Agreement are collateralized by substantially all of
the assets of  Bagcraft.  The Credit  Agreement,  as amended,  contains  various
restrictive  covenants,  that among  other  restrictions,  require  Bagcraft  to
maintain minimum levels of tangible net worth and liquidity  levels,  and limits
capital  expenditures  and restricts  additional  loans,  dividend  payments and
payments to related parties. In addition, the Credit Agreement prohibits changes
in ownership of Bagcraft.  At September 26, 1996 Bagcraft was in compliance with
the provisions of its Credit Agreement.

In March,  1994  Bagcraft  and the City of Baxter  Springs,  Kansas  completed a
$12,500,000  financing package associated with the construction of a new 265,000
sq. ft. production  facility in Baxter Springs,  Kansas.  The financing package,
funded by a  combination  of  Federal,  state and local  funds,  consists of the
following  loan  agreements  payable by Bagcraft  directly to the City of Baxter
Springs:

         A $7,000,000  promissory  note payable in ten  installments of $700,000
         due annually on July 21 of each year beginning in 1995 through maturity
         on July 21,  2004.  Interest,  at varying  rates from 4.6% to 6.6%,  is
         payable semi-annually.  At September 26, 1996, Bagcraft had outstanding
         borrowings of $5,600,000 under this loan agreement.

         A $5,000,000 subordinated promissory note payable as follows:  $150,000
         due in 1996;  $2,425,000  due in 1998;  and $2,425,000 due in 1999. The
         subordinated  promissory  note  is  non-interest  bearing,  subject  to
         certain repayment  provisions as defined in the agreement (as amended).
         At  September  26,  1996,   Bagcraft  had  outstanding   borrowings  of
         $4,850,000 under this loan agreement.

         Two separate $250,000 subordinated  promissory notes payable in varying
         installments  through  January 20, 2025.  The  subordinated  promissory
         notes are non-interest bearing, subject to certain repayment provisions
         as defined in the  agreement.  At  September  26,  1996,  Bagcraft  had
         outstanding borrowings of $234,000 under this loan agreement.

Borrowings under the above loan agreements are collateralized by a first lien on
the land and building at the Baxter Springs, Kansas production facility and by a
second lien on certain  machinery and  equipment.  Under certain  circumstances,
repayment of the borrowings  under the above loan  agreements is subordinated to
the repayment of obligations under Bagcraft's Credit Agreement.  At December 28,
1995, $552,000 of borrowings from the above loan agreements was reflected in the
condensed  consolidated  balance sheet in current assets as restricted  cash and
equivalents.  These funds,  invested in interest  bearing cash  equivalents  and
restricted for expenditures  associated with the Baxter Springs,  Kansas project
were expended during the first quarter of 1996.

9.       REDEEMABLE COMMON STOCK

ARTRA has entered  into  various  agreements  under which it has sold its common
shares along with options that require ARTRA to  repurchase  these shares at the
option of the holder, principally one year after the date of each agreement. The
difference  between the option price and the net proceeds  received is amortized
over the life of the options by a charge to retained earnings.

At September  26, 1996 and December 28, 1995 options are  outstanding  that,  if
exercised, would require ARTRA to
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

repurchase 98,734 and 283,965 shares of its common stock for an aggregate amount
of $3,565,000  and  $4,774,000,  respectively.  In September  1996,  the Company
settled an obligation that would have required ARTRA to repurchase 66,113 common
shares for a total of $897,000.  The option  holder  received  cash  payments of
$510,000  and  retained the 66,113  ARTRA  common  shares in  settlement  of all
obligations  due under the option  agreement.  Additionally,  during  1996,  the
holder of 100,000  ARTRA common  shares with an option that would have  required
the Company to  repurchase  these  shares for  $500,000  sold these  shares in a
private  transaction.  Accordingly,  these 166,113  shares of ARTRA common stock
were removed from  redeemable  common stock and  reclassified  to  shareholders'
equity.

10.      REDEEMABLE PREFERRED STOCK

         ARTRA

Effective  September 26, 1996, in payment of principal and interest due on ARTRA
notes,  the  noteholder  received  2,250  shares  of ARTRA  Series E  redeemable
preferred stock ($1,000 par value, 10% cumulative,  liquidation preference equal
to $1,000 or 200 shares of common stock per share, plus accrued dividends). Each
share of the Series E redeemable preferred stock is convertible, at the holder's
option, into 200 shares of ARTRA common stock.

On September 27, 1989,  ARTRA received a proposal to purchase BCA, the parent of
Bagcraft,  from Sage Group, Inc.  ("Sage"),  a privately-owned  corporation that
owned 100% of the outstanding common stock of BCA. Sage was merged with and into
Ozite  Corporation  ("Ozite")  on August  24,  1990.  Peter R.  Harvey,  ARTRA's
President, and John Harvey, ARTRA's Chairman of the Board of Directors, were the
principal  shareholders  of Sage and are the  principal  shareholders  of Ozite.
Effective  March 3, 1990, a  wholly-owned  subsidiary of ARTRA  acquired 100% of
BCA's issued and  outstanding  common shares for  consideration  of  $5,451,000,
which  included  772,000 shares of ARTRA common stock and 3,750 shares of $1,000
par value junior non-convertible  payment-in-kind  redeemable Series A Preferred
Stock with an estimated fair value of $1,012,000, net of unamortized discount of
$2,738,000. The Series A Preferred Stock accrues dividends at the rate of 6% per
annum and is redeemable by ARTRA on March 1, 2000 at a price of $1,000 per share
plus accrued  dividends.  Accumulated  dividends of  $1,756,000  were accrued at
September 26, 1996.

         Bagcraft/BCA Holdings

In 1987,  Bagcraft  obtained  financing  from a subsidiary  of Ozite through the
issuance of a $5,000,000  unsecured  subordinated note, due June 1, 1997. During
1992, per agreement with the noteholder,  the interest payments were remitted to
ARTRA and the  noteholder  received  675 shares of BCA Series A preferred  stock
($1.00 par value,  6% cumulative with a liquidation  preference  equal to $1,000
per  share)  with a  liquidation  value of  $675,000.  In  December,  1993,  the
unsecured  subordinated note and accrued interest thereon were paid in full from
proceeds of Bagcraft's Credit Agreement. Per agreement with the noteholder,  the
accrued interest outstanding on the note of $3,000,000 was remitted to ARTRA and
the noteholder  received an additional 3,000 shares BCA preferred stock having a
liquidation value of $3,000,000.  Accumulated dividends of $633,000 were accrued
at September 26, 1996.

In 1987,  Bagcraft issued to a subsidiary of Ozite $5,000,000 of preferred stock
(50,000  shares  of  13.5%  cumulative,   redeemable   preferred  stock  with  a
liquidation  preference equal to $100 per share)  redeemable by Bagcraft in 1997
at a price of $100 per share plus accrued dividends. Dividends, which accrue and
are payable semiannually on June 1 and December 1 of each year, are reflected in
the  Company's  condensed  consolidated  statement  of  operations  as  minority
interest.  The  holder has agreed to forego  dividend  payments  as long as such
payments  are  prohibited  by  Bagcraft's  lenders.   Accumulated  dividends  of
$5,794000  were  accrued  at  December  28,  1995.  After  giving  effect to the
preferred stock exchange  discussed below,  8,650 shares of Bagcraft  redeemable
preferred stock with  accumulated  dividends of $1,113,000  were  outstanding at
September 26, 1996.
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Effective  February 15, 1996, BCA,  Bagcraft and Ozite entered into an agreement
to exchange  certain  preferred  stock between the  Companies.  Per terms of the
exchange  agreement  BCA issued  8,135  shares of BCA Series B  preferred  stock
(13.5%  cumulative,  redeemable  preferred  stock with a liquidation  preference
equal to $1,000 per share,  or a total carrying value of $8,135,000) to Ozite in
exchange  for 41,350  shares of  Bagcraft  redeemable  preferred  stock  (with a
liquidation  preference  equal to $100 per share plus  accumulated  dividends of
$4,838,000,  or a total  carrying  value of  $8,973,000).  The  preferred  stock
exchange  resulted in a gain of $838,000  which was  reflected in the  Company's
condensed consolidated statement of operations as minority interest.

The BCA Series B  preferred  stock is  redeemable  on June 1, 1997.  Accumulated
dividends of $683,000 were accrued at September 26, 1996.

In conjunction with the preferred stock exchange  agreement,  Bagcraft's  lender
consented  to advance of  $4,135,000  under  Bagcraft's  revolving  credit to be
transferred to ARTRA as a dividend. ARTRA used the funds from this dividend plus
funds from a short-term  loan  agreement to fund a payment to its bank lender in
accordance with provisions of its debt discharge agreement as discussed in Notes
6 and 7.

11.      INCOME TAXES

The 1996 and 1995  extraordinary  credits  represent net gains from discharge of
indebtedness.  No income tax expense is  reflected  in the  Company's  financial
statements resulting from the extraordinary  credits and from the Company's 1996
earnings  from  continuing  operations  due  to  the  utilization  of  tax  loss
carryforwards.

At September 26, 1996, the Company and its  subsidiaries  had Federal income tax
loss carryforwards of approximately  $33,000,000 available to be applied against
future taxable income,  if any. ARTRA's tax loss  carryforwards of approximately
$22,000,000   expire   principally  in  2003  -  2010.   Additionally,   ARTRA's
discontinued  Ultrasonix  and Ratex  subsidiaries  had  Federal  income tax loss
carryforwards  of  approximately  $11,000,000  available  to be applied  against
future taxable income, if any. In recent years, the Company has issued shares of
its  common  stock to repay  various  debt  obligations,  as  consideration  for
acquisitions,  to fund working  capital  obligations  and as  consideration  for
various  other  transactions.  Section 382 of the Internal  Revenue Code of 1986
limits a corporation's  utilization of its Federal income tax loss carryforwards
when certain changes in the ownership of a corporation's common stock occurs. In
the  opinion  of  management,  the  Company  is not  currently  subject  to such
limitations   regarding  the   utilization   of  its  Federal  income  tax  loss
carryforwards.  Should the  Company  continue to issue a  significant  number of
shares of its common stock,  it could trigger a limitation that would prevent it
from   utilizing  a  substantial   portion  of  its  Federal   income  tax  loss
carryforwards.

12.      EARNINGS PER SHARE

Earnings  (loss) per share is computed by dividing  net  earnings  (loss),  less
dividends  applicable to redeemable  preferred stock and redeemable common stock
accretion  by the weighted  average  number of shares of common stock and common
stock equivalents (redeemable common stock, stock options and warrants),  unless
anti-dilutive,  outstanding during each period. Fully diluted earnings per share
are not presented since the result is equivalent to primary earnings per share.

13.      LITIGATION

The Company and its subsidiaries are the defendants in various  business-related
litigation  and  environmental  matters.  At September 26, 1996, the Company had
accrued   $1,900,000   for   business-related   litigation   and   environmental
liabilities. While these litigation and environmental matters involve wide
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

ranges of potential liability,  management does not believe the outcome of these
matters  will  have  a  material  adverse  effect  on  the  Company's  financial
statements.  However,  ARTRA  may not have  available  funds to pay  liabilities
arising out of these  business-related  litigation and environmental matters or,
in certain instances, to provide for its legal defense.

In  November  1993,  ARTRA  filed suit in the  Circuit  Court of the  Eighteenth
Judicial  Circuit for the State of Illinois (the "State Court  Action")  against
Salomon  Brothers,  Inc.,  Salomon Brothers Holding  Company,  Inc.,  Charles K.
Bobrinskoy,  Michael J. Zimmerman  (collectively,  "Salomon  Defendants"),  D.P.
Kelly & Associates, L.P. ("DPK"), Donald P. Kelly ("Kelly Defendants" along with
DPK),  James F.  Massey and  William  Rifkind  relating  to the  acquisition  of
Envirodyne in 1989. Envirodyne  subsequently filed a Chapter 11 bankruptcy which
provided ARTRA with no value in  Envirodyne's  parent's  stock.  On November 22,
1993, ARTRA filed a First Amended Complaint.  The defendants removed the case to
the Bankruptcy  Court in which the Emerald  Chapter 11 case is pending.  On July
15,  1994 all but two of ARTRA's  causes of action  were  remanded  to the state
court. The Bankruptcy Court retained  jurisdiction of ARTRA's claims against the
defendants  for  breaching  their  fiduciary  duty as  directors  of  Emerald to
Emerald's  creditors and interference  with ARTRA's  contractual  relations with
Emerald.  On April 7, 1995, the Company's appeal of the Bankruptcy Court's order
retaining  jurisdiction  over two  claims  was  denied.  On July 26,  1995,  the
Bankruptcy Court entered an order  dismissing  these claims.  On August 4, 1995,
ARTRA appealed from the Bankruptcy Court's dismissal order. That appeal is still
pending.

On July 18, 1995,  ARTRA filed a Fourth Amended  Counterclaim in the State Court
Action for breach of fiduciary  duty,  fraudulent  misrepresentation,  negligent
misrepresentation, breach of contract and promissory estopel. In the State Court
Action, ARTRA seeks compensatory damages of $136.2 million,  punitive damages of
$408.6 million and approximately $33 million in fees paid to Salomon. The causes
of action for breach of the fiduciary duty of due care were repleaded to reserve
ARTRA's right to appeal the State  Court's  dismissal of the causes of action in
the Third  Amended  Complaint.  Defendant  Kelly was  dismissed  with  prejudice
pursuant to a stipulation between ARTRA and the Kelly Defendants.

On or about  March 1, 1996,  DPK  brought a motion for  summary  judgment  as to
ARTRA's claims for breach of contract and promissory  estoppel.  DPK's motion is
currently pending.

Effective  December  31,  1989,  ARTRA  completed  the  disposal  of its  former
scientific  products  segment  with the sale of its Welch  subsidiary,  formerly
Sargent-Welch   Scientific  Company,  to  a  privately  held  corporation  whose
president and sole  shareholder was a vice president of Welch prior to the sale.
The  consideration  received by ARTRA  consisted of cash at closing,  $2,625,000
payable June 30, 1997, with interest at 10% beginning June 30, 1990, under terms
of a noncompetition agreement and the buyer's subordinated note in the principal
amount of $2,500,000.

In December,  1991 Welch filed a lawsuit  against  ARTRA  alleging  that certain
representations, warranties and covenants made by ARTRA, which were contained in
the  parties'  Stock  Purchase   Agreement,   were  false.   Welch  was  seeking
compensatory damages in the amount of $3,800,000.  Subsequently, ARTRA had filed
a  counterclaim  predicated  upon  Welch's  breach of the  payment  terms of the
parties' Non-Competition  Agreement and the Subordinated Note executed by Welch.
ARTRA was seeking damages in the amount of approximately $5,300,000 plus accrued
interest. On November 23, 1994, the Circuit Court of Cook County Law Division in
Chicago  granted a judgment  in favor of ARTRA  affirming  the  validity  of the
amounts due under the  Non-Competition  Agreement and the  Subordinated  Note of
$2,625,000 and $2,500,000, respectively.

In June 1995 ARTRA  entered  into an  agreement  to settle  amounts due ARTRA by
Welch under terms of the noncompetition agreement and the subordinated security.
Per terms of the settlement  agreement,  ARTRA received cash of $3,000,000 and a
subordinated  note in the principal amount of $640,000 payable June 30, 2001. In
June 1996 the note was paid in accordance with terms of the settlement agreement
at its present value and ARTRA received proceeds of $342,000.
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

In January,  1985 the United  States  Environmental  Protection  Agency  ("EPA")
notified the Company's Bagcraft subsidiary that it was a potentially responsible
party under the  Comprehensive  Environmental  Responsibility  Compensation  and
Liability  Act  ("CERCLA")  for alleged  release of hazardous  substances at the
Cross  Brothers  site near  Kankakee,  Illinois.  Although  Bagcraft  has denied
liability for the site, it has entered into a settlement agreement with the EPA,
along with the other third party  defendants,  to resolve all claims  associated
with the site except for state claims.  In May, 1994 Bagcraft paid $850,000 plus
accrued interest of $29,000 to formally extinguish the EPA claim. Bagcraft filed
suit in 1993 in the United States  District  Court for the Northern  District of
Illinois, against its insurers to recover its liability costs in connection with
the Cross Brothers case.  Bagcraft was  subsequently  reimbursed by its insurers
for its liability costs incurred in connection  with the EPA claim.  With regard
to the state action,  Bagcraft is participating  in settlement  discussions with
the State and thirteen other potential responsible parties to resolve all claims
associated  with the State.  The  maximum  state  claim is $1.1  million for all
participants.  Bagcraft has accrued  $120,000 related to the State action in the
Company's condensed  consolidated financial statements at September 26, 1996.

Bagcraft  was  listed  as a de  minimis  contributor  at the  American  Chemical
Services,  Inc. off-site  disposal  location in Griffith,  Indiana and the Duane
Marine off-site  disposal  location in Perth Amboy, New Jersey.  These sites are
included in the EPA's National  Priorities List. Bagcraft is presently unable to
determine its liability, if any, with respect to this site.

Bagcraft has been notified by the EPA that it is a potentially responsible party
for the  disposal  of  hazardous  substances  at the Ninth  Avenue site in Gary,
Indiana.  This site is listed on the EPA's National  Priorities list. A group of
defendant PRPs, known as the Ninth Avenue Remedial Group, settled with the USEPA
and agreed to remediate the site.  This Group  subsequently  sued numerous third
party defendants,  including Bagcraft, alleged also to be responsible parties at
the site. The plaintiffs have produced only limited testamentary  evidence,  and
no  documentary  evidence,  linking  Bagcraft to this site,  and the Company has
neither discovered any records which indicate, nor located any current or former
employees who have advised,  that Bagcraft deposited hazardous substances at the
site. Based on the foregoing, management of the Company does not believe that it
is  probable  that the  Company  will  have any  liability  for the costs of the
clean-up of this site. The Company  intends to vigorously  defend itself in this
case.

Bagcraft   is   presently   undertaking   a   soil   remediation   project   for
solvent-contaminated   soil  at  its   Chicago   manufacturing   facility.   The
environmental  firm responsible for implementing the remediation has recommended
that a soil vapor extraction  process be used, at an estimated cost of $175,000.
Although there can be no assurances that remediation  costs will not exceed this
estimate,  in the  opinion  of  management,  no  material  additional  costs are
anticipated.

In  April  1994,  the  EPA  notified  the  Company  that  it  was a  potentially
responsible party for the disposal of hazardous  substances  (principally  waste
oil) at a disposal site in Palmer,  Massachusetts  generated by a  manufacturing
facility formerly operated by the Clearshield Plastics Division  ("Clearshield")
of Harvel Industries,  Inc. ("Harvel"), a majority owned subsidiary of ARTRA. In
1985,  Harvel was merged into ARTRA's  Fill-Mor  subsidiary.  This site has been
included on the EPA's National  Priorities  List. In February 1983,  Harvel sold
the assets of Clearshield to Envirodyne.  The alleged waste disposal occurred in
1977 and 1978, at which time Harvel was a majority-owned subsidiary of ARTRA. In
May 1994,  Envirodyne and its Clearshield  National,  Inc. subsidiary sued ARTRA
for indemnification in connection with this proceeding.  The cost of clean-up at
the Palmer, Massachusetts site has been estimated to be approximately $7 million
according  to proofs of claim  filed in the  adversary  proceeding.  A committee
formed by the named potentially  responsible parties has estimated the liability
respecting the activities of Clearshield to be $400,000.  ARTRA has not made any
independent  investigation  of the  amount  of its  potential  liability  and no
assurances can be given that it will not substantially exceed $400,000.

In a case titled Sherwin-Williams Company v. ARTRA GROUP Incorporated,  filed in
1991 in the United States District Court for Maryland,  Sherwin-Williams Company
("Sherwin-Williams")  brought  suit against  ARTRA and other former  owners of a
paint  manufacturing  facility in  Baltimore,  Maryland for recovery of costs of
investigation and clean-up of
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

hazardous  substances  which were stored,  disposed of or otherwise  released at
this  manufacturing  facility.  This  facility was owned by Baltimore  Paint and
Chemical   Company,   formerly  a  subsidiary   of  ARTRA  from  1968  to  1980.
Sherwin-William's current projection of the cost of clean-up is approximately $5
to $6 million. The Company has filed counterclaims against  Sherwin-Williams and
cross claims  against other former  owners of the property.  The Company also is
vigorously  defending this action and has raised numerous  defenses.  Currently,
the case is in its early stages of discovery  and the Company  cannot  determine
what, if any, its liability may be in this matter.

ARTRA was named as a defendant  in United  States v.  Chevron  Chemical  Company
brought  in the  United  States  District  Court  for the  Central  District  of
California  respecting  Operating  Industries,   Inc.  site  in  Monterey  Park,
California. This site is included on the EPA's National Priorities List. ARTRA's
involvement  stemmed from the alleged  disposal of hazardous  substances  by The
Synkoloid  Company  ("Synkoloid")  subsidiary  of  Baltimore  Paint and Chemical
Company,  which was formerly owned by ARTRA.  Synkoloid  manufactured  spackling
paste, wall coatings and related products,  certain of which generated hazardous
substances as a by-product of the manufacturing process.

ARTRA  entered  into a  consent  decree  with the EPA in which it  agreed to pay
$85,000  for one phase of the  clean-up  costs  for this  site;  however,  ARTRA
defaulted on its payment  obligation.  ARTRA is presently unable to estimate the
total  potential  liability for clean-up  costs at this site,  which clean-up is
expected to continue for a number of years.  The consent decree,  even if it had
been honored by ARTRA,  was not  intended to release  ARTRA from  liability  for
costs  associated with other phases of the clean-up at this site. The Company is
presently  unable determine what, if any,  additional  liability it may incur in
this matter.

In a case  titled  City of  Chicago  v. NL  Industries,  Inc.  and  ARTRA  GROUP
Incorporated,  filed in the Circuit Court of Cook County,  Illinois, the City of
Chicago  alleged that ARTRA (and NL  Industries,  Inc.) had  improperly  stored,
discarded and disposed of hazardous  substances  at the subject  site,  and that
ARTRA had conveyed the site to Goodwill  Industries to avoid clean-up  costs. At
the time the suit was  filed,  the  City of  Chicago  claimed  to have  expended
$1,000,000 in clean-up costs.

ARTRA and NL Industries,  Inc. have counter sued each other and have filed third
party actions against the subsequent owners of the property. The City of Chicago
has made an offer to settle the matter for $350,000 for all parties. The parties
are currently conducting discovery. The Company is presently unable to determine
ARTRA's liability, if any, in connection with this case.

In a case titled  Illinois  Environmental  Protection  Agency v. NL  Industries,
Inc., ARTRA GROUP  Incorporated,  et al, the Illinois  Environmental  Protection
Agency filed suit alleging all former owners contributed to the contamination of
the site. The suit was dismissed, but subject to possible appeal. The Company is
presently unable to determine ARTRA's liability, if any, in connection with this
case.

The EPA has identified  ARTRA GROUP  Incorporated  as a potentially  responsible
party in an action  involving  the  former  manufacturing  facility.  The EPA is
currently   investigating   the  site  to  determine  the  extent  and  type  of
contamination,  if any.  The Company is presently  unable to  determine  ARTRA's
liability, if any, in connection with this case.
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

14.      RELATED PARTY TRANSACTIONS

At  September  26,  1996,  advances  to  Peter  R.  Harvey,  ARTRA's  president,
classified in the condensed  consolidated balance sheet as a reduction of common
shareholders' equity, (in thousands) consist of:

                                                                 
    Total advances, including accrued interest       $   7,232   
    Less interest for the period 
      January 1, 1993 to date, 
      accrued and fully reserved                        (1,371)  
                                                      --------   
          Net advances                               $   5,861   
                                                      ========   

ARTRA has total  advances  due from its  president,  Peter R.  Harvey,  of which
$7,232,000,  including accrued interest,  remained  outstanding at September 26,
1996.  The advances bear interest at the prime rate plus 2% (10.25% at September
26). This  receivable from Peter R. Harvey has been classified as a reduction of
common  shareholders'  equity. See Note 6 for an additional 1996 advance for Mr.
Harvey's  prorata share of debt discharged by a bank funded by ARTRA.  Per terms
of the debt  discharge  agreement,  as  partial  consideration,  the  bank  also
received Mr.  Harvey's  $3,000,000  note payable to the bank.  The bank assigned
ARTRA a $2,150,000 interest in the Mr. Harvey's note, subordinated to the bank's
$850,000  interest in Mr. Harvey's note, and ARTRA discharged  $2,150,000 of Mr.
Harvey's prior advances.

In June 1996,  Peter R. Harvey loaned the Company 100,000 shares of ARTRA common
stock with (a then fair  market  value of  $587,000).  The  Company  principally
issued these common shares to certain  lenders as additional  consideration  for
short-term loans. In September 1996, after the Company's  shareholders  approved
an increase in the number of authorized  common shares,  the Company repaid this
loan. At Peter R. Harvey's direction, the 100,000 shares of the Company's common
stock  were  issued  in blocks of  25,000  shares to the four  daughters  of the
Company's  Chairman of the Board,  John Harvey.  John Harvey and Peter R. Harvey
are brothers.

In May 1991,  ARTRA's Fill-Mor  subsidiary made advances to Peter R. Harvey. The
advances,  made out of a portion  of the  proceeds  of a  short-term  bank loan,
provided for interest at the prime rate plus 2%. The amount of these advances at
March 30,  1995 was  $1,540,000  (including  $398,000 of accrued  interest).  In
April, 1995, these advances from ARTRA's Fill-Mor  subsidiary to Peter R. Harvey
were transferred to ARTRA as a dividend.

