As filed with the Securities and Exchange Commission on October 17, 1997

  
                                                    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(1)
----------------------------------------------------------------------------------------------------------------------- 
<S>                                  <C>                  <C>                     <C>                 <C>          
Common  Stock, $.01 par value        357,270              $3.875                  $1,384,421          $420
======================================================================================================================= 
<PAGE>


<FN>

     (1) This  prospectus  is being filed as a combined  registration  statement
under rule 429 of the Securities Act of 1933. The registration  statement covers
5,192,471  shares,  of which 4,986,144 of the shares were previously  registered
under  registration  statements (File  #333-16965) filed with the SEC on May 29,
1997 and (File  #333-36615)  filed with the SEC on September 29, 1997. A warrant
to acquire  150,943  shares of the  Registrant's  common  stock  included in the
previous  registration  statements  expired  unexercised  on September 30, 1997.
Accordingly,  these  shares have been  removed  from the total  number of shares
included in this  registration  statement,  though the filling fee has been paid
with  respect to such  shares.  The filing fee paid with the prior  registration
statements was $7,710.  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 October 16, 1997, which is a
specified date within five business days prior to the original date of filing of
this Registration Statement.
</FN>

</TABLE>


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 October 17, 1997

  
                                   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.
 


                                5,192,471 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  (1,727,000  shares or  approximately  13% of the outstanding
stock as of October 16,  1997) 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 5,192,471 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.
<PAGE>



         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 approximately $17,700,000.  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 October 16, 1997,  the last
sale price of Common  Stock,  as  reported  on the New York Stock  Exchange  was
$3.875 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 $350,000. 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 Citicorp  Atrium  Center,  500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material may
also be obtained  from the Public  Reference  Section of the  Commission  at 450
Fifth Street,  N.W.,  Washington,  D.C. 20549 at prescribed rates. Such material
may also be accessed  electronically  by means of the Commission's  home page on
the Internet at http://www.sec.gov.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, along with its wholly-owned  subsidiary,  Fill-Mor Holding, Inc.
("Fill-Mor"),  also owns a significant minority interest in COMFORCE Corporation
("COMFORCE"),  consisting  of  1,727,000  shares  or  approximately  13%  of the
outstanding  common stock of COMFORCE as of October 16, 1997.  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 October 16,  1997,  the last  reported  sale price for the
Common Stock of COMFORCE was $8.50 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 5,192,471
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.............. 5,192,471 shares*
Common Stock Outstanding as of October 16, 1997............... 8,290,182 shares
Common Stock Issuable Under Options as of October 16, 1997....   913,050 shares
Common Stock Issuable Under Warrants as of October 16, 1997... 2,558,983 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


                                      - 3 -
<PAGE>

the warrants or options are being registered.  The Company 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 six month periods ended June 26, 1997 and June 27, 1996 and each
of the five fiscal years in the period ended December 26, 1996. The  information
for the years  ended  December  28,  1995 and  December  29,  1994  reflect  the
operations  of  Bagcraft's   wholly-owned   subsidiary,   Arcar  Graphics,  Inc.
("Arcar"),  in discontinued  operations.  The sale of Arcar (acquired  effective
April 9, 1994) was  completed on October 26, 1995.  Certain  selected  financial
data for each of the four fiscal  years in the period  ended  December  28, 1995
reflects  the   discontinuance  of  the  Company's  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 19, 1997, the Company owned 1,728,000  shares, or approximately 13% of
COMFORCE.   See  Note  4  to  the  Company's  condensed  consolidated  financial
statements  for the quarter ended June 26, 1997 for a further  discussion of the
Company's investment in COMFORCE.