Commencing January 1, 1993 to date,  interest on the advances to Peter R. Harvey
has been accrued and fully reserved.  Interest accrued and fully reserved on the
advances  to Peter R. Harvey for the nine months  ended  September  26, 1996 and
September 28, 1995 totaled $320,000 and $325,000, respectively.

Peter R.  Harvey  has not  received  other  than  nominal  compensation  for his
services  as an officer or director  of ARTRA or any of its  subsidiaries  since
October of 1990 and Mr. Harvey has agreed not to accept any compensation for his
services as an officer or director of ARTRA or any of its subsidiaries until his
obligations to ARTRA, described above, are fully satisfied.  Additionally, since
December 31, 1986, Peter R. Harvey has guaranteed  approximately  $40,000,000 of
ARTRA obligations to private and  institutional  lenders (John Harvey also was a
co-guarantor of a $26,700,000  loan included in that total with Peter R. Harvey)
and has  also  hypothecated  personal  assets  as  security  for  certain  ARTRA
obligations.
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Under  Pennsylvania  Business  Corporation  Law of 1988,  ARTRA (a  Pennsylvania
corporation)  is  permitted to make loans to officers  and  directors.  Further,
under the Delaware General Corporation Law, Fill-Mor (a Delaware corporation) is
permitted  to make  loans to an officer  (including  any  officer  who is also a
director,  as in the case of Peter R. Harvey),  whenever, in the judgment of the
directors,  the loan can  reasonably  be  expected to benefit  Fill-Mor.  At the
September 19, 1991 meeting,  ARTRA's Board of Directors  discussed,  but did not
act on a proposal to ratify the advances  made by ARTRA to Peter R. Harvey.  The
1992  advances  made by ARTRA to Mr.  Harvey were  ratified by ARTRA's  Board of
Directors.  In the case of the loan made by Fill-Mor to Mr. Harvey, the Board of
Directors of Fill-Mor  approved the borrowing of funds from Fill-Mor's bank loan
agreement, a condition of which was the application of a portion of the proceeds
thereof to the payment of certain of Mr. Harvey's loan  obligations to the bank.
However,  the  resolutions did not acknowledge the use of such proceeds for this
purpose  and the  formal  loan  documents  with the bank did not set forth  this
condition (though in fact, the proceeds were so applied by the bank).

As collateral for amounts due from Peter R. Harvey, the Company has received the
pledge of 1,523 shares of ARTRA  redeemable  preferred stock (with a liquidation
value of $1,523,000,  plus accrued  dividends) which are owned by Mr. Harvey. In
addition,  Mr.  Harvey has pledged a 25%  interest in  Industrial  Communication
Company (a private  company).  Such interest is valued by Mr. Harvey at $800,000
to $1,000,000. During 1995, Peter R. Harvey entered into a pledge agreement with
ARTRA  whereby Mr. Harvey  pledged  additional  collateral  consisting of 42,067
shares of ARTRA  common  stock and  707,281  shares of Pure Tech  International,
Inc., a publicly traded  corporation.  Per terms of a February discharge of bank
indebtedness (see Note 6), ARTRA received additional  collateral from Mr. Harvey
consisting   of  a  $2,150,000   security   interest  in  certain  real  estate,
subordinated to the bank's $850,000 security interest in this real estate.

In  conjunction  with Lori's  October 1995  acquisition  of Global (see Note 2),
ARTRA agreed to assume  substantially  all  pre-existing  Lori  liabilities  and
indemnify  COMFORCE  in  the  event  any  future  liabilities  arise  concerning
pre-existing environmental matters and business related litigation. Accordingly,
at  September  26,  1996 and  December  28,  1995,  respectively,  $764,000  and
$4,500,000 of such  pre-existing  Lori  liabilities  were  classified in ARTRA's
condensed  consolidated  balance  at  as  current  liabilities  of  discontinued
operations.

For a discussion of certain other related party debt obligations see Note 7.
REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders and Board of Directors
ARTRA GROUP Incorporated
Northfield, Illinois

We have audited the consolidated  balance sheets of ARTRA GROUP Incorporated and
Subsidiaries  as of December 28, 1995 and  December  29,  1994,  and the related
consolidated statements of operations, changes in shareholders' equity, and cash
flows for each of the three years in the period ended December 28, 1995. We also
have audited the financial  statement schedules listed in the index of this Form
S-1.  These  financial  statements  and  financial  statement  schedules are the
responsibility of ARTRA GROUP Incorporated's  management.  Our responsibility is
to express an opinion on these  financial  statements  and  financial  statement
schedules based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the consolidated  financial position of ARTRA
GROUP  Incorporated  and  Subsidiaries  as of December 28, 1995 and December 29,
1994, and the consolidated  results of their operations and their cash flows for
each of the  three  fiscal  years  in the  period  ended  December  28,  1995 in
conformity with generally accepted accounting  principles.  In addition,  in our
opinion, the financial statement schedules referred to above, when considered in
relation to the basic financial  statements taken as a whole, present fairly, in
all material respects, the information required to be included therein.

The accompanying  consolidated  financial statements have been prepared assuming
the Company  will  continue as a going  concern.  As  discussed in Note 1 to the
consolidated  financial  statements,  the Company has suffered  recurring losses
from operations and has a net capital deficiency.  As a result of these factors,
the Company has  experienced  difficulty  in  obtaining  adequate  financing  to
replace its current  credit  arrangements,  certain of which are in default,  to
fund its debt  service and to satisfy  liquidity  requirements  for 1996.  These
factors raise  substantial  doubt about the  Company's  ability to continue as a
going concern.  Management's plans in regard to these matters are also described
in Note 1. The financial  statements do not include any  adjustments  that might
result from the outcome of this uncertainty.

COOPERS & LYBRAND L.L.P.

Chicago, Illinois
November 26, 1996
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                 (In thousands, except share and per share data)

                                                       December 28, December 29,
                                                            1995         1994
                                                          --------     --------

                                     ASSETS
Current assets:
   Cash and equivalents                                     $2,347      $2,070
   Restricted cash and equivalents                             552       1,324
   Receivables, less allowance for doubtful accounts
      and markdowns of $250 in 1995 and $1,654 in 1994      10,897      13,707
   Inventories                                              16,634      20,268
   Available -for-sale securities                            1,427           -
   Other                                                       324       1,148
                                                           --------    --------
               Total current assets                         32,181      38,517
                                                           --------    --------

Property, plant and equipment
    Land                                                       930         930
    Buildings                                               11,679      10,584
    Improvements to land and leaseholds                          -         187
    Machinery and equipment                                 30,547      33,756
    Construction in in progress                              1,117       2,693
                                                           --------    --------
                                                            44,273      48,150
Less accumulated depreciation and amortization              17,335      17,110
                                                           --------    --------
                                                            26,938      31,040
                                                           --------    --------

Other assets:
   Available -for-sale securities                           15,519           -
   Excess of cost over net assets acquired,
      net of accumulated amortization of 
      $2,022 in1995 and $7,934 in 1994                       3,258      19,076
   Other                                                        53       4,796
                                                           --------    --------
                                                            18,830      23,872
                                                           --------    --------
                                                           $77,949     $93,429
                                                           ========    ========

The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                 (In thousands, except share and per share data)

                                                       December 28, December 29,
                                                            1995         1994
                                                          --------     --------

                                   LIABILITIES
Current liabilities:
   Notes payable, including amounts due to 
      related parties of $5,675 in 1995 
      and $5,669 in 1994                                   $25,300     $28,053
   Current maturities of long-term debt                      3,512      37,521
   Accounts payable, including amounts due 
      to a related party of $399 in 1995                    10,925      16,788
   Accrued expenses                                         14,106      16,533
   Income taxes                                                203          94
   Liabilities of discontinued operations                    4,500           -
                                                           --------     -------
               Total current liabilities                    58,546       98,989
                                                           --------     -------

Long-term debt                                              34,113       19,673
Debt subsequently discharged                                     -        9,750
Other noncurrent liabilities                                   650        1,463
Commitments and contingencies

Redeemable common stock,
   issued 283,965 shares in 1995 and 
   279,679 shares in 1994                                    4,774        4,144
ARTRA redeemable preferred stock payable
   to a related party, $1,000 par value;
   Series A, 6% cumulative payment-in-kind,
   including  accumulated dividends, net of 
   unamortized discount  of $1,575 in 1995 
   and $1,842 in 1994; redeemable March 1, 2000
   at $1,000 per share plus accrued dividends;
   authorized 2,000,000 shares all series; 
   issued 3,750 shares                                       3,694        3,129
Bagcraft redeemable preferred stock payable to 
   a related party, cumulative $.01 par value, 
   13.5%; including accumulated dividends;
   redeemable in 1997 with a liquidation 
   preference equal to $100 per share;
   50,000 shares authorized and issued                      10,794       10,119
BCA Holdings preferred stock payable to a 
   related party, $1.00 par value, Series A,
   6% cumulative; including accumulated dividends;  
   liquidation preference of
   $1,000 per share; 10,000 shares authorized; 
   issued 3,675 shares                                       4,143        3,922

                         SHAREHOLDERS' EQUITY (DEFICIT)
Common stock, no par value; authorized 
   7,500,000 shares; issued 7,102,979 shares 
   in 1995 and 6,455,602 shares in 1994                      5,540        5,052
Additional paid-in capital                                  38,526       36,613
Unrealized appreciation of investments                      21,047            -
Receivable from related party, 
   including accrued interest                               (4,318)      (4,100)
Accumulated deficit                                        (98,755)     (94,520)
                                                           --------     --------
                                                           (37,960)     (56,955)
Less treasury stock (57,038 shares), at cost                   805          805
                                                           --------     --------
                                                           (38,765)     (57,760)
                                                           --------     --------
                                                           $77,949      $93,429
                                                           ========     ========

The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (In thousands, except per share data)
Fiscal Year
                                                     ---------------------------------
                                                       1995        1994*       1993*
                                                     ---------    --------  ----------
Net sales                                            $121,879    $111,837    $113,584
                                                     ---------   ---------   ---------

Costs and expenses:
   Cost of goods sold, exclusive of 
     depreciation and amortization                    102,508      94,766      93,461
   Selling, general and administrative                 19,131      16,760      15,537
   Depreciation and amortization                        4,330       4,337       4,385
   Write-down of idle machinery and equipment           1,503           -           -
   Restructuring costs                                      -           -       1,175
                                                     ---------   ---------   ---------
                                                      127,472     115,863     114,558
                                                     ---------   ---------   ---------

Operating loss                                         (5,593)     (4,026)       (974)
                                                     ---------   ---------   ---------

Other income (expense):
   Interest expense                                    (9,782)     (8,618)     (6,551)
   Equity in loss of COMFORCE                            (533)          -           -
   Other income (expense), net                            (88)         13         (87)
                                                     ---------   ---------   ---------
                                                      (10,403)     (8,605)     (6,638)
                                                     ---------   ---------   ---------

Loss from continuing operations before 
   income taxes and minority interest                 (15,996)    (12,631)     (7,612)
Provision for income taxes                                (51)         (9)         (7)
Minority interest                                        (896)       (889)       (708)
                                                     ---------   ---------   ---------
Loss from continuing operations                       (16,943)    (13,529)     (8,327)
Earnings (loss) from 
   discontinued operations                                 10     (15,906)       (216)
                                                     ---------   ---------   ---------
Loss before extraordinary credit                      (16,933)    (29,435)     (8,543)
Extraordinary credit, 
   net discharge of indebtedness                       14,030       8,965      22,057
                                                     ---------   ---------   ---------
Net earnings (loss)                                    (2,903)    (20,470)     13,514
Dividends applicable to 
   redeemable preferred stock                            (565)       (516)       (471)
Reduction of retained earnings 
   applicable to redeemable common stock                 (767)       (309)       (243)
                                                     ---------   ---------   ---------
Earnings (loss) applicable to common shares           ($4,235)   ($21,295)    $12,800
                                                     =========   =========   =========

Earnings (loss) per share:
   Continuing operations                               ($2.69)     ($2.56)     ($1.84)
   Discontinued operations                                  -       (2.74)      (0.04)
                                                     ---------   ---------   ---------
   Loss before extraordinary credit                     (2.69)      (5.30)      (1.88)
   Extraordinary credit                                  2.06        1.57        4.49
                                                    ---------   ---------   ---------
               Net earnings (loss)                     ($0.63)     ($3.73)      $2.61
                                                    =========   =========   =========

Weighted average number of shares of common stock
    and common stock equivalents outstanding            6,776       5,702       4,908
                                                    =========   =========   =========
The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.
_______________________________________________
*  As reclassified for discontinued operations.
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
      CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
                        (In thousands, except share data)
Unrealized  Receivable                                   Total   
                                    Common Stock    Additional  Appreciation    From                   Treasury Stock  Shareholders'
                                 -----------------    Paid-in        of        Related  Accumulated   ----------------   Equity
                                 Shares     Dollars   Capital   Investments     Party    (Deficit)     Shares  Dollars  (Deficit)
                                ----------  -------   -------   ------------  ---------  ----------   -------  -------  --------
Balance at December 31, 1992     4,542,592   $3,587   $29,034                   $(5,885)   $(86,025)   57,038    $(805) $(60,094)
 Net earnings                            -        -         -                         -      13,514         -        -    13,514
 Redeemable common 
   stock accretion                       -        -         -                         -        (243)        -        -      (243)
 Common stock issued 
   to pay liabilities              292,996      224     1,412                         -           -         -        -     1,636
 Exercise of stock options          74,700       56       294                         -           -         -        -       350
 Net decrease in receivable 
   from related party                    -        -         -                     2,042           -         -        -     2,042
 Redeemable preferred 
    stock dividends                      -        -         -                         -        (471)        -        -      (471)
 Common stock issued 
    as compensation                 73,320       55       302                         -           -         -        -       357
                                 ---------   ------  --------                   -------  ----------   -------   ------  -------- 
Balance at December 30, 1993     4,983,608    3,922    31,042                    (3,843)    (73,225)   57,038     (805)  (42,909)
 Net loss                                -        -         -                         -     (20,470)        -        -   (20,470)
 Redeemable common 
    stock accretion                      -        -         -                         -        (309)        -        -      (309)
 Common stock sold 
    through private placements     855,000      641     2,484                         -           -         -        -     3,125
 Common stock issued for Lori
    debt settlement agreement      400,000      300     2,200                         -           -         -        -     2,500
 Common stock issued to 
    pay liabilities                142,635      107       684                         -           -         -        -       791
 Sale and reclassification of 
    redeemable common stock        (34,266)       -      (282)                        -           -         -        -      (282)
 Common stock contributed 
    to ESOP                         65,000       49       292                         -           -         -        -       341
 Exercise of stock options          25,300       19       116                         -           -         -        -       135
 Net increase in receivable 
    from related party                   -        -         -                      (257)          -         -        -      (257)
 Redeemable preferred
    stock dividends                      -        -         -                         -        (516)        -        -      (516)
 Common stock issued
    as compensation                 18,325       14        77                         -           -         -        -        91
                                 ---------   ------  --------                   -------    --------   -------   ------  -------- 
Balance at December 29, 1994     6,455,602    5,052    36,613                    (4,100)    (94,520)   57,038     (805)  (57,760)
 Net loss                                -        -         -                         -      (2,903)        -        -    (2,903)
 Reclassification of redeemable
    common stock                  (100,000)       -      (500)                        -           -         -        -      (500)
 Common stock issued to 
    pay liabilities                243,915      183       857                         -           -         -        -     1,040
 Common stock as additional 
    consideration for private
    placement of ARTRA notes       375,000      281       985                         -           -         -        -     1,266
 Net increase in receivable
    from related party,
    including accrued interest           -        -         -                      (218)          -         -        -      (218)
 Redeemable common stock 
    put option exercised                (8)       8         -              -          -           -         -        -         -
 Sale and reclassification of
    redeemable common stock         85,714                399                         -                                      399
 Unrealized appreciation 
    of investments                       -        -         -        $21,047          -           -         -        -    21,047
 Common stock contributed
    to ESOP                         23,750       18        95              -          -           -         -        -       113
 Exercise of stock options          12,100        9        39              -          -           -         -        -        48
 Redeemable common 
    stock accretion                      -        -         -              -          -        (767)        -        -      (767)
 Redeemable preferred 
    stock dividends                      -        -         -              -          -        (565)        -        -      (565)
 Common stock issued
    as compensation                  6,898        5        30              -          -           -         -        -        35
                                 ---------   ------  --------        -------   --------   ---------   -------   ------  -------- 
Balance at December 28, 1995     7,102,979   $5,540   $38,526        $21,047    ($4,318)   ($98,755)   57,038    ($805) ($38,765)
                                 =========   ======  ========        =======   ========   =========   =======   ======  ========
The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.
ARTRA GROUP INCORPORATED
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (In thousands of dollars)
Fiscal Year
                                                                                ----------------------------------- 
                                                                                   1995          1994        1993
                                                                                ---------    ----------    --------
Cash flows from operating activities:
   Net earnings (loss)                                                           ($2,903)     ($20,470)    $13,514
      Adjustments to reconcile net earnings (loss)
            to cash flows from operating activities:
         Extraordinary gain from net discharge of indebtedness                   (14,030)       (8,965)    (22,057)
         Gain on disposal of discontinued operations                              (8,183)            -          -
         Depreciation of property, plant and equipment                             4,120         4,252       4,283
         Amortization of excess of cost over net assets acquired                     837         1,693       1,623
         Impairment of goodwill                                                    6,430        10,800           -
         Amortization of other assets                                                689           963         216
         Inventory valuation reserve                                                 290             -           -
         Gain on sale of property, plant and equipment                                 -           (59)       (284)
         Write-down of idle equipment and machinery                                1,503             -           -
         Equity in loss of COMFORCE                                                  533             -           -
         Minority interest                                                           896           889         708
         Contribution to ARTRA  ESOP                                                  42            77         423
         Other, principally common issued as compensation                          1,300           485         389
     Changes in assets and liabilities, net of effects of
        businesses acquired and discontinued:
          Increase in receivables                                                   (184)       (1,923)       (348)
          (Increase) decrease in inventories                                         453          (727)      2,453
          (Increase) decrease in other current and noncurrent assets               1,421         1,068      (1,031)
          Increase in payables and accrued expenses                                  611         4,675         804
          Increase (decrease) in other current and noncurrent liabilities            450          (763)        170
          (Increase) decrease  in receivable from related party,
              including accrued interest                                            (218)         (257)         42
                                                                                ---------    ----------    --------
Net cash flows from (used by) operating activities                                (5,943)       (8,262)        905
                                                                                ---------    ----------    --------

Cash flows from investing activities:
   Proceeds from sale of property, plant and equipment                                 -         2,251       1,401
   Additions to property, plant and equipment                                     (2,820)      (11,881)     (3,156)
   Retail fixtures                                                                  (631)         (665)       (951)
   Acquisition of Arcar                                                                -        (2,264)          -
   Proceeds from sale of Arcar                                                    20,318             -           -
   Proceeds from collection of Welch notes                                         3,000             -           -
   Decrease in restricted cash                                                       772             -           -
   Other                                                                               -           101           -
                                                                                ---------    ----------    --------
Net cash flows from (used by) investing activities                                20,639       (12,458)     (2,706)
                                                                                ---------    ----------    --------
The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.
ARTRA GROUP INCORPORATED
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (In thousands of dollars)
Fiscal Year
                                                                                ----------------------------------- 
                                                                                   1995         1994         1993
                                                                                ---------    ---------    ---------
Cash flows from financing activities:
   Net increase in short-term debt                                                 5,488         1,920           54
   Proceeds from long-term borrowings                                            136,756       116,775      123,743
   Reduction of long-term debt                                                   156,641)     (100,131)    (124,759)
   Proceeds from private placements of ARTRA common stock                              -         3,230            -
   Proceeds from exercise of stock options                                            48            30          129
   Proceeds from sale of BCA Holdings preferred stock                                  -             -        3,000
   Exercise of redeemable common stock put options                                     -           (50)           -
   Other                                                                             (70)          (44)        (187)
                                                                                --------    ----------    ---------
Net cash flows from (used by) financing activities                               (14,419)       21,730        1,980
                                                                                --------    ----------    ---------

Increase in cash and cash equivalents                                                277         1,010          179
Cash and equivalents, beginning of year                                            2,070         1,060          881
                                                                                ========    ==========    =========
Cash and equivalents, end of year                                                 $2,347        $2,070       $1,060
                                                                                ========    ==========    =========

Supplemental cash flow information:
 Cash paid during the year for:
  Interest                                                                       $5,847        $8,811       $7,333
  Income taxes paid (refunded), net                                                 (15)           59         (108)

Supplemental schedule of noncash investing and financing activities:
    Issue common stock and redeemable common stock
       to pay down current liabilities                                           $1,040          $756       $1,636
    Notes issued to sellers as consideration for Arcar acquisition                    -         8,000            -
    ARTRA common stock issued to Lori's bank lender as partial
       consideration for discharge of indebtedness                                    -         2,500            -
    Transfer New Dimensions assets, net of cash of $674,
       to Lori's bank lender under terms of the debt settlement agreement             -         6,475            -
    Debt refinanced                                                                   -             -       36,609
The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.       Basis of Presentation and Financial Restructuring

ARTRA Group  Incorporated's  ("ARTRA" or the "Company")  consolidated  financial
statements  are  presented on a going  concern  basis,  which  contemplates  the
realization of assets and the  satisfaction  of liabilities in the normal course
of  business.   The  consolidated   financial  statements  do  not  include  any
adjustments  relating to  recoverability  and  classification  of recorded asset
amounts or the amount and  classification  of liabilities  or other  adjustments
that might be necessary should ARTRA be unable to continue as a going concern.

The Company has suffered  recurring losses from operations and has a net capital
deficiency. As a result of these factors, the Company has experienced difficulty
in obtaining adequate financing to replace certain current credit  arrangements,
certain of which are in  default,  and to fund its debt  service  and  liquidity
requirements in 1996. These factors raise  substantial doubt about the Company's
ability to continue as a going concern.  The financial statements do not include
any adjustments that might result from the outcome of this uncertainty. See Note
9, Notes  Payable,  and Note 10, Long Term Debt,  for further  discussion of the
status of credit  arrangements  and  restrictions  on the  ability of  operating
subsidiaries to fund ARTRA corporate obligations.  Due to its limited ability to
receive operating funds from its operating subsidiaries,  ARTRA has historically
met its operating expenditures with funds generated by alternative sources, such
as private  placements  of ARTRA common  stock and notes,  sales of ARTRA common
stock with put options, loans from  officers/directors and private investors, as
well as through  sales of assets and/or other equity  infusions.  ARTRA plans to
continue to seek such alternative  sources of funds to meet its future operating
expenditures.

ARTRA,  through its  wholly-owned  subsidiary,  Bagcraft  Corporation of America
("Bagcraft"),  currently  operates in one industry  segment as a manufacturer of
packaging products principally serving the food industry. Prior to September 28,
1995,  ARTRA's  then 62.9%  owned  subsidiary,  The Lori  Corporation  ("Lori"),
operated as a designer and distributor of popular-priced fashion costume jewelry
and accessories.  In recent years, Lori's fashion costume jewelry operations had
experienced a pattern of significantly  lower sales levels and related operating
losses  primarily due to a shift in the buying  patterns of its major  customers
(i.e. certain mass  merchandisers)  from participation in Lori's service program
to purchases of costume jewelry and accessories  directly from manufacturers and
due to a continued  unfavorable retail environment.  Accordingly,  in September,
1995, Lori adopted a plan to discontinue its fashion costume jewelry business as
discussed in Note 3.

As  discussed in Note 3, on September  11,  1995,  Lori signed a stock  purchase
agreement  to  participate  in the  acquisition  of one  hundred  percent of the
capital  stock of COMFORCE  Global Inc.  ("Global"),  formerly  Spectrum  Global
Services,  Inc.  d/b/a  YIELD  Global,  a wholly  owned  subsidiary  of Spectrum
Information Technologies,  Inc. Global provides  telecommunications and computer
technical  staffing and consulting  services  worldwide to Fortune 500 companies
and maintains an extensive,  global database of technical  specialists,  with an
emphasis on  wireless  communications  capability.  On October  17,  1995,  Lori
completed the acquisition of one hundred percent of the capital stock of Global.
In  connection  with the  re-focus  of its  business  Lori  changed  its name to
COMFORCE Corporation ("COMFORCE").

Effective  July 4, 1995,  Lori and ARTRA  entered into  employment or consulting
services  agreements  with certain  individuals  to manage Lori's entry into and
development of the  telecommunications  and computer technical staffing services
business. As additional  compensation,  the agreements provided for the issuance
in aggregate of a 35% common stock  interest in Lori.  After the issuance of the
Lori common shares,  plus the effects of the issuance of Lori common shares sold
by private  placements and other Lori common shares issued in  conjunction  with
the Global  acquisition,  ARTRA's  common stock  ownership  interest in COMFORCE
common stock was reduced to approximately 25% at December 28, 1995. Accordingly,
in October 1995,  the accounts of COMFORCE and its  majority-owned  subsidiaries
were deconsolidated from ARTRA's  consolidated  financial statements and ARTRA's
investment in COMFORCE was accounted for under the equity method through the end
of fiscal 1995. See Notes 3 and 6 for a further discussion of ARTRA's investment
in COMFORCE.
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Effective October 26, 1995,  Bagcraft completed the sale of the business assets,
subject to the buyer's  assumption of certain  liabilities,  of its wholly-owned
subsidiary,   Arcar  Graphics,   Inc.  ("Arcar"),   for  cash  of  approximately
$20,300,000.  The net  proceeds,  after  extinguishment  of  certain  Arcar debt
obligations,  of  approximately  $10,400,000,  were used to reduce Bagcraft debt
obligations.

In October,  1995 the Company  recognized  an  extraordinary  gain of $4,917,000
($.71 per share) as a result of a  settlement  agreement  with a bank  whereby a
$3,600,000  note  payable  due  December  31,  1990  plus  accrued  interest  of
$1,467,000 were discharged for a cash payment of $150,000.

As  discussed  in  Note 8,  the  Company  recognized  an  extraordinary  gain of
$9,113,000  ($1.35  per  share) in March  1995 as a result of the  discharge  of
amounts due a bank under the loan  agreements  of Lori and its parent,  Fill-Mor
Holding, Inc. ("Fill-Mor").

In June 1995 ARTRA entered into an agreement to settle  amounts due ARTRA by the
former  Welch  Vacuum   Technology   ("Welch")   subsidiary  under  terms  of  a
noncompetition  agreement and a  subordinated  note in the  principal  amount of
$2,500,000  received  by ARTRA  as part of the  proceeds  from the 1989  sale of
Welch. Per terms of the settlement agreement,  ARTRA received cash of $3,000,000
and a  subordinated  note in the principal  amount of $640,000  payable June 30,
2001.  The cash proceeds were used for a $2,500,000  reduction of amounts due on
certain  ARTRA bank  notes,  with the  remainder  used for working  capital.  In
conjunction  with this  transaction,  ARTRA entered into a letter agreement with
the bank  whereby the bank agreed not to exercise any of its rights and remedies
with  respect  to amounts  due the bank  under its ARTRA  notes (see Note 9) and
certain obligations of ARTRA's president, Peter R. Harvey.

In February 1996, the bank agreed to discharge all amounts under its ARTRA notes
($12,063,000  plus  accrued  interest and fees) and certain  obligations  of Mr.
Harvey.  ARTRA will  recognize a gain on the discharge of this  indebtedness  of
approximately $10,000,000 in the first quarter of 1996. The cash payment due the
bank was funded  principally  with  proceeds  received  from a  short-term  loan
agreement  along  with  proceeds  received  from  the  Bagcraft   subsidiary  as
consideration  for the  issuance of BCA  Holdings,  Inc.  ("BCA",  the parent of
Bagcraft) preferred stock, see Note 12.

ARTRA intends to continue to negotiate with its creditors to extend due dates to
allow  ARTRA to  maximize  value  from  possible  sale of assets  and to explore
various other sources of funding to meet its future operating  expenditures.  If
ARTRA is unable to  negotiate  extensions  with its  creditors  and complete the
above mentioned  transactions,  ARTRA could suffer severe adverse  consequences,
and as a  result,  ARTRA  may be  forced  to  liquidate  its  assets or file for
protection under the Bankruptcy Code.

The Company  has  adopted a 52/53 week  fiscal year ending the last  Thursday of
December.

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A.   Principles of Consolidation

The consolidated  financial  statements  include the accounts of the Company and
its  majority-owned  subsidiaries.  Intercompany  accounts and  transactions are
eliminated.

B.    Cash Equivalents

Short-term  investments  with an initial  maturity  of less than ninety days are
considered cash equivalents.
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

C.    Inventories

Inventories are stated at the lower of cost or market. Cost is determined by the
first-in, first-out (FIFO) method.

D.    Property, Plant and Equipment

Property,  plant and equipment are stated at cost.  Expenditures for maintenance
and repairs are charged to  operations  as incurred and  expenditures  for major
renovations are capitalized.  Depreciation is computed on the basis of estimated
useful lives  principally  by the straight line method for  financial  statement
purposes and  principally  by  accelerated  methods for tax purposes.  Leasehold
improvements  are amortized over the shorter of the estimated useful life of the
asset or the period covered by the lease.

The costs of property  retired or otherwise  disposed of are applied against the
related accumulated  depreciation to the extent thereof,  and any profit or loss
on the disposition is recognized in earnings.

E.    Investments in Equity Securities

In 1995,  the  Company  adopted  Statement  of  Financial  Accounting  Standards
("SFAS")  No.  115  "Accounting  for  Certain  Investments  in Debt  and  Equity
Securities."  Under  this  statement,   at  December  28,  1995,  the  Company's
investment  in COMFORCE  (see Note 6) is classified as available for sale and is
stated at fair value.  The  adoption of SFAS No. 115  resulted in an increase to
shareholders'  equity in the  fourth  quarter of 1995 of  $21,047,000.  In prior
years and, until October 1995, COMFORCE was a majority-owned subsidiary included
in the consolidated financial statements of the Company.

F.    Intangible Assets

The net assets of a purchased  business  are recorded at their fair value at the
date of  acquisition.  The excess of  purchase  price over the fair value of net
assets acquired  (goodwill) is reflected as intangible assets and amortized on a
straight-line basis principally over 40 years.

The Company assesses the  recoverability of this intangible asset by determining
whether the  amortization of the goodwill balance over its remaining life can be
recovered through forecasted future operations.

G.   Revenue Recognition

Sales to  customers  are  recorded  at the  time of  shipment  net of  estimated
markdowns and merchandise credits.

H.   Income Taxes

Income  taxes  are  accounted  for  as  prescribed  in  Statement  of  Financial
Accounting  Standards No. 109 - Accounting for Income Taxes. Under the asset and
liability  method of  Statement  No. 109, the Company  recognizes  the amount of
income taxes payable. Deferred tax assets and liabilities are recognized for the
future tax  consequences  attributable  to  differences  between  the  financial
statement  carrying  amounts  of  existing  assets  and  liabilities,  and their
respective  tax bases.  Deferred tax assets and  liabilities  are measured using
enacted  tax rates  expected  to apply to  taxable  income  in the  years  those
temporary differences are expected to recovered or settled.
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

I.       Use of Estimates In Preparation of Financial Statements

The  preparation  of the  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
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.

J.     Recently Issued Accounting Pronouncements

         Impairment of Long-Lived Assets

SFAS No.  121,  "Accounting  for the  Impairment  of  Long-Lived  Assets and for
Long-Lived  Assets to be  Disposed  Of",  requires  that  long-lived  assets and
certain  identifiable  intangibles  to be held and used by an entity be reviewed
for impairment  whenever  events or changes in  circumstances  indicate that the
carrying amount of an asset may not be  recoverable.  Impairment is evaluated by
comparing future cash flows (undiscounted and without interest charges) expected
to result from the use or sale of the asset and its eventual disposition, to the
carrying amount of the asset. This new accounting principle is effective for the
Company's  fiscal year ending  December  26,  1996.  The Company  believes  that
adoption will not have a material impact on its financial statements.

         Stock-Based Compensation

SFAS No. 123, "Accounting for Stock-Based  Compensation",  encourages,  but does
not require,  companies to recognize  compensation  expense for grants of stock,
stock options, and other equity instruments to employees based on new fair value
accounting  rules.   Although  expense  recognition  for  employee  stock  based
compensation is not mandatory,  the pronouncement requires companies that choose
not to adopt the new fair value accounting, to disclose the pro-forma net income
and earnings per share under the new method.  This new  accounting  principle is
effective for the Company's  fiscal year ending  December 26, 1996.  The Company
believes  that  adoption  will  not  have a  material  impact  on its  financial
statements  as the  Company  will not adopt the new fair value  accounting,  but
instead comply with the disclosure requirements.

3.       CHANGE OF BUSINESS

         Arcar Graphics, Inc.

Effective  April 8, 1994,  Bagcraft  purchased the business  assets,  subject to
buyer's  assumption  of  certain  liabilities,  of  Arcar,  a  manufacturer  and
distributor of waterbase inks, for  consideration  of $10,264,000  consisting of
cash of $2,264,000 and subordinated  promissory notes totaling  $8,000,000.  The
acquisition of Arcar was accounted for by the purchase method and,  accordingly,
the  assets  and  liabilities  of  Arcar  were  included  in  ARTRA's  financial
statements at their estimated fair market value at the date of acquisition.

Effective  October 26, 1995,  Bagcraft sold the business assets,  subject to the
buyer's  assumption of certain  liabilities,  of Arcar for cash of approximately
$20,300,000,  resulting in a net gain of  $8,483,000.  The net  proceeds,  after
extinguishment of certain Arcar debt obligations,  of approximately $10,400,000,
were used to reduce Bagcraft debt  obligations.  At December 29, 1994, the total
assets and liabilities of Arcar were approximately  $13,157,000 and $11,914,000,
respectively.
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

         Lori/COMFORCE

In  September,  1995,  Lori adopted a plan to  discontinue  its fashion  costume
jewelry  business and recorded a provision of $1,000,000 for the estimated costs
to complete the disposal of the fashion  costume jewelry  business.  At December
29,  1994,  the total  assets and  liabilities  of Lori's  discontinued  fashion
costume  jewelry  business  were  approximately   $17,460,000  and  $11,914,000,
respectively.

Effective  October 17,  1995,  COMFORCE  acquired  all of the  capital  stock of
COMFORCE Global, Inc. ("Global"),  formerly Spectrum Global Services, Inc. d/b/a
YIELD Global,  for  consideration  of  approximately  $6.4 million,  net of cash
acquired.  This  consideration  consisted of cash to the seller of approximately
$5.1 million, fees of approximately  $700,000,  including a fee of $500,000 to a
related party,  and 500,000  shares of COMFORCE  Common Stock valued at $843,000
(at a price per share of $1.68)  issued as  consideration  for various  fees and
guarantees  associated  with the  transaction.  The  500,000  shares of COMFORCE
Common Stock  consisted of (i) 100,000  shares issued to an unrelated  party for
guaranteeing  the purchase  price to the seller,  (ii) 100,000  shares issued to
ARTRA,  then the majority  stockholder of the Company,  in  consideration of its
guaranteeing  the  purchase  price to the seller and  agreeing to enter into the
Assumption Agreement, (iii) 150,000 issued to two unrelated parties for advisory
services in connection with the  acquisition,  and (iv) 150,000 shares issued to
Peter R. Harvey, then a Vice President and director of COMFORCE for guaranteeing
the payment of the $6.4 million purchase price to the seller.  The shares issued
to Peter  R.  Harvey  and  ARTRA  are  subject  to  ratification  by  COMFORCE's
stockholders.  Such shares have the same rights and  privileges  as other common
stock shareholders. While the shareholders of these new shares will vote on this
issue,  the vote is a ratification  of the  transaction.  Failure to ratify this
transaction  would  have  no  impact  on  the  outcome  of  the  transaction  as
ratification  is  being  performed  to  meet  American  Stock  Exchange  listing
requirements.  These  transactions  have been  approved  by  COMFORCE's  current
management personnel and ARTRA, which together own a majority of the outstanding
shares of COMFORCE's Common Stock and, therefore, such ratification is expected.

Global provides  telecommunications  and computer  technical  staffing  services
worldwide to Fortune 500 companies and maintains an extensive,  global  database
of  technical   specialists,   with  an  emphasis  on  wireless   communications
capability.  The  acquisition  of  Global  was  funded  principally  by  private
placements of  approximately  1,950,000 shares of Lori common stock at $3.00 per
share (total proceeds of approximately  $5,800,000) plus detachable  warrants to
purchase  approximately  970,000 shares of Lori common stock at $3.375 per share
that expire five years from the date of issue.  In connection  with the re-focus
of its business, Lori changed its name to COMFORCE Corporation. Additionally, in
conjunction with the Global  acquisition,  ARTRA agreed to assume  substantially
all pre-existing Lori liabilities and indemnify COMFORCE in the event any future
liabilities  arise concerning  pre-existing  environmental  matters and business
related   litigation.   Accordingly,   ARTRA  has  accrued  $4,500,000  of  Lori
liabilities  classified  in its  consolidated  balance at  December  28, 1995 as
current liabilities of discontinued operations.

Effective  July 4, 1995,  Lori's  management  agreed to issue up to a 35% common
stock interest in the COMFORCE to certain individuals to manage COMFORCE's entry
into the telecommunications  and computer technical staffing business.  COMFORCE
recognized  a  non-recurring  charge of  $3,425,000  related to this stock since
these stock  awards were 100% vested when issued,  and were neither  conditioned
upon these individuals'  service to the Company as employees nor the consumation
of the COMFORCE Global  acquisition.  Accordingly,  this compensation charge was
fully  recognized  in 1995.  The  shares  of  COMFORCE  common  stock  issued in
accordance with the above  agreements were valued at $.93 per share.  COMFORCE's
management valued COMFORCE based on its discussions with market makers and other
advisors,  taking  into  account  (i)  that  the  Jewelry  Business,  which  was
discontinued  at the end of the second quarter of 1995, had a negligible  value,
and (ii) the value of COMFORCE was principally  related to the potential  effect
that a purchase of COMFORCE Global, if successfully concluded, would have market
value of COMFORCE  common stock.  COMFORCE's  management  believes this value of
$.93  per  share  to be a fair  and  appropriate  value  based  upon  COMFORCE's
financial  condition  as of the date  COMFORCE  became  obligated to issue these
shares.  After the issuance of the Lori common  shares,  plus the effects of the
issuance of Lori common shares sold by private  placements and other Lori common
shares issued in conjunction with the Global  acquisition,  ARTRA's common stock
ownership  interest in COMFORCE common stock was reduced to  approximately  25%.
Accordingly,  in October 1995,  the accounts of COMFORCE and its  majority-owned
subsidiaries were deconsolidated from ARTRA's consolidated  financial statements
and ARTRA's  investment  in COMFORCE was  accounted  for under the equity method
through the end of fiscal 1995.  See Note 6 for a further  discussion of and the
accounting  treatment of the  Company's  investment  in COMFORCE at December 28,
1995.
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

         Other

During 1995 the Company was dismissed as party to certain litigation relating to
the former  Welch  subsidiary.  Accordingly,  the Company  reversed  $700,000 of
excess liability accruals  originally  provided in 1989 to complete the disposal
of Welch.

The Company's consolidated financial statements have been reclassified to report
separately  the  results  of  operations  of Arcar and  COMFORCE's  discontinued
fashion costume jewelry  business prior to the  deconsolidation  of Lori and its
majority-owned  subsidiaries  effective  October 1995.  The 1995,  1994 and 1993
operating results (in thousands) of Bagcraft's discontinued Arcar subsidiary and
COMFORCE's  discontinued  fashion  costume  jewelry  business  and  net  gain on
disposal of discontinued operations consist of:

                                                                       
                                            1995        1994         1993 
                                          --------    --------    --------- 

     Net sales                            $ 16,932    $ 40,278    $  46,054
                                          ========    ========    =========

     
     Loss from operations        
       before income taxes                $ (8,156)   $(15,832)   $    (183
     Provision for income taxes                (17)        (74)         (33)
                                          --------    --------    ---------  
     Loss from operations                   (8,173)    (15,906)        (216)
                                          --------    --------    ---------

     Gain on sale of Arcar subsidiary        8,483          --           --
                                         
     Provision for disposal of business       (300)      
                                             
     Provision for income taxes                --           --           --
                                          --------    --------    ---------
     Gain on disposal of businesses          8,183          --           --
                                          --------    --------    ---------
     Earnings (loss) from
          discontinued operations         $     10    $(15,906)   $    (216)
                                          ========    ========    =========

4.       CONCENTRATION OF RISK

The accounts  receivable  of the Company's  Bagcraft  subsidiary at December 28,
1995 consist primarily of amounts due from companies in the food industry.  As a
result, the collectibility of these receivables is dependent, to an extent, upon
the economic condition and financial stability of the food industry. Credit risk
is minimized as a result of the large  number and diverse  nature of  Bagcraft's
customer base.  Bagcraft's major customers include some of the largest companies
in the food  industry.  At December  28, 1995,  Bagcraft  had 10 customers  with
accounts receivable balances that aggregated  approximately 40% of the Company's
total trade accounts receivable. No single customer accounted for 10% or more of
Bagcraft's 1995 sales.
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

5.       INVENTORIES

Inventories consist of:
  
                                          December 28,      December 29,
                                              1995              1994
                                            --------          --------
                                                 (in  thousands)

     Raw materials and supplies             $  5,645          $  7,041
     Work in process                              40               877
     Finished goods                           10,949            12,350
                                            --------          --------
                                            $ 16,634          $ 20,268
                                            ========          ========

6.            INVESTMENT IN COMFORCE (formerly LORI) CORPORATION

As  discussed  in Note 3, due to the  issuances  of  COMFORCE  common  shares in
conjunction  with the  acquisition of Global,  ARTRA's common stock ownership in
COMFORCE was reduced to  approximately  25%.  Accordingly,  in October 1995, the
accounts of COMFORCE and its  majority-owned  subsidiaries  were  deconsolidated
from  ARTRA's  consolidated  financial  statements  and  ARTRA's  investment  in
COMFORCE was  accounted  for under the  requirements  of APB Opinion No. 18 "The
Equity Method of Accounting for  Investments in Common Stock" through the end of
fiscal 1995.

Effective  December 28, 1995, John Harvey and Peter R. Harvey,  ARTRA's chairman
and  president,  respectively,  resigned as directors  of COMFORCE.  Due to such
factors as a lack of board of  directors  representation  and  participation  in
policy  formulation  by ARTRA,  as well as a lack of  interchange  of managerial
personnel,  ARTRA  is not  able  to  exercise  significant  influence  over  the
operating   and   financial   policies  of  COMFORCE.   Additionally,   assuming
contemplated  additional issuances of COMFORCE common shares, on a fully diluted
basis ARTRA's  ownership  interest in COMFORCE will be reduced to less than 20%.
In the opinion of the Company,  effective  December 28, 1995,  the investment in
COMFORCE  ceased  to  conform  to  the  requirements  of  APB  Opinion  No.  18.
Accordingly,   the  Company   adopted  SFAS  No.  115  "Accounting  for  Certain
Investments in Debt and Equity  Securities."  Under this statement,  at December
28, 1995,  the  Company's  investment in COMFORCE is classified as available for
sale and is stated at fair value.  The  adoption of SFAS No. 115  resulted in an
increase to  shareholders'  equity in the fourth quarter of 1995 of $21,047,000.
In prior years and, until October 1995, COMFORCE was a majority-owned subsidiary
included in the consolidated financial statements of the Company.

In January 1996, the Company's  Board of Directors  approved the sale of 200,000
of  ARTRA's  COMFORCE  common  shares to  certain  officers,  directors  and key
employees of ARTRA for non-interest bearing notes totaling $400,000.  The notes,
collateralized by the 200,000 COMFORCE common shares sold, are not payable until
the earlier of the registration of these shares under the Securities Act of 1993
or the expiration of the applicable  resale waiting period under  Securities Act
Rule 144.  Additionally,  the  noteholders  have the right to put their COMFORCE
shares back to ARTRA in full payment of the balance of their  notes.  Based upon
the preceding factors,  the Company has concluded that, for reporting  purposes,
it has effectively sold options to certain officers, directors and key employees
to acquire  200,000 of ARTRA's  COMFORCE  common shares.  Accordingly,  in 1996,
these  200,000  COMFORCE  common  shares  will be  removed  from  the  Company's
portfolio  of  "Available-for-sale   securities"  and  will  classified  in  the
Company's  consolidated  balance sheet as other current assets with an aggregate
value of $400,000,  based upon the value of proceeds to be received  upon future
exercise of the options. The disposition of these 200,000 COMFORCE common shares
will result in a gain which will not be recognized  in the  Company's  financial
statements  until the options to purchase these 200,000  COMFORCE  common shares
are exercised.

As additional consideration for a February 1996 short-term loan (see Note 9) the
lender has received  to-date  37,500  COMFORCE  common shares held by ARTRA.  In
March 1996,  ARTRA sold 93,000 COMFORCE shares in the market,  with the proceeds
used for working  capital.  The above  mentioned  330,500  COMFORCE  shares were
classified in the Company's  consolidated  balance sheet at December 28, 1995 in
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

current assets as "Available-for-sale  securities." ARTRA's remaining investment
in COMFORCE  (1,970,536  shares) was  classified in the  Company's  consolidated
balance sheet at December 28, 1995 in noncurrent  assets as  "Available-for-sale
securities.

7.   INVESTMENT IN EMERALD ACQUISITION CORPORATION / ENVIRODYNE INDUSTRIES, INC.

In  March,  1989,  Envirodyne  Industries,   Inc.   ("Envirodyne")  and  Emerald
Acquisition  Corporation  ("Emerald") entered into a definitive  agreement for a
subsidiary  of Emerald to acquire  all of the issued and  outstanding  shares of
Envirodyne  common stock.  Pursuant to the terms of certain  letter  agreements,
ARTRA agreed to participate in the transaction and received Envirodyne's consent
to sell its then  4,830,000  Envirodyne  common  shares  (a 26.3%  interest)  to
Emerald.  On May  3,  1989  the  transaction  was  consummated.  ARTRA  received
consideration  consisting of cash of $75,000,000,  a 27.5% common stock interest
in Emerald and Emerald junior debentures.

On January 6, 1993, a group of  bondholders  filed an  involuntary  petition for
reorganization  of Envirodyne  under Chapter 11 of the U.S.  Bankruptcy Code. On
January 7, 1993, Envirodyne and certain of its subsidiaries (the "Debtor") filed
petitions  under  Chapter 11 of the U.S.  Bankruptcy  Code in the United  States
Bankruptcy  Court for the  Northern  District  of  Illinois,  Eastern  Division.
Subsequently,  Emerald  filed  a  voluntary  petition  under  Chapter  11 of the
Bankruptcy Code in the same court.

Envirodyne's  plan of  reorganization  did not provide for any  distribution  or
value to Emerald and Emerald,  therefore,  is without assets to provide value to
ARTRA  for  ARTRA's  investment  in  Emerald  common  stock and  Emerald  Junior
Debentures.  See  discussion  below and in Note 20 Litigation for remedies being
pursued by ARTRA as  damages  for the lost  value of its  investment  in Emerald
common stock and Emerald Junior Debentures.

On November 2, 1993,  ARTRA  filed suit in the Circuit  Court of the  Eighteenth
Judicial  Circuit for the state of Illinois (the "State Court  Action")  against
Salomon  Brothers,  Inc.,  Salomon Brothers Holding  Company,  Inc.,  Charles K.
Bobrinskoy,  Michael J. Zimmerman  (collectively,  "Salomon  Defendants"),  D.P.
Kelly & Associates, L.P. ("DPK"), Donald P. Kelly ("Kelly Defendants" along with
DPK), James F. Massey and William  Rifkind.  On November 22, 1993, ARTRA filed a
First Amended Complaint. The defendants removed the case to the Bankruptcy Court
in which the Emerald Chapter 11 case is pending. On July 15, 1994 all but two of
ARTRA's causes of action were remanded to the state court.  The Bankruptcy Court
retained  jurisdiction  of ARTRA's  claims  against the defendants for breaching
their  fiduciary  duty as  directors  of  Emerald  to  Emerald's  creditors  and
interference with ARTRA's contractual  relations with Emerald. On April 7, 1995,
the Company's appeal of the Bankruptcy Court's order retaining jurisdiction over
two claims was denied.  On July 26, 1995, the Bankruptcy  Court entered an order
dismissing  these claims.  On August 4, 1995, ARTRA appealed from the Bankruptcy
Court's  dismissal  order.  That  appeal is still pending.

On July 18, 1995,  ARTRA filed a Fourth Amended  Counterclaim in the State Court
Action for breach of fiduciary  duty,  fraudulent  misrepresentation,  negligent
misrepresentation, breach of contract and promissory estopel. In the State Court
Action, ARTRA seeks compensatory damages of $136.2 million,  punitive damages of
$408.6 million and approximately $33 million in fees paid to Salomon. The causes
of action for breach of the fiduciary duty of due care were repleaded to reserve
ARTRA's right to appeal the State  Court's  dismissal of the causes of action in
the Third  Amended  Complaint.  Defendant  Kelly was  dismissed  with  prejudice
pursuant to a stipulation between ARTRA and the Kelly Defendants.

         On or about March 1, 1996, DPK brought a motion for summary judgment as
to ARTRA's claims for breach of contract and promissory  estoppel.  DPK's motion
is currently pending.
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

8.       EXTRAORDINARY GAINS

         ARTRA Debt Restructuring

In October,  1995 the Company  recognized  an  extraordinary  gain of $4,917,000
($.71 per share) as a result of a  settlement  agreement  with a bank  whereby a
$3,600,000  note  payable  due  December  31,  1990  plus  accrued  interest  of
$1,467,000 were discharged for a cash payment of $150,000.

         Lori Debt Restructuring

Per terms of a debt settlement  agreement,  borrowings due a bank under the loan
agreements of Lori and its  discontinued  fashion costume  jewelry  subsidiaries
(including the former New Dimensions ("New Dimensions") subsidiary, which ceased
operations  in December  1994) and  Fill-Mor  (approximately  $25,000,000  as of
December 23, 1994), plus amounts due the bank for accrued interest and fees were
reduced to $10,500,000 (of which  $7,855,000  pertained to Lori's  obligation to
the bank and $2,645,000  pertained to Fill-Mor's  obligation to the bank).  Upon
the satisfaction of certain conditions of the debt settlement agreement in 1995,
as discussed below, the balance of this indebtedness was discharged.

In  conjunction  with  the  debt  settlement  agreement,  ARTRA  entered  into a
$1,850,000  short-term  loan agreement with a  non-affiliated  corporation,  the
proceeds of which were used to fund amounts due the bank as discussed below. The
loan,  due  June  30,  1995,   with  interest   payable   monthly  at  10%,  was
collateralized by 100,000 shares of Lori common stock. These 100,000 Lori common
shares were  originally  issued to the bank under  terms of the debt  settlement
agreement.  In August,  1995 the loan was extended until  September 15, 1995 and
the  lender  received  the  above  mentioned   100,000  Lori  common  shares  as
consideration for the loan extension.  The loan was repaid by ARTRA in February,
1996.