  


                                      - 4 -
<PAGE>
<TABLE>
<CAPTION>


                                     Six Months Ended
                                   ---------------------                      Fiscal Year Ended (E) 
                                   June 26,     June 27,  ----------------------------------------------------------- 
                                     1997         1996       1996         1995         1994         1993        1992         
                                    ------       ------     ------       ------       ------       ------      ------
                                                           (in thousands except per share data)

 <S>                               <C>          <C>       <C>          <C>          <C>          <C>          <C>
 Net sales                         $ 60,274     $ 60,765  $ 120,699    $ 121,879    $ 111,837    $ 113,584    $ 121,084    
 Earnings (loss) from               
   continuing operations (A)         (3,842)       2,919      3,549      (16,943)     (13,529)      (8,327)      (4,118)   
 Earnings (loss) from
   discontinued operations (B)          --           --         --            10      (15,906)        (216)     (33,854)   
 Extraordinary credits (C)              --         9,424      9,424       14,030        8,965       22,057          --     
 Net earnings (loss)                 (3,842)      12,343     12,973       (2,903)     (20,470)      13,514      (37,972)   

 Earnings (loss) per share:
   Continuing operations               (.56)         .28        .28        (2.69)       (2.56)       (1.84)       (1.16)   
   Discontinued operations              --           --         --           --         (2.74)        (.04)       (7.74)   
   Extraordinary credits                --          1.23       1.23         2.06         1.57         4.49          --     
   Net earnings (loss)                 (.56)        1.51       1.51         (.63)       (3.73)        2.61        (8.90)   

 Total assets (D)                    72,604      104,261     77,379       77,949       93,429       92,774       98,731    
 Long-term debt                      34,528       35,428     34,207       34,113       19,673       29,264       13,802    
 Debt subsequently discharged           --           --         --           --         9,750          --           --     
 Liabilities subject
    to compromise                       --           --         --           --           --           --        41,500    
 Cash dividends                         --           --         --           --           --           --           --     

</TABLE>





   (A)   The loss from  continuing operations  for the six months ended June 27,
         1997 includes a realized gain of $255,000 from dispositions of COMFORCE
         common stock.  Earnings from  continuing  operations for the six months
         ended  June 27,  1996  includes  a  realized  gain of  $4,495,000  from
         dispositions  of COMFORCE  common stock and a gain of $838,000  from an
         exchange  of  redeemable  preferred  stock  of the  Company's  Bagcraft
         subsidiary.  Earnings  from  continuing  operations  for the year ended
         December  26,  1996  include   realized   gains  of   $5,818,000   from
         dispositions  of COMFORCE  common stock and a gain of $838,000  from an
         exchange  of  redeemable  preferred  stock  of the  Company's  Bagcraft
         subsidiary.


  (B)    The loss from  discontinued  operations for the year ended December 28,
         1995  includes a charge to  operations  of  $6,430,000 to write-off the
         remaining  goodwill of COMFORCE's  jewelry business  effective June 29,
         1995,  and a provision of $1,000,000 for loss on disposal of COMFORCE's
         jewelry business.  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 COMFORCE'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.







                                      - 5 -
<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 recent
years,  including  losses  from  continuing  operations  in each year during the
period  1990 - 1995.  Losses  from  continuing  operations  of  $16,943,000  and
$13,529,000 were experienced in 1995 and 1994,  respectively.  See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."


         Indebtedness


         As of September 25, 1997,  the end of its most recent  fiscal  quarter,
the  Company  had   outstanding   short-term   indebtedness   of   approximately
$18,000,000.  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  25,  1997,   Bagcraft,   the  Company's  operating
subsidiary,  had total  borrowings  of  $51,788,000  consisting  of  $41,817,000
(before reduction for unamortized discount of $1,714,000)  outstanding under its
Credit  Agreement  and loans from the City of Baxter  Springs,  Kansas  totaling
$9,971,000.

         In December 1996,  Bagcraft's  Credit  Agreement was amended to provide
for a $20,000,000 term loan payable in varying  quarterly  installments  through
maturity  on  September  30,  2002 and a  revolving  credit  loan,  subject to a
borrowing base, with maximum  borrowings of $18,000,000.  Term loan installments
totaling  $2,000,000 are payable during the next twelve months.  As of September
25, 1997, the oustanding balance on the term loan was $18,500,000.  At September
25, 1997, the revolving  credit loan had  outstanding  borrowings of $10,817,000
due September 30, 2002.  Initial borrowings under Bagcraft's Credit Agreement in
December 1993 refinanced borrowings under a previous bank loan agreement.