The Company  recognized an extraordinary gain of $8,965,000 ($1.57 per share) in
December  1994 as a result of the  reduction  of amounts  due the bank under the
loan   agreements  of  Lori  and  its   discontinued   fashion  costume  jewelry
subsidiaries  and  Fill-Mor to  $10,500,000  (of which  $7,855,000  pertained to
Lori's obligation to the bank and $2,645,000 pertained to Fill-Mor's  obligation
to the bank) as of December 23, 1994 calculated (in thousands) as follows:

    Amounts due the bank under loan agreements                  
        of Lori and its operating subsidiaries and Fill-Mor      $  25,394
    Less amounts due the bank at December 29, 1994                 (10,500)
                                                                 ---------
    Bank debt discharged                                            14,894
    Accrued interest and fees discharged                             3,635
    Other liabilities discharged                                     1,985
    Less consideration to the bank per terms of the
        amended settlement agreement
             Cash                                                   (1,900)
             ARTRA common stock                                     (2,500)
             New Dimensions assets assigned to the bank
             at estimated fair market value                         (7,149)
                                                                 --------- 
                   Net extraordinary gain                        $   8,965
                                                                 =========
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

On March 31, 1995, the bank was paid $750,000 and the remaining  indebtedness of
Lori and Fill-Mor was discharged,  resulting in an additional extraordinary gain
to the Company of $9,113,000 ($1.35 per share) in the first quarter of 1995. The
$750,000 payment was funded with the proceeds of a $850,000 short-term loan from
a  former  director  of  Lori.  As  consideration  for  assisting  in  the  debt
restructuring,  the former director received 150,000 shares of Lori common stock
valued at $337,500  ($2.25 per share) based upon Lori's  closing market value on
March 30, 1995.  The first quarter 1995  extraordinary  gain was  calculated (in
thousands) as follows:

    Amounts due the bank under loan agreements                
       of Lori and its operating subsidiaries and Fill-mor       $  10,500
    Less amounts due the bank                                         (750)
                                                                 ---------
    Bank debt discharged                                             9,750
    Less fair market value of  Lori common stock
        issued as consideration for the debt restructuring            (337)
    Other fees and expenses                                           (300)
                                                                 ---------
             Net extraordinary gain                              $   9,113
                                                                 =========

         New Dimensions 1993 Restructuring

The  reorganization of New Dimensions  resulted in a 1993  extraordinary gain of
$22,057,000  ($4.49 per share) from a net discharge of  indebtedness  calculated
(in thousands) as follows:

     Amount due on New Dimensions' 12.75% Senior Notes,
        including accrued interest                               $  22,822
    Trade liabilities and accrued expenses                           3,231
                                                                 ---------
             Total unsecured claims                                 26,053
    Less present value of payments due to unsecured creditors       (2,725)
    Less present value of  bank restructuring loan fee              (1,271)
                                                                 ---------
             Net extraordinary gain                              $  22,057
                                                                 =========

9.       NOTES PAYABLE

Notes payable (in thousands) consist of:
                                                 December 28,  December 29,
                                                     1995          1994
                                                   --------      -------- 

      ARTRA bank notes payable, 
        at various interest rates                  $ 12,063      $ 18,507
      Amounts due to related parties, 
        interest from 8% to 12%                       5,675         5,669
      ARTRA 12% convertible subordinated 
        promissory notes                              2,500             -
      Other, interest from 8% to 20%                  5,062         3,877
                                                   --------      -------- 
                                                   $ 25,300      $ 28,053
                                                   ========      ========
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

         Bank Notes Payable

At December 31,  1993,  $17,063,000  in ARTRA notes,  plus related loan fees and
accrued  interest were payable to a bank. The notes provided for interest at the
prime rate. These bank notes were collateralized by, among other things, 100% of
the common  stock of ARTRA's  BCA  subsidiary,  the  parent of  Bagcraft,  and a
secondary  position on the assets of BCA,  payments  due under a  noncompetition
agreement with the Company's former Welch subsidiary and by a subordinated  note
in the principal amount of $2,500,000  received by ARTRA as part of the proceeds
from the sale of Welch.  Additionally,  the bank notes are  collateralized  by a
$5,500,000  personal guaranty of a private investor and, prior to March 31, 1994
as discussed below, the bank notes were  collateralized by a $2,500,000 guaranty
of a private  corporation.  A major  shareholder  and  executive  officer of the
private  corporation  is an ARTRA  director.  As  additional  compensation,  the
private  investor is receiving 1,833 shares of ARTRA common stock for each month
the guaranty is outstanding and the private  corporation  received 833 shares of
ARTRA  common stock for each month the  guaranty  was  outstanding.  Among other
things, the bank notes prohibit the payment of cash dividends by ARTRA.

On March 31,  1994,  ARTRA  entered  into a series of  agreements  with its bank
lender  and  with the  private  corporation  noted  above  that  had  guaranteed
$2,500,000  of ARTRA's  bank  notes.  Per terms of the  agreements,  the private
corporation  purchased  $2,500,000  of ARTRA  notes from  ARTRA's  bank  thereby
reducing the outstanding  principal on ARTRA's bank notes to $12,063,000 and the
bank released the private  corporation  from its $2,500,000  loan guaranty.  The
ARTRA bank notes and  related  loan fees were  payable on  September  30,  1994.
Interest on the bank notes continues to accrue at the prime rate (8.75% and 8.5%
at  September  28, 1995 and  December  29,  1994,  respectively)  and is payable
quarterly.  Interest  on the bank  notes has been paid  through  June 14,  1994.
Effective March 31, 1994, ARTRA pledged,  as additional  collateral for its bank
notes,  any and all net  proceeds  arising  from  its  lawsuit  against  Salomon
Brothers, Inc., Salomon Brothers Holding Company Inc. (collectively,  "Salomon")
D.P. Kelly & Associates,  L.P. ("Kelly") and all of the directors of Emerald for
breaches of fiduciary  duty by the directors of Emerald,  induced by Salomon and
Kelly, in connection with the  reorganization of Envirodyne as discussed in Note
7. As consideration  for purchasing  $2,500,000 of ARTRA bank notes, the private
corporation  received a $2,500,000  note payable from ARTRA bearing  interest at
the prime rate.

As additional  consideration,  the private corporation has received an option to
put  back to  ARTRA  the  49,980  shares  of  ARTRA  common  stock  received  as
compensation for its former  $2,500,000 ARTRA loan guaranty at a price of $15.00
per  share.  The put  option  is  exercisable  on the  later of the day that the
$2,500,000 note payable to the private  corporation  becomes due or the date the
ARTRA bank notes have been paid in full. The option price increases by $2.25 per
share annually  ($18.938 per share at December 28, 1995).  The  $2,500,000  note
payable to the private  corporation  is  reflected in the above table as amounts
due to related  parties.  During the first quarter of 1996, the $2,500,000  note
and related  accrued  interest was paid in full  principally  with proceeds from
additional short-term borrowings.

In June 1995 ARTRA entered into an agreement to settle  amounts due ARTRA by the
former  Welch  subsidiary  under  terms  of a  noncompetition  agreement  and  a
subordinated  note in the principal  amount of  $2,500,000  received by ARTRA as
part of the proceeds  from the 1989 sale of Welch.  Per terms of the  settlement
agreement,  ARTRA  received cash of $3,000,000  and a  subordinated  note in the
principal  amount of $640,000 payable June 30, 2001. The cash proceeds were used
for a $2,500,000  reduction of amounts due on certain ARTRA bank notes, with the
remainder used for working capital. In conjunction with this transaction,  ARTRA
entered  into a letter  agreement  with the bank  whereby the bank agreed not to
exercise  any of its rights and  remedies  with  respect to amounts due the bank
under its ARTRA notes and certain  obligations  of ARTRA's  president,  Peter R.
Harvey through at least September 28, 1995.

In February  1996, a bank agreed to discharge  all amounts under its ARTRA notes
($12,063,000 plus accrued interest and fees) and certain  obligations of ARTRA's
president,  Peter R. Harvey for consideration consisting of ARTRA's cash payment
of $5,050,000, Mr. Harvey's cash payment of $100,000 and Mr. Harvey's $3,000,000
note  payable  to the  bank  (the  "Harvey  Note").  The bank  assigned  ARTRA a
$2,150,000  interest in the Harvey  Note,  subordinated  to the bank's  $850,000
interest in the Harvey Note.  ARTRA then  discharged  $2,150,000 of Mr. Harvey's
prior  advances  in  exchange  for  its  $2,150,000  interest  in  Mr.  Harvey's
$3,000,000  note  payable  to the  bank.  ARTRA  will  recognize  a gain  on the
discharge of its bank  indebtedness  of  approximately  $10,000,000 in the first
quarter of 1996 and will record a receivable for Mr.  Harvey's  prorata share of
the debt discharge funded by the Company.
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

In  conjunction  with the February 1996 discharge of  indebtedness,  the Company
entered  into a  $1,900,000  short-term  loan  agreement  with  an  unaffiliated
company.  The loan, due May 26, 1996, with interest at 12% is collateralized by,
among other things,  the common stock of ARTRA's BCA  subsidiary.  As additional
compensation  for the loan  and for  participating  in the  above  discharge  of
indebtedness,  the lender has received,  to-date, 150,000 shares of ARTRA common
stock and 37,500  shares of COMFORCE  common stock held by ARTRA.  Additionally,
for a cash  payment of  $500,000  to ARTRA,  the lender  purchased  an option to
acquire up to 40% of the common stock of Bagcraft for nominal consideration.  If
the borrowings  under the loan  agreement are repaid by May 26, 1996,  ARTRA can
repurchase the option for a cash payment of $550,000.  If the  borrowings  under
the loan agreement are repaid  subsequent to May 26, 1996, the percentage of the
warrant ARTRA can repurchase  declines on a sliding scale through July 25, 1996.
The proceeds  from this loan  agreement  along with  proceeds  received from the
Bagcraft  subsidiary as  consideration  for the issuance of BCA preferred  stock
(see  Note 12) were  used to fund the  cash  payment  to the bank for the  above
discharge of indebtedness.

Effective May 14, 1991,  ARTRA,  through its wholly-owned  Fill-Mor  subsidiary,
entered into a loan  agreement  with a bank  providing  for  borrowings of up to
$2,500,000  with  interest  at the prime rate plus 2%, of which  $2,200,000  was
outstanding  at  December  29,  1994.  The loan was  collateralized  by  ARTRA's
interest in Lori common  stock and  preferred  stock,  by the  proceeds of a tax
sharing  agreement  between  ARTRA and its  Bagcraft  subsidiary  and by ARTRA's
interest in Fill-Mor's  common stock.  At December 29, 1994,  borrowings on this
note were  reclassified  as amounts due under the debt  restructuring  agreement
discussed in Note 8. In March,  1995,  borrowings  due under this loan agreement
were discharged.

At  December  29,  1994 an  ARTRA  bank  note  with  outstanding  borrowings  of
$3,600,000  had been past due since  December  31, 1990.  Effective  October 30,
1995,  the  Company   settled  this  bank  obligation   totaling   approximately
$5,000,000, including accrued interest, for a cash payment of $150,000. The gain
on  this  debt  extinguishment  was  reflected  in  the  Company's  consolidated
financial  statements in the fourth  quarter of 1995. In October,  1995 the bank
agreed to discharge the $3,600,000 note plus accrued  interest of $1,467,000 for
a cash payment of $150,000,  resulting in an  extraordinary  gain of  $4,917,000
($.71 per share) in the fourth quarter of 1995.

An ARTRA bank note with outstanding  borrowings of $345,000 at December 29, 1994
was guaranteed by a private company.  Interest on the note was at the prime rate
plus 2%. In October, 1995 all amounts due on this bank note were paid in full.

         Amounts Due To Related Parties

At December  28,  1995 and  December  29,  1994,  the  Company  had  outstanding
borrowings   from  its   Chairman,   John  Harvey,   of  $175,000  and  $42,000,
respectively.  Since January, 1995, John Harvey's borrowings have been evidenced
by unsecured short-term notes bearing interest at 8%. As additional compensation
the loans  provide for the issuance of warrants to purchase  ARTRA common shares
at prices  equal to the  market  value of  ARTRA's  common  stock at the date of
issuance. The warrants expire five years from the date of issuance. Terms of the
note provide for the issuance of  additional  warrants to purchase  ARTRA common
shares,  as determined by the number of days the loans are outstanding.  Through
February 29, 1996, John Harvey has received warrants to purchase an aggregate of
58,007  shares of ARTRA common stock at prices  ranging from $3.75 to $6.125 per
share as additional compensation for his loans to ARTRA.

At March 30, 1995, amounts due to related parties included a $850,000 short-term
loan from a then  director of  COMFORCE.  The loan  provided for interest at the
prime rate plus 1%. As consideration for assisting with the debt  restructuring,
the former  director  received  150,000  Lori common  shares  valued at $337,500
($2.25 per share) based upon  COMFORCE  closing  market value on March 30, 1995.
The principal  amount of the loan was reduced to $750,000 at July 31, 1995.  The
remaining  loan  principal  was not repaid on its  scheduled to maturity date of
July 31, 1995. Per terms of the loan agreement,  the former director received an
additional 50,000 COMFORCE common shares as compensation for the
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

non-payment of the loan at its originally scheduled maturity.  The maturity date
of the loan was  subsequently  extended to September 30, 1995.  The Company then
entered into  discussions  with the director to extend the maturity  date of the
loan and, as  additional  consideration  for the  non-payment  of the loan,  the
former director received an additional 25,000 shares of COMFORCE common stock in
January 1996. In March 1996, the loan was repaid in full by ARTRA.

At December 29, 1994, amounts due to related parties also included borrowings of
$127,000, respectively, from the above mentioned former director of COMFORCE. As
additional compensation the former director has received warrants to purchase an
aggregate of 236,315 ARTRA common shares at prices  ranging from $3.75 to $6.375
per share  based upon the market  value of ARTRA's  common  stock at the date of
issuance. The warrants expire five years from the date of issuance. Terms of the
note provide for the issuance of  additional  warrants to purchase  ARTRA common
shares as determined by the number of days the loan is outstanding.  In December
1995,  amounts due  pursuant to this loan were repaid by the  issuance of 33,000
shares of ARTRA common stock.

On December 31, 1993, a religious organization,  currently holding approximately
7% of ARTRA's outstanding common stock, loaned the Company $2,000,000  evidenced
by a  short-term  note  bearing  interest at 10%. The proceeds of this loan were
remitted to ARTRA's bank to pay  principal and interest on ARTRA's bank notes as
discussed above. In January, 1994 the religious  organization made an additional
$1,000,000  short-term  loan to the  Company  also  with  interest  at  10%.  As
additional  compensation  for the above loans,  the lender received  warrants to
purchase an aggregate of 86,250 ARTRA common shares at prices ranging from $6.00
to $7.00 per share based upon the market of ARTRA's  common stock at the date of
issuance.  The warrants expire in 1998, five years from the date of issuance. In
July, 1994 ARTRA made a $2,000,000  payment  against the amounts  outstanding on
the above loans and the  religious  organization  subsequently  loaned  ARTRA an
additional $2,000,000. At December 28, 1995 and December 29, 1994 borrowings due
the  religious  organization  totaled  $3,000,000.  In December,  the  religious
organization  received  126,222  shares of ARTRA  common in  payment of past due
interest through October 31, 1995.

         Convertible Subordinated Promissory Notes

In December  1995,  ARTRA  completed a private  placement of  $2,500,000  of 12%
convertible  subordinated  promissory  notes due March 21, 1996.  As  additional
consideration  the  noteholders  received  15,000 ARTRA  common  shares per each
$100,000 of notes issued,  or an aggregate of 375,000 ARTRA common  shares.  The
ARTRA common shares were valued at $1,266,000  ($3.375 per share) based upon the
closing market value of ARTRA common stock on the date of issue,  discounted for
restricted marketability. In the event the notes and all accrued interest is not
paid in full at maturity,  the  noteholders  have the option to convert all or a
portion of the amount due into shares of ARTRA common at a  conversion  price of
$3.00 per share.  The  proceeds  from the private  placement,  held in escrow at
December  28,  1995,  were used to pay down other debt  obligations  in January,
1996. The notes were repaid in April,  1996,  substantially with proceeds from a
new private placement of ARTRA notes.

         Other

In conjunction  with the debt  settlement  agreement  discussed in Note 8, ARTRA
entered  into a  $1,850,000  short-term  loan  agreement  with a  non-affiliated
corporation,  the  proceeds  of which were used to fund  amounts due the bank as
discussed  below.  The loan, due June 30, 1995, with interest payable monthly at
10%, was  collateralized  by 100,000 shares of Lori common stock.  These 100,000
COMFORCE  common  shares were  originally  issued to the bank under terms of the
August 18, 1994  Settlement  Agreement.  In August,  1995 the loan was  extended
until  September 15, 1995 and the lender  received the above  mentioned  100,000
COMFORCE common shares as  consideration  for the loan  extension.  The loan was
repaid by ARTRA in February, 1996.
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

10.      LONG-TERM DEBT
   Long-term debt (in thousands) consists of:

                                                      December 28,  December 29,
                                                          1995          1994
                                                        --------     --------

   Bagcraft Credit Agreement,
     Term loans,
       interest at the prime rate plus 1.75% to 3%      $ 16,600     $ 17,000
     Revolving credit loan,
       interest at the prime rate plus 1.5%                9,231       16,672
     Unamortized discount                                      -         (315)
   Bagcraft, City of Baxter Springs, 
     Kansas loan agreements,
     interest, at varying rates                           11,794       12,310
   Arcar subordinated promissory notes 
     due to seller,
     interest at the prime rate                                -        8,000
   Arcar bank term loan,
     interest at the prime rate plus .75%                      -        2,750
   Amounts due a bank term under terms of
     a debt settlement agreement                               -       10,500
   Other, at various interest rates,
     due in varying amounts through 1995                       -           27
                                                        --------     --------
                                                          37,625       66,944
   Current scheduled maturities                           (3,512)     (37,521)
   Debt subsequently discharged                                -       (9,750)
                                                        --------     --------
                                                        $ 34,113     $ 19,673
                                                        ========     ========

         Bagcraft

Effective December 17, 1993,  Bagcraft refinanced its bank debt by entering into
a Credit  Agreement  that provides for a revolving  credit loan and two separate
term loans. The term loans were separate two-year facilities  initially totaling
$12,000,000  (Term Loan A) and $8,000,000 (Term Loan B), bearing interest at the
lender's index rate plus 1.75% and 3%,  respectively.  The principal  under Term
Loan A is payable at  maturity,  unless  accelerated  under  terms of the Credit
Agreement.   The  principal   under  Term  Loan  B  ($4,600,000  and  $5,000,000
outstanding  at December  28, 1995 and  December  29,  1994,  respectively)  was
scheduled to be payable in  twenty-four  monthly  installments  of $250,000 from
January  1, 1994 to  December  1, 1995,  with the  remaining  principal  balance
payable at maturity,  unless accelerated under terms of the Credit Agreement. At
December 28, 1995, interest rates on Term Loan A and Term Loan B were 10.25% and
11.5% respectively.

The amount available to Bagcraft under the revolving credit loan is subject to a
borrowing base, as defined in the agreement, up to a maximum of $18,000,000.  At
December 28, 1995 and December 29, 1994, approximately $6,600,000 and
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

$800,000, respectively, was available and unused by Bagcraft under the revolving
credit loan.  Borrowings  under the  revolving  credit loan bear interest at the
lender's  index  rate plus 1.5% and are  payable  upon  maturity  of the  Credit
Agreement,  unless accelerated under terms of the Credit Agreement.  At December
28, 1995 the interest rate on the revolving credit loan was 10%.

Borrowings under the Credit Agreement are collateralized by substantially all of
the assets of  Bagcraft.  The Credit  Agreement,  as amended,  contains  various
restrictive  covenants,  that among  other  restrictions,  require  Bagcraft  to
maintain minimum levels of tangible net worth and liquidity  levels,  and limits
capital  expenditures  and restricts  additional  loans,  dividend  payments and
payments to related parties. In addition, the Credit Agreement prohibits changes
in ownership of Bagcraft.

In October,  1995 the Credit Agreement was amended whereby,  among other things,
the maturity  date of the Credit  Agreement  was extended  until March 31, 1996,
certain loan covenant  violations were resolved and the principal payments under
Term Loan B were modified to include five monthly  installments of $200,000 from
November  15, 1995 to March 31,  1996,  with the  remaining  balance  payable at
maturity (March 31, 1996) .

Effective  February 1, 1996,  the Credit  Agreement was amended  whereby,  among
other  things,  the maturity  date of the Credit  Agreement  was extended  until
September 30, 1997, certain loan covenants were amended.  The principal payments
under Term Loan B were modified to include  twenty-three monthly installments of
$200,000  from  November 15, 1995 to  September  30,  1997,  with the  remaining
balance  payable at maturity  (September  30, 1997) .  Additionally,  the lender
consented to the use of $4,135,000  advanced under the revolving  credit loan to
fund a preferred stock exchange  agreement between BCA (the parent of Bagcraft),
Bagcraft and the holder of Bagcraft's  13.5%  cumulative,  redeemable  preferred
stock (see Note 12).

As additional compensation for borrowings under the Credit Agreement, the lender
received a detachable warrant, expiring in December 1998, allowing the holder to
purchase up to 10% of the fully  diluted  common equity of Bagcraft at a nominal
value. Under certain  conditions  Bagcraft is required to repurchase the warrant
from the lender.  The determination of the repurchase price of the warrant is to
be based on the warrant's pro rata share of the highest of book value, appraised
value or market value of Bagcraft.

In connection with the February 1, 1996 amendment to the Credit  Agreement,  the
warrant  agreement was amended to permit the holder to purchase 13% of the fully
diluted common equity of Bagcraft at the original  nominal purchase price and to
extend the expiration date to December 17, 1999.

In March,  1994  Bagcraft  and the City of Baxter  Springs,  Kansas  completed a
$12,500,000  financing package associated with the construction of a new 265,000
sq. ft. production  facility in Baxter Springs,  Kansas.  The financing package,
funded by a  combination  of  Federal,  state and local  funds,  consists of the
following  loan  agreements  payable by Bagcraft  directly to the City of Baxter
Springs:

         A $7,000,000  promissory  note payable in ten  installments of $700,000
         due annually on July 21 of each year beginning in 1995 through maturity
         on July 21,  2004.  Interest,  at varying  rates from 4.6% to 6.6%,  is
         payable  semi-annually.  At December  28, 1995 and  December  29, 1994,
         Bagcraft had  outstanding  borrowings  of  $6,300,000  and  $7,000,000,
         respectively, under this loan agreement.

         A $5,000,000 subordinated promissory note payable as follows:  $150,000
         due in 1996;  $2,425,000  due in 1998;  and $2,425,000 due in 1999. The
         subordinated  promissory  note  is  non-interest  bearing,  subject  to
         certain repayment  provisions as defined in the agreement (as amended).
         At December 28, 1995 and December  29, 1994,  Bagcraft had  outstanding
         borrowings of $5,000,000 and $4,810,000,  respectively, under this loan
         agreement.
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

         Two separate $250,000 subordinated  promissory notes payable in varying
         installments  through  January 20, 2025.  The  subordinated  promissory
         notes are non-interest bearing, subject to certain repayment provisions
         as defined in the  agreement.  At December  28, 1995 and  December  29,
         1994,  Bagcraft had  outstanding  borrowings  of $493,000 and $500,000,
         respectively, under this loan agreement.

Borrowings under the above loan agreements are collateralized by a first lien on
the land and building at the Baxter Springs, Kansas production facility and by a
second lien on certain  machinery and  equipment.  Under certain  circumstances,
repayment of the borrowings  under the above loan  agreements is subordinated to
the repayment of obligations under Bagcraft's Credit Agreement.  At December 28,
1995 and December 29, 1994, $552,000 and $774,000,  respectively,  of borrowings
from the above loan agreements is reflected in the consolidated balance sheet in
current  assets as restricted  cash and  equivalents.  These funds,  invested in
interest bearing cash  equivalents,  are restricted for expenditures  associated
with the Baxter Springs, Kansas project.

         Arcar

On April 8, 1994,  Bagcraft completed the acquisition of Arcar for consideration
consisting of cash of $2,264,000  and  subordinated  promissory  notes  totaling
$8,000,000  ($5,500,000  and  $8,000,000  outstanding  at September 28, 1995 and
December 29, 1994, respectively). The subordinated promissory notes provided for
interest payable  quarterly at the prime rate (as defined in the agreement).  At
September 28, 1995, the remaining outstanding promissory notes were scheduled to
mature as follows:  $2,500,000 payable March 15, 1996;  $2,500,000 payable March
15, 1997; $500,000 payable March 15, 1998. The seller also received a warrant to
purchase  177,778 ARTRA common shares at a price of $5.625 per share, the market
value at the date of grant.  Exercise of the warrant was payable  only through a
reduction  of the  subordinated  promissory  notes and accrued  interest due the
seller under terms of the purchase agreement.  The subordinated promissory notes
were paid in full in  October,  1995 with  proceeds  from the sale of Arcar (see
Note 3).

Effective April 8, 1994,  Arcar entered into a Loan and Security  Agreement (the
"Agreement")  with a bank that  provided for a revolving  credit loan and a term
loan. The term loan, in the original  principal  amount of $2,750,000,  provided
for interest at the prime rate plus .75%.  Borrowings  under the Agreement  were
collateralized  by  substantially  all of the  assets  of Arcar.  The  Agreement
contained various restrictive covenants, that among other restrictions,  require
Arcar to maintain  minimum  levels of net worth and  liquidity  levels and limit
additional  loans,  dividend  payments,  capital  expenditures  and  payments to
related  parties.  All  borrowings  under  the  Agreement  were  paid in full in
October, 1995 with proceeds from the sale of Arcar (see Note 3).

         Lori

As discussed in Note 8, effective August 18, 1994, as amended effective December
23, 1994, ARTRA, Fill-Mor,  Lori and Lori's fashion costume jewelry subsidiaries
entered into an agreement with Lori's bank lender to settle  obligations due the
bank under terms of the bank loan  agreements  of Lori and its  fashion  costume
jewelry  subsidiaries  and  Fill-Mor.  Borrowings  due the bank  under  the loan
agreements of Lori and its operating  subsidiaries and Lori's parent,  Fill-Mor,
plus  amounts  due the bank  for  accrued  interest  and fees  were  reduced  to
$10,500,000  as of December  23, 1994 (of which  $7,855,000  pertained to Lori's
obligation to the bank and $2,645,000 pertained to Fill-Mor's  obligation to the
bank). As partial  consideration for the Amended  Settlement  Agreement the bank
received a $750,000 Lori note payable due March 31, 1995.

In  March,  1995 the  $750,000  note  due the  bank  was paid and the  remaining
indebtedness  of Lori and Fill-Mor was  discharged,  resulting in an  additional
extraordinary gain to Lori and Fill-Mor of $9,113,000 in 1995 (See Note 8).
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

The common stock and virtually all the assets of ARTRA's  subsidiaries have been
pledged as  collateral  for  ARTRA's  and its  subsidiaries'  borrowings.  Under
certain  debt  agreements  the Company is limited in the amounts it can withdraw
from its  operating  subsidiaries.  At December  28, 1995 and December 29, 1994,
substantially  all cash and  equivalents on the Company's  consolidated  balance
sheet are restricted to use by and for the Company's operating subsidiaries.

At December  28, 1995 the  aggregate  amount of yearly  maturities  of long-term
debt, exclusive of debt discharged,  is: 1996,  $3,512,000;  1997,  $24,143,000;
1998, $3,137,000; 1999, $3,137,000; 2000, $712,000; thereafter, $2,983,000.

11.   REDEEMABLE COMMON STOCK

ARTRA has entered  into  various  agreements  under which it has sold its common
shares along with options that require ARTRA to  repurchase  these shares at the
option of the holder, principally one year after the date of each agreement. The
difference  between the option price and the net proceeds  received is amortized
over the life of the options by a charge to retained  earnings.  ARTRA agreed to
register  100,000 ARTRA common shares issued to a bank as partial  consideration
for a 1994 debt settlement agreement on or before July 31, 1995, after which the
bank has the  right  to put the  100,000  common  shares  back to  ARTRA  for an
exercise  price of $500,000.  As of March 31, 1996 the ARTRA common  shares have
not been  registered and the bank has not exercised the put option.  At December
28, 1995 and December 29, 1994 options are outstanding that, if exercised, would
require ARTRA to repurchase  283,965 and 279,679  shares of its common stock for
an aggregate amount of $4,774,000 and $4,144,000, respectively.

12.   REDEEMABLE PREFERRED STOCK

On September 27, 1989,  ARTRA received a proposal to purchase BCA, the parent of
Bagcraft,  from Sage Group, Inc.  ("Sage"),  a privately-owned  corporation that
owned 100% of the outstanding common stock of BCA. Sage was merged with and into
Ozite  Corporation  ("Ozite")  on August  24,  1990.  Peter R.  Harvey,  ARTRA's
President, and John Harvey, ARTRA's Chairman of the Board of Directors, were the
principal  shareholders  of Sage and are the  principal  shareholders  of Ozite.
Effective  March 3, 1990, a  wholly-owned  subsidiary of ARTRA  acquired 100% of
BCA's issued and  outstanding  common shares for  consideration  of  $5,451,000,
which  included  772,000 shares of ARTRA common stock and 3,750 shares of $1,000
par value junior non-convertible  payment-in-kind  redeemable Series A Preferred
Stock with an estimated fair value of $1,012,000, net of unamortized discount of
$2,738,000. The Series A Preferred Stock accrues dividends at the rate of 6% per
annum and is redeemable by ARTRA on March 1, 2000 at a price of $1,000 per share
plus accrued dividends.  Accumulated dividends of $1,519,000 and $1,221,000 were
accrued at December 28, 1995 and December 29, 1994, respectively.

In 1987,  Bagcraft issued to a subsidiary of Ozite $5,000,000 of preferred stock
(50,000  shares  of  13.5%  cumulative,   redeemable   preferred  stock  with  a
liquidation  preference equal to $100 per share)  redeemable by Bagcraft in 1997
at a price of $100 per share plus accrued dividends. Dividends, which accrue and
are payable semiannually on June 1 and December 1 of each year, are reflected in
the Company's  consolidated  statement of operations as minority  interest.  The
holder has  agreed to forego  dividend  payments  as long as such  payments  are
prohibited  by  Bagcraft's  lenders.  Accumulated  dividends  of  $5,794000  and
$5,119,000   were   accrued  at  December   28,  1995  and  December  29,  1994,
respectively.

In 1987,  Bagcraft  obtained  financing  from a subsidiary  of Ozite through the
issuance of a $5,000,000  unsecured  subordinated note, due June 1, 1997. During
1992, per agreement with the noteholder,  the interest payments were remitted to
ARTRA and the  noteholder  received  675 shares of BCA Series A preferred  stock
($1.00 par value,  6% cumulative with a liquidation  preference  equal to $1,000
per  share)  with a  liquidation  value of  $675,000.  In  December,  1993,  the
unsecured  subordinated note and accrued interest thereon were paid in full from
proceeds of Bagcraft's Credit Agreement. Per agreement with the noteholder,  the
accrued interest outstanding on the note of $3,000,000 was remitted to ARTRA and
the noteholder  received an additional 3,000 shares BCA preferred stock having a
liquidation value of $3,000,000.
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Effective February 1, 1996, BCA, Bagcraft and Ozite entered into an agreement to
exchange certain  preferred stock between the Companies.  In connection with the
agreement,  BCA issued to Bagcraft 8,135 shares of BCA Series B preferred  stock
(with  a  liquidation  preference  equal  to  $1,000  per  share)  for  cash  of
$4,135,000.  Bagcraft in turn  exchanged  the BCA Series B  preferred  stock for
Bagcraft  redeemable  preferred stock (82.7% of 50,000 shares, or 41,350 shares)
held by Ozite.  Funds for the transaction  were obtained by Bagcraft  through an
advance under its revolving  credit.  BCA then  upstreamed the proceeds to ARTRA
for working capital purposes.

As a result of the preferred  stock  exchange  agreement,  17.3% of the original
Bagcraft  redeemable  preferred stock and the prorata share of dividends  remain
outstanding  February  1, 1996.  Dividends  related to the  Bagcraft  redeemable
preferred  stock  exchanged have been forgiven in accordance with the agreement.
The  dividend  forgiveness  will  be  reflected  in the  Company's  consolidated
financial statements in the first quarter of 1996.

13.   STOCK OPTIONS AND WARRANTS

         Stock Option Plan

In July, 1985,  ARTRA's  shareholders  approved a stock option plan (the "Plan")
for certain officers and key employees of the Company and its subsidiaries.  The
Plan, as amended,  reserved  1,000,000  shares of the Company's common stock and
authorized  the granting of options on or before  February 1, 1995. The purchase
price of such  options  was to be not less than the market  value at the date of
grant for incentive  stock options  ("ISO") and not less than 110% of the market
value on the date of grant for an ISO granted to a  shareholder  possessing  10%
more of the voting stock of the Company. Non-qualified options may be granted at
such price and amount as the Company determines at the date of grant.

During 1994,  the Company  issued a former  officer of Bagcraft a  non-qualified
option to purchase  20,000  shares of ARTRA  common  stock at $5.75 per share as
additional compensation for short-term loans to ARTRA.

Effective January 8, 1993, the Company issued certain officers and key employees
of ARTRA options to purchase  148,100  shares of ARTRA common stock at $3.75 per
share. The options expire ten years from the date of grant.

During 1993,  the Company  issued to a then officer of Bagcraft a  non-qualified
option to purchase  50,000  shares of ARTRA  common  stock at $3.75 per share as
additional  compensation  for  short-term  loans  to  ARTRA.  The  options  were
exercised  during  1993.  The  exercise of these  options was  principally  paid
through a reduction of the then Bagcraft officer's loans to ARTRA.
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

A summary of stock option  transactions  for the three years in the period ended
December 28, 1995 is as follows:
                                             1995          1994       1993
                                           --------     --------    --------

   Outstanding at beginning of year:
    
       Shares                               445,460      450,760     340,360

                                            $  3.75      $  3.75     $  5.25
       Prices                                    to           to          to
                                            $ 20.50      $ 20.50     $ 20.50

   Options granted:
       Shares                                             20,000     198,100
       Prices                                            $  5.75     $  3.75

   Options exercised:
       Shares
                                            (12,100)     (25,300)    (74,700)
     
                                                                     $  3.75
       Prices                               $  4.00       $ 5.25          to
                                                                     $  5.25
   Options canceled:
       Shares                                (1,860)                 (13,000)

                                                                     $  5.25
       Prices                               $ 20.50                       to
                                                                     $  5.75
   Outstanding at end of year:
       Shares                               431,500      445,460     450,760
                                           ========     ========    ========

                                            $  3.65      $  3.75     $  3.75
       Prices                                    to           to          to
                                            $ 10.00      $ 20.50     $ 20.50

   Options exercisable at end of year       431,500      445,460     450,760
                                           ========     ========    ========
   Options available for future grant
       at end of year                         -          390,814     410,814
                                           ========     ========    ========
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

         Warrants

At December 28, 1995, warrants were outstanding to purchase a total of 1,148,548
common  shares at prices  ranging from $3.50 per share to $10.50 per share.  The
warrants,  exercisable  from the date of issue,  expire at various dates through
2003.

During 1995, ARTRA issued warrants to purchase an aggregate of 140,507 shares of
its  common  stock at prices  ranging  from $3.75 per share to $6.125 per share,
principally to certain lenders as additional  compensation for short-term loans.
The warrants expire at various dates in 2000. Warrants to purchase 48,331 shares
of ARTRA  common  stock at prices  ranging  from $6.75 per share to $11.375  per
share expired  unexercised  during 1995.  The warrants were issued as additional
compensation for various short-terms loans.

During 1994, ARTRA issued warrants to purchase an aggregate of 154,719 shares of
its  common  stock at prices  ranging  from $4.50 per share to $6.625 per share,
principally to certain lenders as additional  compensation for short-term loans.
The warrants  expire at various  dates from 1996 and 1999.  Warrants to purchase
9,166 shares of ARTRA  common  stock at prices  ranging from $10.00 per share to
$11.25 per share expired  unexercised  during 1994.  The warrants were issued as
additional compensation for various short-terms loans.

During 1993, ARTRA issued warrants to purchase an aggregate of 326,090 shares of
its  common  stock at prices  ranging  from  $3.50 per share to $7.00 per share,
principally to certain lenders as additional  compensation for short-term loans.
The warrants expire at various dates from 1998 and 2003. Additionally,  warrants
to purchase  76,668  shares of ARTRA common stock at prices  ranging from $18.00
per share to $27.00 per share expired unexercised during 1993. The warrants were
issued as additional compensation for short-term loans in 1988.

14.    RESTRUCTURING COSTS

In December,  1993 the Bagcraft  subsidiary  recorded a charge to  operations of
$1,175,000  representing  equipment and inventory  relocation costs and employee
severance  and  outplacement  costs  relating  to  the  construction  of  a  new
manufacturing facility in Baxter Springs,  Kansas. In September,  1994, Bagcraft
completed  construction of a new 265,000 sq. ft.  production  facility in Baxter
Springs,  Kansas.  This facility replaced  Bagcraft's  production  facilities in
Joplin, Missouri, Carteret, New Jersey and Forest Park, Georgia.

15.   COMMITMENTS AND CONTINGENCIES

The Company and its subsidiaries lease certain buildings and equipment which are
used in its  manufacturing  and distribution  operations.  At December 28, 1995,
future  minimum lease payments  under  operating  leases that have an initial or
remaining noncancellable term of more than one year (in thousands) are:

            Year            
            ----
            1996                       $   944
            1997                           860
            1998                           737
            1999                           719
            2000                           449
            After 2000                     765
                                       -------
                                       $ 4,474
                                       =======
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Rental  expense was $861,000,  $1,116,000  and  $1,240,000 in fiscal years 1995,
1994 and 1993 respectively.

In conjunction with the sale of Arcar (see Note 3), Bagcraft entered into an ink
products  purchase  agreement  with the Arcar  buyer for a period of five years.
Under terms of the agreement,  Bagcraft is required to purchase a minimum supply
of ink based on market  prices in effect at the time of each  purchase.  Minimum
dollar amounts  required for each of the contract  years ending  September 30 is
$4,100,000 in 1996;  $4,300,000 in 1997; $4,500,000 in 1998; $3,375,000 in 1999;
and $2,250,000 in 2000.  Bagcraft has issued a letter of credit of $1,000,000 in
conjunction with this agreement.

The Company and its subsidiaries are the defendants in various  business-related
litigation  and  environmental  matters.  At December  28, 1995 and December 29,
1994,  the Company had accrued  $1,800,000  and  $1,500,000,  respectively,  for
business-related   litigation  and   environmental   liabilities.   While  these
litigation and environmental matters involve wide ranges of potential liability,
management  does not believe the outcome of these  matters  will have a material
adverse effect on the Company's  financial  statements.  However,  ARTRA may not
have available  funds to pay liabilities  arising out of these  business-related
litigation and environmental  matters or, in certain  instances,  to provide for
its legal defense.

In January,  1985 the United  States  Environmental  Protection  Agency  ("EPA")
notified the Company's Bagcraft subsidiary that it was a potentially responsible
party under the  Comprehensive  Environmental  Responsibility  Compensation  and
Liability  Act  ("CERCLA")  for alleged  release of hazardous  substances at the
Cross  Brothers  site near  Kankakee,  Illinois.  Although  Bagcraft  has denied
liability for the site, it has entered into a settlement agreement with the EPA,
along with the other third party  defendants,  to resolve all claims  associated
with the site except for state claims.  In May, 1994 Bagcraft paid $850,000 plus
accrued interest of $29,000 to formally extinguish the EPA claim. Bagcraft filed
suit in 1993 in the United States  District  Court for the Northern  District of
Illinois, against its insurers to recover its liability costs in connection with
the Cross Brothers case.  Bagcraft was  subsequently  reimbursed by its insurers
for its liability costs incurred in connection  with the EPA claim.  With regard
to the state action,  Bagcraft is participating  in settlement  discussions with
the State and thirteen other potential responsible parties to resolve all claims
associated  with the State.  The  maximum  state  claim is $1.1  million for all
participants.  Bagcraft has accrued  $120,000 related to the State action in the
Company's consolidated financial statements at December 28, 1995.

Bagcraft  was  listed  as a de  minimis  contributor  at the  American  Chemical
Services,  Inc. off-site  disposal  location in Griffith,  Indiana and the Duane
Marine off-site  disposal  location in Perth Amboy, New Jersey.  These sites are
included in the EPA's National  Priorities List. Bagcraft is presently unable to
determine its liability, if any, with respect to this site.

Bagcraft has been notified by the EPA that it is a potentially responsible party
for the  disposal  of  hazardous  substances  at the Ninth  Avenue site in Gary,
Indiana.  This site is listed on the EPA's National  Priorities list. A group of
defendant PRPs, known as the Ninth Avenue Remedial Group, settled with the USEPA
and agreed to remediate the site.  This Group  subsequently  sued numerous third
party defendants,  including Bagcraft, alleged also to be responsible parties at
the site. The plaintiffs have produced only limited testamentary  evidence,  and
no  documentary  evidence,  linking  Bagcraft to this site,  and the Company has
neither discovered any records which indicate, nor located any current or former
employees who have advised,  that Bagcraft deposited hazardous substances at the
site. Based on the foregoing, management of the Company does not believe that it
is  probable  that the  Company  will  have any  liability  for the costs of the
clean-up of this site. The Company  intends to vigorously  defend itself in this
case.

Bagcraft   is   presently   undertaking   a   soil   remediation   project   for
solvent-contaminated   soil  at  its   Chicago   manufacturing   facility.   The
environmental  firm responsible for implementing the remediation has recommended
that a soil vapor extraction  process be used, at an estimated cost of $175,000.
Although there can be no assurances that remediation  costs will not exceed this
estimate,  in the  opinion  of  management,  no  material  additional  costs are
anticipated.

In  April  1994,  the  EPA  notified  the  Company  that  it  was a  potentially
responsible party for the disposal of hazardous  substances  (principally  waste
oil) at a disposal site in Palmer,  Massachusetts  generated by a  manufacturing
facility formerly operated by the Clearshield Plastics Division  ("Clearshield")
of Harvel Industries,  Inc. ("Harvel"), a majority owned subsidiary of ARTRA. In
1985,  Harvel was merged into ARTRA's  Fill-Mor  subsidiary.  This site has been
included on the EPA's National  Priorities  List. In February 1983,  Harvel sold
the assets of Clearshield to Envirodyne.  The alleged waste disposal occurred in
1977 and 1978, at which time Harvel was a majority-owned subsidiary of ARTRA. In
May 1994,  Envirodyne and its Clearshield  National,  Inc. subsidiary sued ARTRA
for indemnification in connection with this proceeding.  The cost of clean-up at
the Palmer, Massachusetts site has been estimated to be approximately $7 million
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

according  to proofs of claim  filed in the  adversary  proceeding.  A committee
formed by the named potentially  responsible parties has estimated the liability
respecting the activities of Clearshield to be $400,000.  ARTRA has not made any
independent  investigation  of the  amount  of its  potential  liability  and no
assurances can be given that it will not substantially exceed $400,000.

In a case titled Sherwin-Williams Company v. ARTRA GROUP Incorporated,  filed in
1991 in the United States District Court for Maryland,  Sherwin-Williams Company
("Sherwin-Williams")  brought  suit against  ARTRA and other former  owners of a
paint  manufacturing  facility in  Baltimore,  Maryland for recovery of costs of
investigation and clean-up of hazardous  substances which were stored,  disposed
of or otherwise released at this manufacturing facility. This facility was owned
by Baltimore  Paint and Chemical  Company,  formerly a subsidiary  of ARTRA from
1968 to 1980.  Sherwin-William's  current  projection of the cost of clean-up is
approximately  $5 to $6 million.  The Company  has filed  counterclaims  against
Sherwin-Williams  and cross claims  against other former owners of the property.
The Company also is  vigorously  defending  this action and has raised  numerous
defenses.  Currently,  the case is in its  early  stages  of  discovery  and the
Company cannot determine what, if any, its liability may be in this matter.

ARTRA was named as a defendant  in United  States v.  Chevron  Chemical  Company
brought  in the  United  States  District  Court  for the  Central  District  of
California  respecting  Operating  Industries,   Inc.  site  in  Monterey  Park,
California. This site is included on the EPA's National Priorities List. ARTRA's
involvement  stemmed from the alleged  disposal of hazardous  substances  by The
Synkoloid  Company  ("Synkoloid")  subsidiary  of  Baltimore  Paint and Chemical
Company,  which was formerly owned by ARTRA.  Synkoloid  manufactured  spackling
paste, wall coatings and related products,  certain of which generated hazardous
substances as a by-product of the manufacturing process.

ARTRA  entered  into a  consent  decree  with the EPA in which it  agreed to pay
$85,000  for one phase of the  clean-up  costs  for this  site;  however,  ARTRA
defaulted on its payment  obligation.  ARTRA is presently unable to estimate the
total  potential  liability for clean-up  costs at this site,  which clean-up is
expected to continue for a number of years.  The consent decree,  even if it had
been honored by ARTRA,  was not  intended to release  ARTRA from  liability  for
costs  associated with other phases of the clean-up at this site. The Company is
presently  unable determine what, if any,  additional  liability it may incur in
this matter.

In a case  titled  City of  Chicago  v. NL  Industries,  Inc.  and  ARTRA  GROUP
Incorporated,  filed in the Circuit Court of Cook County,  Illinois, the City of
Chicago  alleged that ARTRA (and NL  Industries,  Inc.) had  improperly  stored,
discarded and disposed of hazardous  substances  at the subject  site,  and that
ARTRA had conveyed the site to Goodwill  Industries to avoid clean-up  costs. At
the time the suit was  filed,  the  City of  Chicago  claimed  to have  expended
$1,000,000 in clean-up costs.

ARTRA and NL Industries,  Inc. have counter sued each other and have filed third
party actions against the subsequent owners of the property. The City of Chicago
has made an offer to settle the matter for $350,000 for all parties. The parties
are currently conducting discovery. The Company is presently unable to determine
ARTRA's liability, if any, in connection with this case.

In a case titled  Illinois  Environmental  Protection  Agency v. NL  Industries,
Inc., ARTRA GROUP  Incorporated,  et al, the Illinois  Environmental  Protection
Agency filed suit alleging all former owners contributed to the contamination of
the site. The suit was dismissed, but subject to possible appeal. The Company is
presently unable to determine ARTRA's liability, if any, in connection with this
case.

The EPA has identified  ARTRA GROUP  Incorporated  as a potentially  responsible
party in an action  involving  the  former  manufacturing  facility.  The EPA is
currently   investigating   the  site  to  determine  the  extent  and  type  of
contamination,  if any.  The Company is presently  unable to  determine  ARTRA's
liability, if any, in connection with this case.
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

16.    INCOME TAXES

The  provision  (credit)  for income  taxes is  included  in the  statements  of
operations as follows:

                                       1995            1994           1993
                                    ---------       ---------      ---------
                                                 (in  thousands)
    Continuing operations           $      51       $       9      $       7
    Discontinued  operations               17              74             33
                                    ---------       ---------      ---------  
                                    $      68       $      83      $      40
                                    =========       =========      =========

A summary of the provision (credit) for income taxes is as follows:

                                       1995            1994           1993
                                    ---------       ---------      ---------
                                                 (in  thousands)
    Current:
      Federal                       $       -       $       -      $       -
      State                                68              83             40
                                    ---------       ---------      ---------
                                    $      68       $      83      $      40
                                    =========       =========      =========

The 1995, 1994 and 1993 extraordinary credits represent net gains from discharge
of indebtedness.  No income tax expense is reflected in the Company's  financial
statements  resulting from the  extraordinary  credits due to the utilization of
tax loss carryforwards.
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

16.    INCOME TAXES, continued

In 1995,  1994 and 1993,  the  effective  tax rates from  operations,  including
discontinued operations were (3.9)%, (.4)% and .3%, respectively, as compared to
the statutory Federal rate, which are reconciled as follows:

                                       1995            1994           1993
                                     ---------      ---------     ---------- 
                                                 (in  thousands)

   Provision (credit) for      
     income taxes
     using statutory rate            $   (600)      $ (6,629)     $    4,992
   State and local taxes,
     net of Federal benefit                 68             73              7
   Current year tax 
     loss not utilized                       -          3,151          1,938
   Amortization of goodwill                155            206            212
   Previously unrecognized 
     benefit from  utilizing 
     tax loss carryforwards             (2,136)             -              -
   Effect of not including 
     all subsidiaries in the 
     consolidated tax return             2,546          3,249         (7,113)
    Other                                   35             33              4
                                     ---------      ---------     ----------    
                                     $      68      $      83     $       40
                                     =========      =========     ==========
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

16.    INCOME TAXES, continued

The  types  of  temporary  differences  between  the tax  bases  of  assets  and
liabilities and their financial reporting amounts that give rise to the deferred
tax  liabilities  and  deferred tax assets at December 28, 1995 and December 29,
1994 and their approximate tax effects (in thousands) are as follows:
1995                         1994
                                                       ---------------------------- -----------------------------
                                                        Temporary        Tax            Temporary        Tax       
                                                        Difference    Difference        Difference    Difference
                                                        ----------    ----------        ----------    ----------
Trade accounts receivable                             $      200    $      100        $    1,700    $       700
  Inventories                                                    -             -               400            200
  Investment in Emerald Acquisition Corporation                  -             -            18,600          7,200
  Accrued personnel costs                                    1,800           700             1,900            800
  Restructuring reserve                                        200           100             1,100            400
  Environmental reserve                                        400           200               400            200
  Other                                                      2,900         1,100             2,600          1,000
  Capital loss carryforward                                 11,000         4,300                 -             -
  Net operating loss                                        44,000        17,200            97,000         37,800
                                                                        --------                          -------
            Total deferred tax assets                                     23,700                           48,300
                                                                        --------                          -------

  Inventories                                               (6,700)       (2,600)           (6,100)        (2,400)
  Accumulated depreciation                                  (7,900)       (3,100)           (9,500)        (3,700)
  Other                                                       (800)         (300)             (400)          (200)
                                                                        --------
            Total deferred tax liabilities                                (6,000)                          (6,300)
                                                                        --------                          -------
            Valuation allowance                                          (17,700)                         (42,000)
                                                                        --------                          -------
            Net deferred tax asset                                      $      -                          $     - 
                                                                        ========                          =======
The Company has  recorded a valuation  allowance  with respect to the future tax
benefits and the net operating loss reflected in deferred tax assets as a result
of the uncertainty of their ultimate realization.