         Effective May 15, 1997, the Credit Agreement was amended to provide for
a $5,000,000  term loan (Term Loan B) with  interest at the lender's  index rate
plus .75%. Term Loan B is payable on May 8, 1998, unless accelerated under terms
of the Credit  Agreement.  The  proceeds  of Term Loan B were  advanced to ARTRA
under terms of an intercompany note payable to Bagcraft on May 8, 1998.  Because
the  ARTRA/Bagcraft  note results from an intercompany  transaction,  it has not
been  included in ARTRA's  short-term  indebtedness.  ARTRA used the proceeds of
this loan to repay certain ARTRA debt obligations as discussed below.


         Effective  July 17, 1997,  the Credit  Agreement was amended to provide
for a $7,500,000  term loan (Term Loan C) with  interest at the  lender's  index
rate plus 1%. Term Loan C is payable on July 15, 2000, unless  accelerated under
terms of the Credit  Agreement.  The  proceeds  of Term Loan C were  advanced to
ARTRA under terms of an intercompany  note payable to Bagcraft on July 15, 2000.
Because the ARTRA/Bagcraft note results from an intercompany transaction, it has
not been included in ARTRA's short-term indebtedness. ARTRA used the proceeds of
this loan to repay certain ARTRA debt obligations and for working capital.

         Bagcraft has $3,137,000 payable during the next twelve months, on loans
from the City of Baxter Springs, Kansas, the aggregate principal amount of which
was  $9,971,000  as of September  19, 1997.  Proceeds  from the Baxter  Springs,
Kansas loans financed the construction of Bagcraft's  265,000 sq. ft. production
facility.

         In June 1997, ARTRA completed  private  placements of $4,975,000 of 12%
promissory  notes  due  in  December  1997.  As  additional   consideration  the
noteholders  received  warrants to purchase an aggregate of 228,750 ARTRA common
shares at a price of $5.00 per share.  The  warrants  expire in June  1999.  The
warrantholders  have the right to put these  warrants  back to ARTRA at any time
during a six month period  commencing  in December  1997,  at prices of $2.00 to
$2.40 per share.  The cost of this obligation  ($517,000 if all warrants are put
back to the Company) is being accrued in the Company's financial statements as a
charge to interest expense over the period June 1997 (the  commencement  date of
the private  placement)  through December 1997 (the maturity date of the notes).
The proceeds from the private  placement were used principally to pay down other
debt  obligations.  The  promissory  notes  are  collateralized  principally  as
follows:




                                      - 6 -
<PAGE>


         Promissory  notes with an aggregate  principal amount of $2,000,000 are
         collateralized  by a 25%  interest  in the common  stock of ARTRA's BCA
         subsidiary (the parent of Bagcraft).

         The  Company  and the  lender  are  currently  negotiating  the form of
         collateral  for certain  promissory  notes with an aggregate  principal
         amount of $2,975,000,  which is anticipated to be substantially  all of
         the   Company's   otherwise   unencumbered   COMFORCE   common   shares
         (approximately 1,000,000 shares).


         In July 1997, ARTRA completed  private  placements of $7,475,000 of 12%
promissory  notes  due  in  January  1998.  As  additional   consideration   the
noteholders  received  warrants to purchase an aggregate of 199,311 ARTRA common
shares at a price of $4.50 per share.  The  warrants  expire in July  1998.  The
warrantholders  have the right to put these  warrants  back to ARTRA at any time
during a six month commencing on the earlier of the date the principal amount of
the notes are paid or the  maturity  date of the notes,  at a price of $3.00 per
share. The cost of this obligation ($598,000 if all warrants are put back to the
Company)  will be accrued in the Company's  financial  statements as a charge to
interest  expense over the period July 1997 (the date of the private  placement)
through  January (the scheduled  maturity date of the notes).  In the event of a
default,  as  defined in the note  agreements,  the  promissory  notes will bear
interest at 37%. The promissory notes are collateralized principally as follows:

         A  $4,000,000  note is  collateralized  by 575,000  shares of  COMFORCE
         common stock owned by the Company's Fill-Mor subsidiary and a secondary
         interest in the common stock of ARTRA's BCA  subsidiary  (the parent of
         Bagcraft).

         Promissory  notes with an aggregate  principal amount of $3,475,000 are
         collateralized by 652.285 shares of ARTRA redeemable preferred stock (a
         17.4% interest),  1,784.02 shares of BCA Series A redeemable  preferred
         stock (a 48.5%  interest) and 6,488.8 shares of BCA Series B redeemable
         preferred stock (a 79.8% interest).