At December 28, 1995,  the Company and its  subsidiaries  had Federal income tax
loss carryforwards of approximately  $44,000,000 available to be applied against
future taxable income,  if any. ARTRA's tax loss  carryforwards of approximately
$33,000,000   expire   principally  in  2003  -  2010.   Additionally,   ARTRA's
discontinued  Ultrasonix  and Ratex  subsidiaries  had  Federal  income tax loss
carryforwards  of  approximately  $11,000,000  available  to be applied  against
future taxable income, if any. In recent years, the Company has issued shares of
its  common  stock to repay  various  debt  obligations,  as  consideration  for
acquisitions,  to fund working  capital  obligations  and as  consideration  for
various  other  transactions.  Section 382 of the Internal  Revenue Code of 1986
limits a corporation's  utilization of its Federal income tax loss carryforwards
when certain changes in the ownership of a corporation's common stock occurs. In
the  opinion  of  management,  the  Company  is not  currently  subject  to such
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

limitations   regarding  the   utilization   of  its  Federal  income  tax  loss
carryforwards.  Should the  Company  continue to issue a  significant  number of
shares of its common stock,  it could trigger a limitation that would prevent it
from   utilizing  a  substantial   portion  of  its  Federal   income  tax  loss
carryforwards.

17.   EMPLOYEE BENEFIT PLANS

The Company and its subsidiaries have certain  contributory and  noncontributory
benefit  plans  covering   eligible   employees.   Both  employee  and  employer
contributions are generally determined as a percentage of the covered employee's
annual compensation. The total expense charged to continuing operations from all
of these plans  amounted to $477,000,  $333,000  and $450,000 in 1995,  1994 and
1993, respectively.

Effective  June 1, 1990, the Company  adopted an Employee  Stock  Ownership Plan
("ESOP")  which  covers   eligible   employees  of  ARTRA  and  certain  of  its
subsidiaries.  Employer  contributions  to the  Plan  are at the  discretion  of
ARTRA's  Board  of  Directors.   Employee   contributions   are  not  permitted.
Contributions  are  allocated in the same  proportion  that the  percentage of a
participant's  compensation  for the Plan year bears to the  compensation of all
participants  for the Plan year.  ARTRA  contributed  8,750 common shares to the
Plan with a fair  market  value of  $42,000  ($4.75 per share) for the plan year
ending  December 28, 1995.  ARTRA  contributed  15,000 common shares to the Plan
with a fair market  value of $71,250  ($4.75 per share) for the plan year ending
December 29, 1994.  ARTRA  contributed  65,000  common shares to the Plan with a
fair  market  value of  $423,000  ($6.50  per  share)  for the plan year  ending
December 30, 1993. At December 28, 1995,  the ESOP held 271,775  shares of ARTRA
common stock.

Effective  August 1, 1995,  the Company  terminated the ESOP and is currently is
the process of distributing the related Employee accounts to participants.

The Company  typically  does not offer the types of benefit  programs  that fall
under the  guidelines of Statement of Financial  Accounting  Standards No. 106 -
Employers Accounting for Post Retirement Benefits Other Than Pensions.

18.   EARNINGS PER SHARE

Earnings  (loss) per share is computed by dividing  net  earnings  (loss),  less
redeemable  preferred stock dividends and redeemable common stock accretion,  by
the  weighted  average  number  of  shares of  common  stock  and  common  stock
equivalents  (redeemable  common  stock,  stock  options and  warrants),  unless
anti-dilutive,  outstanding during each period. Fully diluted earnings per share
is not presented since the result is equivalent to primary earnings per share.

19.    INDUSTRY SEGMENT INFORMATION

At December 28, 1995, the Company,  through its Bagcraft  subsidiary operates in
one industry segment as a manufacturer of packaging products principally serving
the food industry.

Prior to September  28, 1995 and in prior years,  ARTRA's  then  majority  owned
subsidiary,  Lori,  operated as a designer  and  distributor  of  popular-priced
fashion costume jewelry and accessories. In recent years, Lori's fashion costume
jewelry operations had experienced a pattern of significantly lower sales levels
and related  operating losses primarily due to a shift in the buying patterns of
its major customers (i.e.  certain mass  merchandisers)  from  participation  in
Lori's service program to purchases of costume jewelry and accessories  directly
from  manufacturers  and  due to a  continued  unfavorable  retail  environment.
Accordingly,  in September, 1995, Lori adopted a plan to discontinue its fashion
costume jewelry business as discussed in Note 3.
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

As  discussed in Note 3, on September  11,  1995,  Lori signed a stock  purchase
agreement  to  participate  in the  acquisition  of one  hundred  percent of the
capital  stock  of  Global.  Global  provides  telecommunications  and  computer
technical  staffing and consulting  services  worldwide to Fortune 500 companies
and maintains an extensive,  global database of technical  specialists,  with an
emphasis on  wireless  communications  capability.  On October  17,  1995,  Lori
completed the acquisition of one hundred percent of the capital stock of Global.
In  connection  with the  re-focus  of its  business,  Lori  changed its name to
COMFORCE Corporation.

Due to  the  issuances  of  COMFORCE  common  shares  in  conjunction  with  the
acquisition of Global, ARTRA's common stock ownership in COMFORCE was reduced to
approximately  25%.  Accordingly,  in October 1995, the accounts of COMFORCE and
its   majority-owned   subsidiaries   were   deconsolidated   from  the  ARTRA's
consolidated  financial  statements  and  ARTRA's  investment  in  COMFORCE  was
accounted  for under the  equity  method  through  the end of  fiscal  1995.  As
discussed in Note 6, effective  December 28, 1995, the Company  adopted SFAS No.
115 "Accounting for Certain  Investments in Debt and Equity  Securities."  Under
this  statement,  at December 28, 1995, the Company's  investment in COMFORCE is
classified as available for sale and is stated at fair value.

No single  customer  accounted  for more than 10% of  consolidated  net sales in
1995, 1994 and 1993.

20.   LITIGATION

On November 2, 1993,  ARTRA  filed suit in the Circuit  Court of the  Eighteenth
Judicial  Circuit for the state of Illinois (the "State Court  Action")  against
Salomon  Brothers,  Inc.,  Salomon Brothers Holding  Company,  Inc.,  Charles K.
Bobrinskoy,  Michael J. Zimmerman  (collectively,  "Salomon  Defendants"),  D.P.
Kelly & Associates, L.P. ("DPK"), Donald P. Kelly ("Kelly Defendants" along with
DPK), James F. Massey and William  Rifkind.  On November 22, 1993, ARTRA filed a
First Amended Complaint. The defendants removed the case to the Bankruptcy Court
in which the Emerald Chapter 11 case is pending. On July 15, 1994 all but two of
ARTRA's causes of action were remanded to the state court.  The Bankruptcy Court
retained  jurisdiction  of ARTRA's  claims  against the defendants for breaching
their  fiduciary  duty as  directors  of  Emerald  to  Emerald's  creditors  and
interference with ARTRA's contractual  relations with Emerald. On April 7, 1995,
the Company's appeal of the Bankruptcy Court's order retaining jurisdiction over
two claims was denied.  On July 26, 1995, the Bankruptcy  Court entered an order
dismissing  these claims.  On August 4, 1995, ARTRA appealed from the Bankruptcy
Court's  dismissal  order.  That  appeal is still pending.

On July 18, 1995,  ARTRA filed a Fourth Amended  Counterclaim in the State Court
Action for breach of fiduciary  duty,  fraudulent  misrepresentation,  negligent
misrepresentation, breach of contract and promissory estopel. In the State Court
Action, ARTRA seeks compensatory damages of $136.2 million,  punitive damages of
$408.6 million and approximately $33 million in fees paid to Salomon. The causes
of action for breach of the fiduciary duty of due care were repleaded to reserve
ARTRA's right to appeal the State  Court's  dismissal of the causes of action in
the Third  Amended  Complaint.  Defendant  Kelly was  dismissed  with  prejudice
pursuant to a stipulation between ARTRA and the Kelly Defendants.

On or about  March 1, 1996,  DPK  brought a motion for  summary  judgment  as to
ARTRA's claims for breach of contract and promissory  estoppel.  DPK's motion is
currently pending

Effective  December  31,  1989,  ARTRA  completed  the  disposal  of its  former
scientific  products  segment  with the sale of its Welch  subsidiary,  formerly
Sargent-Welch   Scientific  Company,  to  a  privately  held  corporation  whose
president and sole  shareholder was a vice president of Welch prior to the sale.
The  consideration  received by ARTRA  consisted of $2,625,000  payable June 30,
1997,  with  interest  at  10%  beginning  June  30,  1990,  under  terms  of  a
noncompetition  agreement  and the buyer's  subordinated  note in the  principal
amount of  $2,500,000.  The  receivable  due June 30,  1997  under  terms of the
noncompetition agreement was reflected in ARTRA's condensed consolidated balance
sheet at  December  29, 1994 in other  assets at  $2,625,000.  The  subordinated
security, due in 1997, was originally scheduled to be non-interest bearing for a
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

period of three years,  after which time interest will accrue at the rate of 10%
per annum.  The note was  discounted  at a rate of 10%  during the  non-interest
bearing  period and was  reflected  in  ARTRA's  consolidated  balance  sheet at
December  29,  1994  in  other  assets  at  $1,375,000,  net  of a  discount  of
$1,125,000.

In December,  1991 Welch filed a lawsuit  against  ARTRA  alleging  that certain
representations, warranties and covenants made by ARTRA, which were contained in
the  parties'  Stock  Purchase   Agreement,   were  false.   Welch  was  seeking
compensatory damages in the amount of $3,800,000.  Subsequently, ARTRA had filed
a  counterclaim  predicated  upon  Welch's  breach of the  payment  terms of the
parties' Non-Competition  Agreement and the Subordinated Note executed by Welch.
ARTRA was seeking damages in the amount of approximately $5,300,000 plus accrued
interest. On November 23, 1994, the Circuit Court of Cook County Law Division in
Chicago  granted a judgment  in favor of ARTRA  affirming  the  validity  of the
amounts due under the  Non-Competition  Agreement and the  Subordinated  Note of
$2,625,000 and $2,500,000, respectively.

In June 1995 ARTRA  entered  into an  agreement  to settle  amounts due ARTRA by
Welch under terms of the noncompetition agreement and the subordinated security.
Per terms of the settlement  agreement,  ARTRA received cash of $3,000,000 and a
subordinated note in the principal amount of $640,000 payable June 30, 2001.

In January,  1985 the United  States  Environmental  Protection  Agency  ("EPA")
notified the Company's Bagcraft subsidiary that it was a potentially responsible
party under the  Comprehensive  Environmental  Responsibility  Compensation  and
Liability  Act  ("CERCLA")  for alleged  release of hazardous  substances at the
Cross  Brothers  site near  Kankakee,  Illinois.  Although  Bagcraft  has denied
liability for the site, it has entered into a settlement agreement with the EPA,
along with the other third party  defendants,  to resolve all claims  associated
with the site except for state claims.  In May, 1994 Bagcraft paid $850,000 plus
accrued interest of $29,000 to formally extinguish the EPA claim. Bagcraft filed
suit in 1993 in the United States  District  Court for the Northern  District of
Illinois, against its insurers to recover its liability costs in connection with
the Cross Brothers case.  Bagcraft was  subsequently  reimbursed by its insurers
for its liability costs incurred in connection  with the EPA claim.  With regard
to the state action,  Bagcraft is participating  in settlement  discussions with
the State and thirteen other potential responsible parties to resolve all claims
associated  with the State.  The  maximum  state  claim is $1.1  million for all
participants.  Bagcraft has accrued  $120,000 related to the State action in the
Company's consolidated financial statements at December 28, 1995.

The  Company  and  its   subsidiaries   are  the  defendants  in  various  other
business-related  litigation and environmental matters (see Note 15). Management
does not  believe  the  outcome of these  matters  will have a material  adverse
effect on the Company's financial statements.
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

21.    RELATED PARTY TRANSACTIONS

Advances to Peter R. Harvey,  ARTRA's president,  classified in the Consolidated
Balance Sheet as a reduction of common shareholders' equity, consist of:

                                                    December 28,    December 29,
                                                        1995           1994
                                                     ---------      --------- 
                                                        (in  thousands)

    ARTRA                                            $   5,369      $   3,205
    Fill-Mor                                                 -          1,510
                                                     ---------      --------- 
                                                         5,369          4,715
    Less interest for the period 
      January 1, 1993 to date, 
      accrued and fully reserved                        (1,051)          (615)
                                                     ---------      --------- 
                                                     $   4,318      $   4,100
                                                     =========      =========

ARTRA has total  advances  due from its  president,  Peter R.  Harvey,  of which
$5,369,000 and $3,205,000,  including accrued interest,  remained outstanding at
December 28, 1995 and December 29, 1994 The advances  bear interest at the prime
rate plus 2% (10.5% at December 28, 1995 and December 29, 1994). This receivable
from Peter R. Harvey has been classified as a reduction of common  shareholders'
equity. See Note 9 for an additional 1996 advance for Mr. Harvey's prorata share
of debt  discharged  by a bank.  The debt  discharge was  principally  funded by
ARTRA.

In May, 1991, ARTRA's wholly-owned Fill-Mor subsidiary made advances to Peter R.
Harvey.  The advances  provided for interest at the prime rate plus 2%. At March
30,  1995  and  December  29,  1994,  advances  of  $1,540,000  and  $1,510,000,
respectively,  including accrued interest,  were  outstanding.  In April,  1995,
these  advances  from  ARTRA's  Fill-Mor  subsidiary  to  Peter R.  Harvey  were
transferred to ARTRA as a dividend.

Commencing January 1, 1993 to date,  interest on all advances to Peter R. Harvey
has been accrued and fully reserved.  Interest accrued and fully reserved on the
advances to Peter R. Harvey for the years ended  December  28, 1995 and December
29, 1994 totaled $436,000 and $341,000, respectively.

Peter R.  Harvey  has not  received  other  than  nominal  compensation  for his
services  as an officer or director  of ARTRA or any of its  subsidiaries  since
October  of  1990.  Additionally,  Mr.  Harvey  has  agreed  not to  accept  any
compensation  for his  services as an officer or director of ARTRA or any of its
subsidiaries  until  his  obligations  to  ARTRA,  described  above,  are  fully
satisfied.

Under  Pennsylvania  Business  Corporation  Law of 1988,  ARTRA (a  Pennsylvania
corporation)  is  permitted to make loans to officers  and  directors.  Further,
under the Delaware General Corporation Law, Fill-Mor (a Delaware corporation) is
permitted  to make  loans to an officer  (including  any  officer  who is also a
director,  as in the case of Peter R. Harvey),  whenever, in the judgment of the
directors, the loan can reasonably be expected to benefit Fill-Mor.
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

At the September 19, 1991 meeting, ARTRA's Board of Directors discussed, but did
not act on a proposal to ratify the  advances  made by ARTRA to Peter R. Harvey.
The 1992  advances made by ARTRA to Mr. Harvey were ratified by ARTRA's Board of
Directors.  In the case of the loan made by Fill-Mor to Mr. Harvey, the Board of
Directors of Fill-Mor  approved the borrowing of funds from Fill-Mor's bank loan
agreement, a condition of which was the application of a portion of the proceeds
thereof to the payment of certain of Mr. Harvey's loan  obligations to the bank.
However,  the  resolutions did not acknowledge the use of such proceeds for this
purpose  and the  formal  loan  documents  with the bank did not set forth  this
condition (though in fact, the proceeds were so applied by the bank).

As partial  collateral  for  amounts due from Peter R.  Harvey,  the Company has
received the pledge of 1,523 shares of ARTRA redeemable  preferred stock (with a
liquidation value of $1,523,000,  plus accrued dividends) which are owned by Mr.
Harvey.  In  addition,  Mr.  Harvey has  pledged a 25%  interest  in  Industrial
Communication Company (a private company). Such interest is valued by Mr. Harvey
at $800,000 to  $1,000,000.  During 1995,  Peter R. Harvey entered into a pledge
agreement with ARTRA whereby Mr. Harvey pledged additional collateral consisting
of  42,067  shares  of  ARTRA  common  stock  and  707,281   shares  of  PureTec
Corporation, a publicly traded corporation.

In  conjunction  with Lori's  October 1995  acquisition  of Global (see Note 3),
ARTRA has agreed to assume certain  pre-existing  Lori liabilities and indemnify
COMFORCE  in the event any  future  liabilities  arise  concerning  pre-existing
environmental  matters and business related litigation.  Accordingly,  ARTRA has
accrued $4,500,000 of Lori liabilities classified in its consolidated balance at
December 28, 1995 as current liabilities of discontinued operations.

For a discussion of certain other related party debt obligations see Note 9.
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
           SCHEDULE I . CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                            ARTRA GROUP INCORPORATED
                                 BALANCE SHEETS
                         (Registrant Only In Thousands)

                                                    December 28,  December 29,
                                                         1995         1994
                                                      ---------    ---------

                             ASSETS
Current assets:
   Cash                                                 $2,347          $91
   Receivables                                              25           55
   Other current assets                                     85           87
                                                      ---------    ---------
                                                         2,457          233
                                                      ---------    ---------

Property, plant and equipment                               25           19
Less accumulated depreciation and amortization              14            6
                                                      ---------    ---------
                                                            11           13
                                                      ---------    ---------

Other assets:
   Investments in and advances to affiliates             2,567      (15,264)
   Other                                                     -        4,000
                                                      ---------    ---------
                                                         2,567      (11,264)
                                                      ---------    ---------
                                                        $5,035     ($11,018)
                                                      =========    =========

                          LIABILITIES
Current liabilities:
   Notes payable and current maturities 
     of long-term debt                                 $25,300      $28,053
   Accounts payable                                        509        1,576
   Accrued expenses                                      9,323        9,702
   Income taxes                                            200          138
                                                      ---------    ---------
                                                        35,332       39,469
                                                      ---------    ---------

Redeemable common stock                                  4,774        4,144
                                                      ---------    ---------

Redeemable preferred stock                               3,694        3,129
                                                      ---------    ---------

                 SHAREHOLDERS' EQUITY (DEFICIT)
Common stock                                             5,540        5,052
Additional paid-in capital                              38,526       36,613
Unrealized appreciation of investments                  21,047            -
Receivable from related party, 
  including accrued interest                            (4,318)      (4,100)
Accumulated deficit                                    (98,755)     (94,520)
                                                      ---------    ---------
                                                       (37,960)     (56,955)
Less treasury stock, at cost                               805          805
                                                      ---------    ---------
                                                       (38,765)     (57,760)
                                                      ---------    ---------
                                                        $5,035     ($11,018)
                                                      =========    =========

The  accompanying  notes  are  an  integral  part  of  the  condensed  financial
information.
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
           SCHEDULE I . CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                            ARTRA GROUP INCORPORATED
                            STATEMENTS OF OPERATIONS
                         (Registrant Only In Thousands)

                                                          Fiscal Year
                                                -----------------------------
                                                  1995      1994*     1993*
                                                --------  ---------  --------

Selling, general and administrative expenses     $1,760     $2,158    $1,907
Depreciation and amortization                        27          4         2
Interest expense                                  4,953      3,139     2,641
Equity in loss of affiliates                      7,817      6,129     3,423
Other expense, net                                  424        308        85
                                                --------  ---------  --------
Loss from continuing operations
   before income taxes                          (14,981)   (11,738)   (8,058)
Charge equivalent to  income taxes               (1,962)    (1,791)     (269)
                                                --------  ---------  --------

Loss from continuing operations                 (16,943)   (13,529)   (8,327)

Equity in earnings (loss) 
    of discontinued affiliate                        10    (15,906)     (216)
                                                --------  ---------  --------
Loss before extraordinary credit                (16,933)   (29,435)   (8,543)

Extraordinary credit, 
    net discharge of indebtedness                14,030      8,965    22,057
                                                --------  ---------  --------

Net earnings (loss)                             ($2,903)  ($20,470)  $13,514
                                                ========  =========  ========

The  accompanying  notes  are  an  integral  part  of  the  condensed  financial
information.

______________________________________________
*  As reclassified for discontinued operations.
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
           SCHEDULE I . CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                            ARTRA GROUP INCORPORATED
                             STATEMENTS OF CASHFLOWS
                         (Registrant Only In Thousands)
Fiscal Year
                                                                                 -------------------------------
                                                                                   1995        1994      1993
                                                                                 --------    ---------  --------
Cash flows from operating activities:
   Net earnings (loss)                                                           ($2,903)    ($20,470)  $13,514
     Adjustments to reconcile net loss
     to cash flows from operating activities:
        Extraordinary gain from net discharge of indebtedness                    (14,030)      (8,965)  (22,057)
        Equity in loss of affiliates                                               7,817        6,129     3,423
        Equity in (earnings) loss of discontinued operations                         (10)      15,906       216
        Gain on sale of property, plant and equipment                                  -            -         -
        Other, principally common stock issued as compensation                     1,370          489       392
        Changes in assets and liabilities:
            Increase (decrease) in other current and noncurrent assets                32           56       (42)
            Increase in other current and noncurrent liabilities                   1,738        2,152     1,076
           (Increase) decrease in receivable from related party                     (218)        (257)       42
                                                                                 --------    ---------  --------
Net cash flows used by operating activities                                       (6,204)      (4,960)   (3,436)
                                                                                 --------    ---------  --------

Cash flows from investing activities:
   Proceeds from collection of Welch notes                                         3,000            -         -
   Proceeds from sale of property, plant and equipment                                 -            -         -
   Proceeds from sale of BCA Holdings preferred stock                                  -            -     3,000
   Dividends and advances from (to) subsidiaries                                       -         (772)    1,824
   Additions to property, plant and equipment                                         (6)          (9)      (10)
                                                                                 --------    ---------  --------
Net cash flows from (used by) investing activities                                 2,994         (781)    4,814
                                                                                 --------    ---------  --------

Cash flows from financing activities:
   Proceeds from private placements of ARTRA common stock                              -        3,230         -
   Proceeds from exercise of stock options and warrants                               48           30       129
   Net increase (decrease) in short-term borrowings                                5,488        1,226      (158)
   Exercise of redeemable common stock options                                       (70)         (50)        -
                                                                                 --------    ---------  --------
Net cash flows from (used by) financing activities                                 5,466        4,436       (29)
                                                                                 --------    ---------  --------

Net increase (decrease) in cash                                                    2,256       (1,305)    1,349
Cash balance beginning of year                                                        91        1,396        47
                                                                                 --------    ---------  --------
Cash balance end of year                                                          $2,347          $91    $1,396
                                                                                 ========    =========  ========

Supplemental schedule of noncash investing and financing activities:
   Issue common stock and redeemable common stock
     to pay down current liabilities                                              $1,040         $756    $1,636
    ARTRA common stock issued to Lori's bank lender as partial
       consideration for discharge of indebtedness                                    -         2,500         -
The  accompanying  notes  are  an  integral  part  of  the  condensed  financial
information.
ARTRA GROUP INCORPORATED AND SUB AND SUBSIDIARIES
        SCHEDULE I. CONDENSED FINANCIAL INFORMATION OF REGISTRANT-(Cont.)

                            ARTRA GROUP INCORPORATED
                         NOTES TO FINANCIAL INFORMATION
                                (Registrant Only)

1.   Presentation

The  condensed  financial  information  of the  Registrant  has been prepared in
accordance with the  instructions  for Schedule I to Form 10-K. The Registrant's
investments in subsidiaries and affiliates are presented on the equity method.

2.   Commitments and Contingencies

See Note 15 of the consolidated financial statements.

3.   Restricted Assets

The terms of several agreements place certain  restrictions on the net assets of
certain operating subsidiaries. See Notes 9 and 10 of the consolidated financial
statements for additional information.

4.   Notes Payable and Long-Term Debt

See Notes 9 and 10 of the consolidated financial statements.

5.   Redeemable Common and Preferred Stock and Stock Options

See Notes 11, 12 and 13 of the consolidated financial statements.

6.   Income Taxes

The Registrant files a consolidated income tax return with its 80% or more owned
subsidiaries.  Separate returns are filed by the Company's  majority-owned,  but
less  than  80%  owned  subsidiaries.  For  financial  reporting  purposes,  the
Registrant's   charge  or  benefit  equivalent  to  income  tax  represents  the
difference  between the aggregate of income taxes computed on a separate  return
basis for each of the  subsidiaries and affiliates and the income taxes computed
on a consolidated basis.

7.   Guarantees of Subsidiaries' Obligations

See Notes 3 and 21 of the consolidated  financial statements for a discussion of
guarantees of subsidiary obligations.
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
                 SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
    for each of the three fiscal years in the period ended December 28, 1995
                                 (in thousands)
Column A                                 Column B             Column C             Column D        Column E
              --------                                 --------             --------             --------        --------
                                                                            Additions
                                                                     ---------------------- 

                                                                        (1)          (2)                      
                                                       Balance at    Charged to  Charged to
                                                      Beginning of   Costs and      Other       Deductions       Balance at
             Description                                 Period       Expenses     Accounts     (Describe)     End of Period
         -------------------                           ---------    ----------   -----------    ----------     -------------
For the fiscal year ended December 28, 1995:

   Deducted from assets to which they apply:

      Allowance for inventory valuation                $     207    $      315                    $   (232)(A)     $     290
                                                       =========    ==========                    ========         =========

      Allowance for markdowns                          $     835    $      291                    $ (1,126)(A)     $       -

      Allowance for doubtful accounts                        819           487                      (1,056)(A)           250
                                                        --------    ----------                    --------         ---------

                                                        $  1,654    $      778                    $ (2,182)        $     250
                                                        ========    ==========                    ========         =========
                                                                                                       

For the fiscal year ended December 29, 1994:

   Deducted from assets to which they apply:

      Allowance for inventory valuation                 $  4,315     $     218                    $ (4,326)(D)     $     207
                                                        ========     =========                    ========         =========

      Allowance for markdowns                           $  2,499      $  4,799                    $ (6,463)(B)     $     835

      Allowance for doubtful accounts                        595           445                        (221)(C)           819
                                                        --------      --------                    --------         ---------

                                                        $  3,094      $  5,244                    $ (6,684)        $   1,654
                                                        ========      ========                    ========         =========
                                                                                                       

For the fiscal year ended December 30, 1993:

   Deducted from assets to which they apply:

      Allowance for inventory valuation                 $  4,900     $     337                    $   (922)(D)      $  4,315
                                                        ========     =========                    ========          ========

      Allowance for markdowns                           $  5,280      $  5,722                    $ (8,503)(B)      $  2,499

      Allowance for doubtful accounts                        671           450                        (526)(C)           595
                                                        --------      --------                    --------          --------

                                                        $  5,951      $  6,172                    $ (9,029)         $  3,094
                                                        ========      ========                    ========          ========
(A) Principally amounts of discontinued  operations. 
(B) Principally  markdowns taken. 
(C) Principally uncollectible accounts written off, net of recoveries.
(D) Principally inventory written off, net of recoveries.
CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the  incorporation by reference in the  registration  statement of
ARTRA GROUP  Incorporated  on Form S-1 (File No.         ) of our report,  which
includes an explanatory  paragraph  referring to an  uncertainty  concerning the
Company's  ability  to continue as a going  concern,  dated April 9, 1996 on our
audits  of  the  consolidated   financial  statements  and  financial  statement
schedules of ARTRA GROUP  Incorporated  as of December 28, 1995 and December 29,
1994,  and for each of the three fiscal  years in the period ended  December 28,
1995.

COOPERS & LYBRAND L.L.P.

Chicago, Illinois
November 26, 1996
PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution

         The  expenses  estimated  to be  incurred  (other  than the fees of the
Commission  which are actual) in connection with the offering,  all of which are
payable by the Registrant, are as follows:

                        Description                       Amount
---------------------------------------------           ---------- 

         SEC Registration Fee                             $ 8,685

         Printing Costs                                         0

         Legal Fees                                       150,000*

         Accounting Fees                                   50,000*

         Blue Sky Fees and Expenses                         1,625

         Miscellaneous                                     14,690*
                                                          ------- 
         Total                                          $ 225,000*
                                                          =======

         -----------
         * Estimate

Item 14. Indemnification of Directors and Officers.

         Reference  is made  to the  discussion  in Part I of this  Registration
Statement under "Indemnification of Officers and Directors," which discussion is
incorporated herein by reference.

Item 15. Recent Sales of Unregistered Securities.

         Kwiatt,  Silverman & Ruben,  Ltd.,  Northfield,  Illinois,  has advised
Registrant as to the availability of the exemptions from registration  under the
Securities  Act of 1993  described  in this Item 15. This firm has also  advised
Registrant that shares of Registrant's  Common Stock issued upon the exercise of
options  issued  under   Registrant's  1985  Incentive  Stock  Option  Plan  are
registered pursuant to a Registration Statement on Form S-8 of Registrant.
Accordingly, such shares are not described below.

         Set forth below is a list of the Warrants  issued by  Registrant  since
November 1, 1991.  Registrant relied upon the exemption afforded by Section 4(2)
of the  Securities  Act of  1933  in  issuing  these  Warrants,  principally  as
additional  consideration  in  connection  with the  extension  of credit by the
Warrantholder or, in certain cases,  other  transactions.  Each Warrant provides
for the purchase of shares of Common Stock at a stated exercise price, which was
the date  Registrant  and the  holder  agreed to the  transaction  for which the
Warrant  was  awarded  as  additional  consideration.  No  underwriting  fees or
commissions were paid in connection with the issuance of these Warrants.

                                      II-1
LIST OF WARRANTS ISSUED SINCE NOVEMBER 10, 1992  (AS OF SEPTEMBER 26, 1996)

                                        Issuance     Number of     Exercise
Warrant Holder                            Date         Shares       Price
-----------------------------------    ----------     --------     -------

Clinton Industries                       11-10-92       75,001      $5.000
John Harvey                              02-01-94        4,700      $5.500
John Harvey                              03-30-94        1,500      $5.625
John Harvey                              01-19-95        6,000      $4.750
John Harvey                              04-28-95       11,667      $3.750
John Harvey                              04-28-95        7,800      $4.750
John Harvey                              07-27-95        8,426      $4.250
John Harvey                              09-30-95        4,019      $4.625
John Harvey                              10-31-95        4,019      $4.875
John Harvey                              11-30-95        4,019      $4.375
John Harvey                              12-31-95        8,038      $6.125
John Harvey                              02-29-96        4,019      $6.125
John Harvey                              03-31-96        4,019      $6.250
John Harvey                              04-30-96        4,019      $6.000
Maynard K. Louis                         04-02-92        3,000      $7.000
Maynard K. Louis                         09-29-92       15,000      $5.625
Maynard K. Louis                         04-01-93       15,000      $4.500
Maynard K. Louis                         10-01-93       15,000      $5.125
Maynard K. Louis                         10-01-93        1,500      $5.375
Maynard K. Louis                         10-08-93        2,250      $5.375
Maynard K. Louis                         10-15-93        3,750      $5.375
Maynard K. Louis                         02-16-94        2,500      $6.000
Maynard K. Louis                         04-01-94       15,000      $5.375
Maynard K. Louis                         10-01-94       15,000      $5.125
Maynard K. Louis                         06-13-96       22,000      $8.000
Evelyn Bishop, Trustee                   11-29-91        6,685      $8.625
Evelyn Bishop, Trustee                   11-17-91        4,457      $8.375
Evelyn Bishop, Trustee                   05-16-92        1,560      $5.375
Evelyn Bishop, Trustee                   05-29-92        7,023      $5.000
Evelyn Bishop, Trustee                   11-29-92        7,383      $4.750
Evelyn Bishop, Trustee                   05-29-93        7,764      $3.750
Evelyn Bishop, Trustee                   06-13-01       10,911      $8.000
Alexander Verde                          08-09-92       76,480      $6.000
Alexander Verde                          02-09-93       37,258      $3.750
Alexander Verde                          08-09-93       36,651      $4.125
Alexander Verde                          02-09-94       35,555      $5.500
Alexander Verde                          08-09-94       10,464      $6.625
Carol M. Jacobsohn                       01-28-92        5,500      $9.875
Carol M. Jacobsohn                       12-02-92        2,750      $5.000
D.R. Zaccone                             07-05-92       10,000      $6.250

                                      II-2
D.R. Zaccone                             09-03-92           600     $6.250
D.R. Zaccone                             09-01-93        11,333     $5.125
D.R. Zaccone                             09-93-02        10,600     $6.250
D.R. Zaccone                             12-17-92        16,800     $7.750
D.R. Zaccone                             03-31-93        17,000     $7.000
D.R. Zaccone                             10-31-92        17,000     $5.375
D.R. Zaccone                             01-30-93        17,000     $3.750
D.R. Zaccone                             05-01-93        17,000     $4.000
D.R. Zaccone                             07-31-93         5,667     $3.500
D.R. Zaccone                             09-16-93        25,667     $3.500
D.R. Zaccone                             10-26-93        25,333     $5.875
John Tull                                09-09-91         1,500     $6.375
Austin Iodice                            09-30-98         3,000     $5.375
Austin Iodice                            10-07-95         4,500     $5.375
Austin Iodice                            10-14-95         7,500     $5.375
Research  Center  Of  Kabbalah           10-29-93        21,250     $6.000
Research  Center  Of  Kabbalah           12-31-93        65,000     $7.000
Mark L. Werner                           12-24-94        45,000     $4.880
Mark L. Werner                           08-16-95        45,000     $4.125
Manufacturers Indemnity  And
   Insurance Co. Of America              04-15-96         5,000     $6.000
Howard R. Conant                         02-01-95        10,000     $4.750
Richard Blacmore                         04-24-95        10,000     $3.750
Stephen M. Levy                          12-29-95        12,500     $4.500
D. L. Arends Psp                         05-08-96         2,200     $8.000
Clark Gunderson                          05-08-96         5,000     $6.000
Robert Jones                             05-08-96         5,000     $6.000
William F. Foster, Jr.                   05-08-96         5,000     $6.000
Field Container Corp                     05-15-92       150,943     $5.375
Harvey Schuster                          06-13-96        25,000     $4.000
Woodrow Chamberlain                      04-15-96        10,000     $6.000
James A. Belushi Declaration Of Trust    04-15-96         5,000     $6.000
John Bramsen                             04-15-96        10,000     $6.000
Lenore M. Schnick Trust                  04-15-96        15,000     $6.000
Morris Belzberg                          04-15-96        25,000     $6.000
David J. Doerge Trust                    04-15-96        10,000     $6.000
Mark Dorian                              04-15-96         5,000     $6.000
Howard Grafman                           04-15-96         5,000     $6.000
Ilse W. Grafman                          04-15-96         5,000     $6.000
Thomas Kigin                             04-15-96         2,500     $6.000
James L. Mcgill                          04-15-96         5,000     $6.000
Johanna B. Mcgill                        04-15-96         5,000     $6.000
D. Michael Meyer                         04-15-96        10,000     $6.000
Leonard Feldman                          04-15-96        10,000     $6.000
Charles Reeder                           04-15-96        20,000     $6.000
William G. Reynolds, Jr.                 04-15-96         1,250     $6.000
Berkshire Capital/Partners, Ltd          04-15-96         5,000     $6.000
Stephen N. Engberg                       04-15-96        10,000     $6.000

                                      II-3
Martha T. Seelbach                       04-15-96         3,750     $6.000
William Seelbach                         04-15-96         5,000     $6.000
Paul Smeets                              04-15-96        10,000     $6.000
Henry M. Staley Trust                    04-15-96         7,500     $6.000
Eva Staley Residual Trust                04-15-96         5,000     $6.000
Avery J. Stone                           04-15-96        20,000     $6.000
Shephard C. Swift                        04-15-96        10,000     $6.000
Emanuel Tarrson                          04-15-96        25,000     $6.000
Ronald E. Tarrson                        04-15-96        15,000     $6.000
Steven Tarrson                           04-15-96        10,000     $6.000
James F. Beedie                          04-15-96         5,000     $6.000
Thomas Whitney                           04-15-96        10,000     $6.000
Staley Family Agency                     04-15-96        20,000     $6.000
Jim Scott                                04-15-96         5,000     $6.000
David J. Doerge Trust                    04-15-96        35,000     $6.000
William Belzberg                         04-15-96        25,000     $6.000
Frank N. Magid                           04-15-96         2,500     $6.000
Evan D. Ritchie Living Trust
  U/A/D 12/23/92                         04-15-96         2,500     $6.000
Paul Farmer Ira                          04-15-96         2,500     $6.000
Dr. John H. Muehlstein Ira               04-15-96         5,000     $6.000
Diane Wilson                             04-15-96         1,250     $6.000
Ravinia Investors Llc                    04-15-96         2,500     $6.000
William J. Mirch                         04-15-96         5,000     $6.000
K. Reed Berkey                           04-15-96         2,500     $6.000
Jerry Michelson Ira                      04-15-96         1,250     $6.000
James Mchugh                             04-15-96         5,000     $6.000
Jerry Michelson                          04-15-96         3,750     $6.000
Thomas Philipsborn Ira                   04-15-96         5,000     $6.000
Gibralt Holdings, Ltd.                   04-15-96         5,000     $6.000
Howard Conant                            08-26-96        25,000     $5.000
Emanuel Tarson                           09-12-96        12,500     $5.000
Ronald Tarson                            09-12-96        12,500     $5.000
Robert A. Calabrese                      09-18-96        10,000     $5.000
Richard Blackmore                        09-18-96         7,500     $5.000
Marshall Rodin                           09-20-96         6,084     $4.000
Marshall Rodin                           09-20-96        12,100     $5.750

         Set forth  below is a list of persons  who  exchanged  debt  securities
(promissory  notes) of Registrant for  Registrant's  Common Stock. In each case,
Registrant  relied  upon  the  exemption  afforded  by  Section  3(a)(9)  of the
Securities  Act of 1933 in  effecting  these  transactions.  The price per share
shown  represents  the amount of principal and interest due under the obligation
exchanged (on a per share basis).

                                 Date of      Number of      Price Per
Holder                          Exchange        Shares         Share
-------------------             ---------      --------        -----

Maynard K. Louis                   3/92          68,198        $8.00
Howard Jacobsohn                   3/92          35,714        $7.00
Carol Jacobsohn                    3/92          35,714        $7.00
Martin Goldberg                    6/92          36,315        $7.10
R. Cooper                          6/92          18,750        $8.00
Franklin Bishop                    7/92          78,169        $5.53
Marty Nadler                      12/92          61,420        $5.24
Carol Jacobsohn                   12/92          50,000        $5.00
Ray Cosgrove                       3/93           4,000        $3.96
Ray Cosgrove                       6/93           2,000        $4.33

                                      II-4
Ray Cosgrove                      12/93           7,286        $3.56
Franklin Bishop                   12/93         121,132        $5.63
Austin Iodice                      7/94          58,333        $6.00
Alexander Verde                  01-11-95        25,000       $4.480
Maynard K. Louis                 03-24-95        21,622       $4.625
Alexander Verde                  12-20-95         8,000       $4.480
Maynard K. Louis                 02-24-96         5,000       $5.250
Carol Jacobsohn                  03-12-96        38,000       $5.822
Thomas J. Carol                  04-25-96        17,211       $3.000
Cipka, S.A.                      09-18-96       450,000       $5.000
Richard Dolan                    09-18-96         7,500       $6.000

         Set forth below is a list of persons who received  Registrant's  Common
Stock in satisfaction of interest due under promissory notes of Registrant or of
other  obligations  of  Registrant  (such as fees for  services).  In each case,
Registrant relied upon the exemption  afforded by Section 4(2) of the Securities
Act of  1933  in  effecting  these  transactions.  The  price  per  share  shown
represents  the amount of interest or of the other  obligation  discharged (on a
per share basis).

                                        Date of      Number of      Price Per
Holder                                  Exchange        Shares         Share
-------------------                    ---------      --------        -----
 
Altech Employee Pension Plan              3/92         25,000         $8.00
Maynard K. Louis                          6/92            500         $5.75
Altech Employee Pension Plan              6/92          9,280         $5.75
R. Cooper                                 10/92         2,349         $8.00
Schmeltzer, Aptaker                       12/92        60,000         $5.00
Martin Nadler                             3/93         20,950         $4.25
Martin Nadler                             6/93          1,285         $3.62
Robert P. Lofblad                         11/93        14,857         $3.88
Cipka, S.A.                               12/93       112,738         $6.38
Josefh Strahammer                         12/93         8,748         $3.88
Donahue-Note Holder                       4/94          6,000         $7.50
Bard-Note Holder                          4/94          6,000         $7.50
Josefh Strahammer                         7/94          4,876         $7.00
Cipka, S.A.                               8/94         13,030         $6.38
John Tull                                  3/95         6,898         $5.00
Josef Strahammer                           3/95         5,657         $6.00
Austin Iodice                              3/95        10,000         $4.00
Josef Strahammer                           6/95         5,903         $3.75
Research Center of Kabbalah               11/95       126,222         $4.38
Richard A. Dolan                          12/95         7,246         $3.19
Schmeltzer, Aptaker                       12/95        25,000         $3.00
Josef Strahammer                          12/95         9,252         $3.75
Kwiatt, Silverman & Ruben, Ltd.            9/96        40,000         $5.00
Dieter E.A. Tannenberg                     9/96        30,000         $6.00 

         Set forth below is a list of persons who received  Registrant's  Common
Stock as additional  consideration  for agreeing to extend credit to Registrant,
to guaranty (or continue to guaranty)  other  indebtedness  of Registrant or, in
one instance, to forbear in exercising a put option.  Registrant relied upon the
exemption afforded by Section 4(2) of the Securities Act of 1933 in issuing this
stock.  The price per share  shown is the market  price of  Registrant's  Common
Stock on the date such Common Stock was issued.

                                      II-5
Date of     Number of   Price Per
Holder                                      Issuance       Shares      Share
----------------------------------         ---------      --------   -------- 

Martin Goldberg                                3/92            449     $9.96
Martin Nadler                                  3/92            449     $9.86
Kenny Construction Company                     6/92         17,493     $5.13
Bruce Slovitt                                  2/93          5,114     $4.63
Barry Rymer                                    12/93        73,320     $4.88
Kenny Construction Company                     5/94         18,326     $5.00
Alexander Verde                              01-11-95       25,000     $4.480
Maynard K. Louis                             03-24-95       21,622     $4.625
Alexander Verde                              12-20-95        8,000     $4.480
John E. Mcconnaughy                          12-27-95       75,000     $3.375
Richard Richter, IRA                         12-27-95       22,500     $3.375
Joann Timbanard                              12-27-95        3,750     $3.375
Martin Weinstein, Ira                        12-27-95       15,000     $3.375
Barry, M,. Ferrigno & B. Allen               12-27-95        7,500     $3.375
P/S Plan
Baytree Associates, Inc.                     12-27-95       15,000     $3.375
Billy Walker Enterprises                     12-27-95        7,500     $3.375
Barry W. Blank                               12-27-95       75,000     $3.375
Thomas J. Carroll                            12-27-95       11,250     $3.375
Marilyn Cohen                                12-27-95        3,750     $3.375
Leo Denslow                                  12-27-95        7,500     $3.375
Kelly Erickson                               12-27-95        7,500     $3.375
Bucky W. F. Fong                             12-27-95        3,750     $3.375
Joseph Giamanco                              12-27-95       30,000     $3.375
Myron & Donna Goldstein                      12-27-95       11,250     $3.375
Dane Johnson, Ira                            12-27-95        3,750     $3.375
Ronald Di Martino                            12-27-95       15,000     $3.375
MH Capital Partners, L.P.                    12-27-95        7,500     $3.375
Pollack Family L.L. C.                       12-27-95        3,750     $3.375
GHM, Inc.                                    12-27-95        3,750     $3.375
Maser Sosinski & Assoc. P.A.                 12-27-95        7,500     $3.375
Sherwood Securities Corp.                    12-27-95       15,000     $3.375
Violet M. Blank Living Trust                 12-27-95        7,500     $3.375
Leo Denslow                                  12-27-95        1,500     $3.375
Janet M. Portelly                            12-27-95        6,000     $3.375
Roger D. And Gail L. Williams                12-27-95        7,500     $3.375
Arabella S.A.                                02-26-96       91,166     $4.406
Alba Ltd.                                    02-26-96        8,834     $4.406
Arabella S.A.                                04-26-96       45,583     $4.406
Alba Ltd.                                    04-26-96       4 ,417     $4.406
Westminster Capital                          06-14-96       41,333     $5.000
Norton Herrick                               06-14-96       41,333     $5.000

                                      II-6
Set forth  below is a list of  transactions  or series of  transactions
involving the exchange of  Registrant's  Common Stock for shares of Registrant's
Ratex Resources  Incorporated  subsidiary (in the case of John Harvey) or shares
of its Sargent-Welch Scientific Company subsidiary held by certain shareholders.
Registrant relied upon the exemption  afforded by Section 4(2) of the Securities
Act of 1933 in  effecting  these  exchanges.  The price  per share  shown is the
market  price of  Registrant's  Common  Stock on the date such Common  Stock was
issued.

                                  Date of       Number of      Price Per
Holder                            Issuance       Shares           Share
-----------------------           --------      ---------       -------

John Harvey                         7/94            700           $6.00
Northworthy & Co.                   1/94          1,506           $7.00
Robert Grady                        1/94            944           $6.88
Joan McCue                          1/94            944           $6.88
Morgan Stanley, Inc.                3/94            730           $5.75
Rachelle Kremer                     8/94            377           $6.75

         In  November  1991,   Howard  Jacobsohn   purchased  29,851  shares  of
Registrant's  Common Stock for a purchase  price of $8.37 per share,  the market
price of the  Common  Stock on the date of  purchase.  The stock  was  purchased
subject to a put option that required Registrant to repurchase the stock held by
Mr. Jacobsohn at a higher price.  Registrant relied upon the exemption  afforded
by Section 4(2) of the Securities Act of 1933 in effecting this transaction.  No
commissions or fees were paid to any  underwriter  or broker in connection  with
this transaction.

         In August 1994, The Lori Corporation,  then a majority owned subsidiary
of Registrant, and IBJ Schroder Bank & Trust Company ("Schroder") entered into a
settlement agreement described under "Business and Properties - Jewelry Segment"
in  the  Prospectus  to  discharge  certain   indebtedness  owned  by  The  Lori
Corporation  and  its  subsidiaries  to IBJ  Schroder  Bank & Trust  Company  in
consideration  of, inter alia,  Registrant's  issuance to such lender of 400,000
shares of Registrant's  Common Stock.  The market price of  Registrant's  Common
Stock on August 18, 1994 (the date this  transaction was effected) was $6.25 per
share.  Registrant  relied upon the  exemption  afforded by Section  4(2) of the
Securities  Act of 1933  in  issuing  this  Common  Stock.  As  described  under
"Business  and  Properties  - Jewelry  Segment," in December  1994,  the parties
negotiated an amendment to the settlement agreement and, in this connection, the
Registrant  borrowed  $1,850,000  from McGoodwin  James & Co. In connection with
these  transactions,  300,000 of the 400,000 shares of the  Registrant's  common
stock issued to Schroder were transferred to McGoodwin James & Co.

         In August 1994, the Registrant  sold 133,333 shares of its Common Stock
to The Alana  Group  Ltd.  and  266,667  shares of its  Common  Stock to Salcott
Holdings  Limited at a purchase  price of $3.75 per share.  Of the $1,500,000 of
proceeds  realized,  the  Registrant  paid  $50,000 as a placement  fee to M. L.
Werner and $15,000 for the legal fees of purchaser's counsel.  Registrant relied
upon the exemption  from  registration  afforded by Regulation S of the Rules of
the Commission in effecting these sales to foreign  investors located outside of
the United States.

         In August 1994, the Registrant  raised  $1,700,000  through the private
placement  of  425,000  shares of Common  Stock at a selling  price of $4.00 per
share. In addition,  in September 1994, Registrant sold 80,000 additional shares
to a single  individual  for $3.75 per share,  raising an  additional  $300,000.

                                      II-7
Registrant relied upon the exemption  afforded by Section 4(2) of the Securities
Act of 1933 in  effecting  these  sales  to the  investors,  each of whom was an
accredited investor. No underwriting fees or commissions were paid in connection
with this private placement.

         Set forth below is a list of certain debt securities (promissory notes)
issued by Registrant since April 20, 1990.  Registrant relied upon the exemption
afforded by Section 4(2) of the Securities Act of 1933 in issuing these notes.

                     LIST (AS OF SEPTEMBER 26, 1996) OF CERTAIN
            DEBT SECURITIES ISSUED, AMENDED, CONSOLIDATED OR RESTATED
                             SINCE APRIL 20, 1990

Note Holder                             Date of Note (2)     Note Amount (3)
------------------------------          ----------------     --------------- 
Michael Laundrie                            03/08/96                53,750
Morton J. Harris Trust                      03/01/95               200,000
Research Center of Kabbalah                 12/31/93             3,000,000
Richard Blackmore                           04/24/95                22,500
Austin Iodice                               05/29/96               465,820
California Investment Counsel               07/01/93                50,000
Edward E. Celano                            05/09/96               100,000
William F. Foster                           05/28/96               100,000
Clark Gunderson                             05/28/96               100,000
Robert Jones                                05/28/96               100,000
Anthon J. Giglio                            05/29/96                62,500
Austin Iodice                               05/29/96               188,333

Woodrow Chamberlain                         04/15/96               200,000
James A. Belushi
   Declaration Of Trust                     04/15/96               100,000
John Bramsen                                04/15/96               200,000
Lenore M. Schnick Trust                     04/15/96               300,000
Semamor Enterprises                         04/15/96               500,000
David J. Doerge Trust                       04/15/96               200,000
Mark Dorian                                 04/15/96               100,000
Howard Grafman                              04/15/96               100,000
Ilse W. Grafman                             04/15/96               100,000
Thomas Kigin                                04/15/96                50,000
James L. Mcgill                             04/15/96               100,000
Johanna B. Mcgill                           04/15/96               100,000
D. Michael Meyer                            04/15/96               200,000
Leonard Feldman                             04/15/96               200,000
Charles Reeder                              04/15/96               400,000
William G. Reynolds, Jr.                    04/15/96                25,000

                                      II-8
Berkshire Capital/Partners, Ltd             04/15/96               100,000
Stephen N. Engberg                          04/15/96               200,000
Martha T. Seelbach                          04/15/96                75,000
William Seelbach                            04/15/96               100,000
Paul Smeets                                 04/15/96               200,000
Henry M. Staley Trust                       04/15/96               150,000
Eva Staley Residual Trust                   04/15/96               100,000
Avery J. Stone                              04/15/96               400,000
Shephard C. Swift                           04/15/96               200,000
Emanuel Tarrson                             04/15/96               500,000
Ronald E. Tarrson                           04/15/96               300,000
Steven Tarrson                              04/15/96               200,000
James F. Beedie                             04/15/96               100,000
Thomas Whitney                              04/15/96               200,000
Staley Family Agency                        04/15/96               400,000
James L. Scott                              04/15/96               100,000
William Belzberg                            05/17/96               500,000
Frank N. Magid                              05/20/96                50,000
Evan D. Ritchie Living Trust 
  U/A/D 12/23/92                            05/23/96                50,000
Paul Farmer Ira                             05/30/96                50,000
Dr. John H. Muehlstein Ira                  06/05/96               100,000
Diane Wilson                                06/05/96                25,000
Ravinia Investors Llc                       06/13/96                50,000
William J. Mirch                            06/21/96               100,000
K. Reed Berkey                              06/26/96                50,000
Jerry Michelson Ira                         06/27/96                25,000
James Mchugh                                07/03/96               100,000
Jerry Michelson                             06/27/96                75,000
Thomas Philipsborn Ira                      06/25/96               100,000
Gibralt Holdings, Ltd.                      07/05/96               100,000
Howard Conant                               08/27/96               500,000
Emanuel Tarson                              09/13/96               250,000
Ronald Tarson                               09/13/96               250,000

(1)      This table shows promissory  notes which the Registrant  treats as debt
         securities.   Notes  issued  to  banks  or  other  commercial   lending
         institutions are excluded.

(2)      Certain of these notes have been amended, restated, or consolidated to,
         inter  alia,  (i) extend the  maturity  date and,  in this  connection,
         provide for the issuance of warrants to purchase shares of Registrant's
         Common Stock as consideration  therefor,  (ii) modify the interest rate
         or other terms of the note,  (iii)  capitalize  unpaid interest or (iv)
         consolidate  two ore more separate notes  previously  issued.  The date
         shown, if the subject note has been amended,  restated or consolidated,
         is the date the subject  note was most  recently  amended,  restated or
         consolidated.  In such  instances,  the date that the subject  note was
         originally issued is not shown.

(3)      This  amount  represents  the  principal  amount  of the  subject  note
         (included capitalized interest, if any) as of the date issued, amended,
         restated or consolidated as shown in the prior column. Certain of these

                                      II-9
notes have been repaid or retired,  including  through the  exchange of
         stock or other securities of Registrant.

         The Registrant contributed 100,000 shares, 65,000 shares, 15,000 shares
and 8,750  shares of its Common Stock to the ARTRA GROUP  Incorporated  Employee
Stock Ownership Plan (the "ESOP")  effective as of December 31, 1992, 1993, 1994
and 1995  respectively.  Insofar  as the  ESOP is a  noncontributory  plan,  the
Registrant has relied upon releases and no action letters of the Commission that
provide  that the issuance by a  registrant  of its stock in such  circumstances
does not constitute a "sale" subject to registration under the Securities Act of
1933.  Effective  August 1, 1995, the Company  terminated the ESOP and completed
the distribution of its ARTRA common shares to the participants in 1996.

                                      II-10
Item 16.          Exhibits and Financial Statement Schedules.

            (a)   Exhibits

                        ** 2.1      Debtor's  Amended  Chapter  11  Plan  of New
                                    Dimensions   Accessories,   Ltd.   filed  on
                                    February  16,  1993  in  the  United  States
                                    Bankruptcy  Court for the Southern  District
                                    of  New  York   filed  as  an   exhibit   to
                                    Registrant's  Form 8-K  dated  February  18,
                                    1993 and incorporated by reference herein.

                        ** 2.2      Voluntary   Petition   of   New   Dimensions
                                    Accessories,  Ltd. (for reorganization under
                                    Chapter  11 of the  Bankruptcy  Code)  filed
                                    February  5,  1993  in  the  United   States
                                    Bankruptcy  Court for the Southern  District
                                    of  New  York   filed  as  an   exhibit   to
                                    Registrant's  Form 8-K  dated  February  18,
                                    1993 and incorporated by reference herein.

                        ** 2.3      Debtor's   Amended   Chapter  11  Plan,   As
                                    Modified,  of  New  Dimensions  Accessories,
                                    Ltd.  dated  March  9,  1993  With  Proposed
                                    Modifications dated March 26, 1993, as filed
                                    in the United  States  Bankruptcy  Court for
                                    the Southern  District of New York, filed as
                                    an  exhibit to  Registrant's  Form 8-K dated
                                    May 17, 1993 and  incorporated  by reference
                                    herein.

                        ** 2.4      Second Amended Disclosure Statement Pursuant
                                    to Section  1125 of the  Bankruptcy  Code of
                                    New Dimensions Accessories, Ltd. filed as an
                                    exhibit to  Registrant's  Form 8-K dated May
                                    17,  1993  and   incorporated  by  reference
                                    herein.

                        ** 2.5      Notice of Entry of Order  Confirming  Second
                                    Amended Plan of  Reorganization  as Modified
                                    dated  April 9, 1993  filed as an exhibit to
                                    Registrant's Form 8-K dated May 17, 1993 and
                                    incorporated by reference herein.

                        ** 2.6      Amended   Disclosure   Statement   dated  as
                                    February   16,  1993,   of  New   Dimensions
                                    Accessories,  Ltd.. Pursuant to Section 1125
                                    of the  Bankruptcy  Code filed as an exhibit
                                    to Registrant's  Form 8-K dated February 18,
                                    1993 and incorporated by reference herein.

                        ** 3.1      Amended    and    Restated    Articles    of
                                    Incorporation  of the Registrant as filed in
                                    the Department of State of  Pennsylvania  on
                                    December  21,  1990  filed as an  exhibit to
                                    Registrant's  Form  10-K for the year  ended
                                    December 31, 1990 and incorporated herein by
                                    reference.

                        ** 3.2      Bylaws of the Registrant, amended as of July
                                    24,   1990,   filed   as   an   exhibit   to
                                    Registrant's  Form  10-K for the year  ended
                                    December  31,  1990  and   incorporated   by
                                    reference herein.

                                      II-11
** 3.3     Statement with Respect to Shares of Series A
                                    Preferred  Stock of Registrant,  filed as an
                                    exhibit  to  Registrant's  Form 10-K for the
                                    year   ended    December    30,   1993   and
                                    incorporated by reference herein.

                         ** 3.4     Statement   with   Respect   to  Rights  and
                                    Preferences  Series  B  Preferred  Stock  of
                                    Registrant,   filed   as   an   exhibit   to
                                    Registrant's  Form  10-K for the year  ended
                                    December  30,  1993  and   incorporated   by
                                    reference herein.

                         ** 4.1     Form     of   Registrant's   Common    Stock
                                    Certificate.

                         ** 4.2     Form of Registrant's Warrant.

                            5.1     Opinion of Kwiatt, Silverman & Ruben, Ltd.

                           10.1     Note Purchase  Agreement  dated February 20,
                                    1996 by and among ARTRA  Group  Incorporated
                                    Fill-Mor   Holding,   Inc.  and  Westminster
                                    Capital, Inc. in the amount of $1,200,000.

                           10.2     Note Purchase  Agreement  dated February 20,
                                    1996 by and among ARTRA Group  Incorporated,
                                    Fill-Mor Holding, Inc. and Norton Herrick in
                                    the amount of $1,200,000.

                           10.3     Registration Rights Agreement dated February
                                    20,   1996   by  and   among   ARTRA   Group
                                    Incorporated and Westminster  Capital,  Inc.
                                    re:   Purchase  of  a  Secured   Convertible
                                    Promissory Note.

                           10.4     Registration Rights Agreement dated February
                                    20,   1996   by  and   among   ARTRA   Group
                                    Incorporated and Norton Herrick re: Purchase
                                    of a Secured Convertible Promissory Note.

                           10.5     Form Of Promissory  Note re:  December 1995,
                                    Private  Placement of twelve  percent  (12%)
                                    convertible subordinated promissory notes.

                           10.6     Form Of Warrant To Purchase Common Stock re:
                                    July,  1996  Private   Placement  of  twelve
                                    percent (12%) promissory notes due April 15,
                                    1997 for 378,750 ARTRA common shares.

                           10.7     Form  Of  Promissory  Note  re:  July,  1996
                                    Private  Placement of twelve  percent  (12%)
                                    promissory notes due April 15, 1997.

                           

                                      II-12
** 10.8     Letter  Agreement dated February 26, 1996 by
                                    and among  ARTRA Group  Incorporated,  ARTRA
                                    Subsidiary,  Inc., BCA Holdings, Inc., Peter
                                    and  Jean   Harvey,   and  Bank  of  America
                                    Illinois,  re.  certain  Purchase  and  Sale
                                    Agreement  and  Assignment  between the Bank
                                    and  Arabella  S.A.,  a  Luxembourg  holding
                                    company, filed as an exhibit to Registrant's
                                    Form 10-K,  for the year ended  December 28,
                                    1995.

                        ** 10.9     Purchase and Sale Agreement and  Assignment,
                                    dated  as  of  February  26,  1996,  by  and
                                    between  Bank  of  America   Illinois   (the
                                    "Seller")  and  Arabella  S.A., a Luxembourg
                                    holding company (the "Purchaser"),  filed as
                                    an exhibit to  Registrant's  Form 10-K,  for
                                    the year ended December 28, 1995.

                        ** 10.10    Letter  Agreement dated February 26, 1996 by
                                    and  among  ARTRA  Group   Incorporated  and
                                    Arabella S.A., a Luxembourg holding company,
                                    re.  purchase  of  certain  indebtedness  by
                                    Arabella  (the  "Purchaser")  from  Bank  of
                                    America Illinois (the "Seller"), filed as an
                                    exhibit to  Registrant's  Form 10-K, for the
                                    year ended December 28, 1995.

                        ** 10.11    Amended and Restated  Promissory Note, dated
                                    February 26, 1996 made by BCA Holdings, Inc.
                                    in  favor  of  Arabella  S.A.,  filed  as an
                                    exhibit to  Registrant's  Form 10-K, for the
                                    year ended December 28, 1995.

                        ** 10.12    Option to Purchase Shares of Common Stock of
                                    Bagcraft  Corporation of America sold by BCA
                                    Holdings, Inc. to Arabella S.A., filed as an
                                    exhibit to  Registrant's  Form 10-K, for the
                                    year ended December 28, 1995.

                        ** 10.13    Preferred   Stock   Agreement  made  by  and
                                    between  BCA  Holdings   Inc.  and  Bagcraft
                                    Corporation of America,  filed as an exhibit
                                    to  Registrant's  Form  10-K,  for the  year
                                    ended December 28, 1995.

                        ** 10.14    Preferred Stock Exchange Agreement, dated as
                                    of January  31,  1996 by and  between  Ozite
                                    Corporation,  BCA Holdings Inc. and Bagcraft
                                    Corporation of America,  filed as an exhibit
                                    to  Registrant's  Form  10-K,  for the  year
                                    ended December 28, 1995.

                        ** 10.15    Limited   Consent  and  Sixth  Amendment  to
                                    Credit  Agreement,  dated as of  February 1,
                                    1996 between Bagcraft Corporation of America
                                    and General  Electric  Capital  Corporation,
                                    filed as an  exhibit  to  Registrant's  Form
                                    10-K, for the year ended December 28, 1995.

                        ** 10.16    Asset Purchase Agreement made as of the 28th
                                    day of  September,  1995, by and among Arcar
                                    Graphics,   Inc.,  an  Illinois  corporation
                                    ("Arcar" or "Seller"), BCA Holdings, Inc., a
                                    Delaware   corporation   ("BCA"),   Bagcraft
                                    Corporation    of   America,    a   Delaware
                                    corporation  ("BCA" and,  collectively  with
                                    BCA, "Bagcraft"),  ARTRA Group Incorporated,
                                    a Pennsylvania  corporation  ("ARTRA"),  and
                                    Arcar   Acquisition    Corp.,   a   Delaware
                                    corporation     ("Buyer"),     filed    with
                                    Registrant's  Form  8-K  dated  October  26,
                                    1995.

                                      II-13
** 10.17    Limited  Release,  dated  October 30,  1995,
                                    between NatWest Bank N. A. ("Releasor"), and
                                    ARTRA Group Incorporated and Peter R. Harvey
                                    ("Releasee"),  filed with  Registrant's Form
                                    8-K dated October 26, 1995.

                        ** 10.18    Stock Purchase  Agreement,  Dated  September
                                    11, 1995 by and Among Spectrum Technologies,
                                    Inc., The Lori Corporation,  COMFORCE Corp.;
                                    ARTRA Group  Incorporated,  Peter R. Harvey,
                                    Marc L. Werner,  James L.  Paterek,  Michael
                                    Ferrentino, and Christopher P. Franco, filed
                                    with  Registrant's  Form 8-K dated September
                                    11, 1995.

                        ** 10.19    Letter   Agreement   dated  June  29,  1995,
                                    regarding  employment or consulting services
                                    between  The Lori  Corporation,  ARTRA Group
                                    Incorporated,   James  L.  Paterek,  Michael
                                    Ferrentino, and Christopher P. Franco, filed
                                    with  Registrant's  Form 8-K dated September
                                    11, 1995.

                        ** 10.20    Assignment  Agreement,  dated and  effective
                                    March 31,  1995,  by and among IBJ  Schroder
                                    Bank & Trust Company,  The Lori Corporation,
                                    Lawrence   Jewelry  Co.,   Lawrence  Jewelry
                                    Corporation,   New  Dimensions   Accessories
                                    Ltd.,  Rosecraft,  Inc.,  Fill-Mor  Holding,
                                    Inc., ARTRA Group Incorporated and Alexander
                                    Verde,  filed as an exhibit to  Registrant's
                                    Form 10-K,  for the year ended  December 29,
                                    1994, dated April 12, 1995.

                        ** 10.21    Registration and Settlement  Agreement dated
                                    as of March 31,  1995 by and  between  ARTRA
                                    Group  Incorporated  and IBJ Schroder Bank &
                                    Trust   Company   filed  as  an  exhibit  to
                                    Registrant's  Form 10-K,  for the year ended
                                    December 29, 1994, dated April 12, 1995.

                        ** 10.22    Amended  Settlement  Agreement  by and among
                                    The Lori Corporation,  Lawrence Jewelry Co.,
                                    Lawrence Jewelry Corporation, New Dimensions
                                    Accessories  Ltd.  (formerly  known  as R.N.
                                    Koch,  Inc.),  Rosecraft,  Inc.,  Fill-  Mor
                                    Holding,  Inc., ARTRA Group Incorporated and
                                    IBJ Schroder Bank & Trust Company,  dated as
                                    of December  23, 1994 filed as an exhibit to
                                    Registrant's  Form  8-K,  dated  January  3,
                                    1995.

                        ** 10.23    Loan  Agreement,  dated as of  December  23,
                                    1994, by and among ARTRA Group  Incorporated
                                    and McGoodwin James & Co filed as an exhibit
                                    to  Registrant's  Form 8-K, dated January 3,
                                    1995.

                        ** 10.24    Settlement  Agreement  dated August 18, 1994
                                    by  among  The  Lori  Corporation,  Lawrence
                                    Jewelry Co.,  Lawrence Jewelry  Corporation,
                                    New Dimensions Accessories, Ltd., Rosecraft,
                                    Inc.,  Fill-Mor  Holding,  Inc., ARTRA Group
                                    Incorporated  and IBJ Schroder  Bank & Trust
                                    Company, dated as of August 18,1994 filed as
                                    an exhibit to Registrant's Form 10-Q for the
                                    quarterly  period ended June 30, 1994, dated
                                    August 19, 1994.

                        ** 10.25    Pledge and  Security  Agreement  between The
                                    Lori  Corporation  and IBJ  Schroder  Bank &
                                    Trust  Company  dated as of August 18,  1994
                                    filed   as   an   exhibit  to   Registrant's
                                    Form 10-Q  for  the quarterly  period  ended
                                    June 30, 1994, dated August 19, 1994.
                                    

                                      II-14
** 10.26    Pledge  and   Security   Agreement   between
                                    Lawrence Jewelry Co. and IBJ Schroder Bank &
                                    Trust  Company  dated as of August 18,  1994
                                    filed as an  exhibit  to  Registrant's  Form
                                    10-Q for the quarterly period ended June 30,
                                    1994, dated August 19, 1994.

                        ** 10.27    Pledge  and   Security   Agreement   between
                                    Lawrence   Jewelry   Corporation   and   IBJ
                                    Schroder  Bank & Trust  Company  dated as of
                                    August  18,  1994  filed  as an  exhibit  to
                                    Registrant's  Form  10-Q  for the  quarterly
                                    period ended June 30, 1994, dated August 19,
                                    1994.

                        ** 10.28    Pledge and  Security  Agreement  between New
                                    Dimensions   Accessories,   Ltd.   and   IBJ
                                    Schroder  Bank & Trust  Company  dated as of
                                    August  18,  1994  filed  as an  exhibit  to
                                    Registrant's  Form  10-Q  for the  quarterly
                                    period ended June 30, 1994, dated August 19,
                                    1994.

                        ** 10.29    Pledge  and   Security   Agreement   between
                                    Rosecraft,  Inc.  and  IBJ  Schroder  Bank &
                                    Trust  Company  dated as of August 18,  1994
                                    filed as an  exhibit  to  Registrant's  Form
                                    10-Q for the quarterly period ended June 30,
                                    1994, dated August 19, 1994.
 
                        ** 10.30    Pledge  and   Security   Agreement   between
                                    Fill-Mor Holding, Inc. and IBJ Schroder Bank
                                    & Trust  Company dated as of August 18, 1994
                                    filed as an  exhibit  to  Registrant's  Form
                                    10-Q for the quarterly period ended June 30,
                                    1994, dated August 19, 1994.

                            23.1    Consent of Kwiatt, Silverman & Ruben, Ltd.

                            23.2    Consent of Coopers & Lybrand  L.L.P.
                      
                        ** 10.31    Subordinated Promissory Note dated  December
                                    31, 1993 in the original principal amount of
                                    $3,000,000  from  Registrant to the Research
                                    Center of Kabbalah.

                        ** 11.1     Computation   of  earnings   per  share  and
                                    equivalent share of common stock for each of
                                    the three years in the period ended December
                                    28, 1995.

                       ** 21.1     Subsidiaries.
                           

                                      II-15
** 24.1   Powers of Attorney  (included  on page II-14
                                    of this Registration Statement.)

                        
                          ** 99.2   Fourth Amended Complaint filed July 18, 1995
                                    in the case of ARTRA GROUP  Incorporated  v.
                                    Salomon  Brothers  Holding  Company Inc., et
                                    al. in the Circuit  Court of the  Eighteenth
                                    Judicial Circuit for the State of Illinois.

                          ** 99.3   Joint  Memorandum of Points and  Authorities
                                    of Salomon  Defendants sent to the Honorable
                                    Michael  Galasso of the Circuit Court of the
                                    Eighteenth Judicial Circuit for the State of
                                    Illinois   in  the  case  of   ARTRA   GROUP
                                    Incorporated  v.  Salomon  Brothers  Holding
                                    Company Inc., et al.

                          ** 99.4   Complaint  filed  September  24, 1991 in the
                                    case  of  The  Sherwin-Williams  Company  v.
                                    ARTRA  GROUP  Incorporated,  et  al.  in the
                                    United   States   District   Court  for  the
                                    District of Maryland.

                          ** 99.5   Answer,   Counterclaim   and  Crossclaim  of
                                    Registrant filed June 3, 1992 in the case of
                                    The Sherwin-Williams  Company v. ARTRA GROUP
                                    Incorporated, et al. 

                          ** 99.6   Second  Amended  Verified   Complaint  filed
                                    August 7, 1995 in the  Supreme  Court of New
                                    York in the  case  of  Philip  Elghanian  v.
                                    Peter Harvey,  Jeffrey  Newman,  Artra Group
                                    Inc., et al.

                          ** 99.7   Complaint  dated June 14,  1995 filed in the
                                    United   States   District   Court  for  the
                                    Northern District of Illinois in the case of
                                    Tartan  Resources v. A. G. Holding Corp., et
                                    al.
                                    
                          ** 99.8   Complaint filed in the Circuit Court of Cook
                                    County,  Illinois  in the  case  of  City of
                                    Chicago  v. NL  Industries,  Inc.  and ARTRA
                                    GROUP Incorporated.

                          ** 99.9   March 17, 1993 Judgment  against ARTRA GROUP
                                    Inc.   in  the   case  SW   Assoc.   Limited
                                    Partnership v. ARTRA GROUP Inc.

                          ** 99.10  Third-Party  Complaint and  Counterclaim  of
                                    Registrant in the case of City of Chicago v.
                                    NL   Industries,   Inc.   and  ARTRA   GROUP
                                    Incorporated.

                          ** 99.11  Complaint filed in the Circuit Court of Cook
                                    County,  Illinois  in the case of  People of
                                    the State of Illinois v. NL Industries, Inc.
                                    and ARTRA GROUP Inc., et al.

                          ** 99.12  Notice of Potential Liability dated November
                                    17,  1995 sent to ARTRA  GROUP  Inc.  by the
                                    United   States   Environmental   Protection
                                    Agency  regarding  the Dutch Boy facility in
                                    Chicago, Illinois.

                          ** 99.13  Notice   of   Potential    Liability   dated
                                    September 30, 1993 sent by the United States
                                    Environmental  Protection  Agency  to  James
                                    Doering,  President  of Fill-  Mor  Holdings
                                    Inc.,   regarding  Harvel  Industries  Corp.
                                    disposal of waste to a PSC Resources Site in
                                    Palmer, Massachusetts.

                          ** 99.14  Subsequent  Notice  of  Potential  Liability
                                    regarding  Harvel   Industries  Corp.  dated
                                    April 18, 1994 and sent by the United States
                                    Environmental   Protection  Agency  to  John
                                    Conroy, Vice President of Registrant.

                                    

                                                       II-16
** 99.15  Complaint filed December 6, 1994 in the U.S.
                                    District Court for the Northern  District of
                                    Indiana   (Ninth  Ave   Remedial   Group  v.
                                    Bagcraft et al).

                          ** 99.16  Notice of  Violation  dated  November,  1995
                                    issued  by the  U.S.  EPA  against  Bagcraft
                                    regarding  alleged  violations  of the Clean
                                    Air  Act  and  related  regulations  at  the
                                    Chicago Facility.
                                    ----------------------

                           * To be filed by amendment.
                           ** Previously filed

                           (b)      Financial  Statement  Schedules.  Set  forth
                                    below is a list of the  Financial  Statement
                                    Schedules    included   as   part   of   the
                                    Registration Statement. Schedules other than
                                    those  listed  are  omitted  as they are not
                                    applicable   or   required   or   equivalent
                                    information   has  been   included   in  the
                                    financial  statements or notes thereto.  See
                                    "Index  to  Financial   Statements"  in  the
                                    Prospectus.

                                          I.  Condensed  Financial   Information
                                              of Registrant

                                         II.  Valuation and Qualifying Accounts

Item 17. Undertakings.

         (a)      The Registrant hereby undertakes:

                  (1) To file,  during any  period in which  offers or sales are
         being made, a post-effective amendment to this Registration Statement:

                           (i)  To include any  prospectus required  by  Section
                                10(a)(3) of the Securities Act;

                           (ii) To reflect in the prospectus any facts or events
                  arising  after  the  effective   date  of  this   Registration
                  Statement  (or  the  most  recent   post-effective   amendment
                  thereof) which, individually or in the aggregate,  represent a
                  fundamental  change  in the  information  set  forth  in  this
                  Registration Statement;

                           (iii)  To  include  any  material   information  with
                  respect to the plan of distribution  not previously  disclosed
                  in this Registration  Statement or any material change to such
                  information in this Registration Statement;

                                      II-17
(2) That, for the purpose of determining  any liability  under
         the Securities Act, each such post-effective  amendment shall be deemed
         to be a new registration  statement  relating to the securities offered
         therein,  and the  offering  of such  securities  at that time shall be
         deemed to be the initial bona fide offering thereof.

                  (3) To remove from  registration by means of a  post-effective
         amendment any of the securities being registered which remain unsold at
         the termination of the offering.

         (b)  Insofar  as  indemnification  for  liabilities  arising  under the
Securities Act of 1933 may be permitted to directors,  officers and  controlling
persons of the Registrant  pursuant to the foregoing  provisions,  or otherwise,
the  Registrant  has been  advised  that in the  opinion of the  Securities  and
Exchange  Commission such  indemnification is against public policy as expressed
in the  Securities  Act and is,  therefore,  unenforceable.  In the event that a
claim for  indemnification  against such liabilities  (other than the payment by
the  Registrant  of  expenses  incurred  or  paid  by  a  director,  officer  or
controlling person of the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered,  the Registrant will,
unless in the opinion of its counsel the matter has been settled by  controlling
precedent,  submit to a court of appropriate  jurisdiction  the question whether
such  indemnification  by it is  against  public  policy  as  expressed  in  the
Securities Act and will be governed by the final adjudication of such issue.

                                      II-18
SIGNATURES

         Pursuant  to the  requirements  of the  Securities  Act  of  1933,  the
Registrant has duly caused this Amendment No. 1 to this  Registration  Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Northfield, State of Illinois, on January 26, 1995.

                                       ARTRA GROUP Incorporated
                                       (Registrant)

                                       By:  /s/ Peter R. Harvey
                                          ___________________________________
                                                Peter R. Harvey
                                                President and Chief Operating
                                                Officer

         Pursuant to the  requirements of the Securities Act, this Amendment No.
1 to this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

Name/Signature    Title    Date

           *               
______________________     Chairman and Chief Executive Officer
John Harvey       (Principal Executive Officer); Director

           * 
______________________     Vice President and Chief Financial Officer
James D. Doering  (Principal Financial Officer)

           *
______________________
Lawrence D. Levin          Controller (Principal Accounting Officer)

           *
______________________
Peter R. Harvey             Director

           *
______________________
Gerard M. Kenny             Director

* By:  /s/ Lawrence D. Levin
       ______________________________
         Lawrence D. Levin
         Attorney-in-fact           ________________, 1996
Registration No. 33-

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                              --------------------

                                    EXHIBITS

                                   Filed With

                                    FORM S-1
                             REGISTRATION STATEMENT

                        Under The Securities Act of 1933

                              --------------------

                            ARTRA GROUP INCORPORATED
             (Exact name of registrant as specified in its charter)