         The proceeds  from the July 1997  private  placement  were  advanced to
Peter R. Harvey and Mr. Harvey provided  additional  collateral for his advances
as  discussed  in  Note 13 to the  Company's  condensed  consolidated  financial
statements for the quarter ended June 26, 1997.


         In August,  1996,  ARTRA borrowed  $500,000 from Howard Conant,  then a
private  investor,  evidenced  by an  short-term  note,  due  December 23, 1996,
bearing  interest  at 10%.  The loan was  collateralized  by  125,000  shares of
COMFORCE common stock owned by the Company's Fill-Mor subsidiary.  As additional
compensation  for the loan, Mr. Conant received a warrant,  expiring in 2001, to
purchase 25,000 ARTRA common shares at a price of $5.00 per share.  The proceeds
of the loan were used for working  capital.  At the Company's  annual meeting of
shareholders,  held August 29,  1996,  Mr.  Conant was elected to the  Company's
board of directors.  In December,  1996,  the loan was extended  until April 23,
1997 and Mr. Conant received, as additional  compensation,  a warrant , expiring
in 2001, to purchase 25,000 ARTRA common shares at a price of $5.875 per share.

         In January, 1997, ARTRA borrowed an additional $300,000 from Mr. Conant
evidenced by an short-term note, due December 23, 1997,  bearing interest at 8%.
The loan was collateralized  by 100,000 shares of COMFORCE common stock owned by
the Company's Fill-Mor subsidiary.  As additional compensation for the loan, Mr.
Conant  received a warrant,  expiring in 2002,  to purchase  25,000 ARTRA common
shares at a price of $5.75 per share.

         In March 1997, ARTRA borrowed an additional  $1,000,000 from Mr. Conant
evidenced by a short-term  note, due May 26, 1997,  bearing interest at 12%. The
loan was  collateralized by 585,000 shares of COMFORCE common stock owned by the
Company's Fill-Mor subsidiary.  As additional compensation,  Mr. Conant received
an option to  purchase  25,000  shares of  COMFORCE  common  stock  owned by the
Company's  Fill-Mor  subsidiary at a price of $4.00 per share, with the right to
put the option  back to ARTRA on or before May 30, 1997 for a total put price of
$50,000.  In May 1997,  Mr.  Conant  exercised  his rights and put the  COMFORCE
option back to ARTRA for $50,000.  The proceeds from this loan were used in part
to repay an ARTRA/Fill-Mor $2,500,000 bank term loan.

         In April 1997, ARTRA borrowed $5,000,000 from Mr. Conant evidenced by a
note, due April 20, 1998,  bearing interest at 10%. As additional  compensation,
the lender received a warrant to purchase 333,333 ARTRA common shares at a price
of $5.00 per share. The  warrantholder  has the right to put this  warrant back


                                      - 7 -
<PAGE>

to ARTRA at any time during the period April 21, 1998 to April 20,  2000,  for a
total purchase price of $1,000,000.  The cost of this obligation will be accrued
in the Company's  financial  statements as a charge to interest expense over the
period  April 21, 1997 (the date of the loan)  through  April 21, 1998 (the date
the warrantholder has the right to put the warrant back to ARTRA).  The proceeds
from  this  loan  were used to repay  Mr.  Conant's  outstanding  borrowings  of
$1,800,000 and to pay down other ARTRA debt obligations.

         In June 1997, ARTRA borrowed an additional  $1,000,000 from Mr. Conant,
due December 10, 1997, bearing interest at 12%. As additional compensation,  the
lender  received a warrant to purchase  40,000 ARTRA common shares at a price of
$5.00 per share.  The  warrantholder  has the right to put this  warrant back to
ARTRA at any time during the period  December 10, 1997 to June 10,  1998,  for a
total purchase price of $80,000.  The cost of this obligation will be accrued in
the  Company's  financial  statements  as a charge to interest  expense over the
period June 10, 1997 (the date of the loan) through  December 10, 1997 (the date
the warrantholder has the right to put the warrant back to ARTRA).  The proceeds
from this loan were used to pay down other ARTRA debt obligations. In July 1997,
borrowings from Mr. Conant were reduced to $3,000,000 with proceeds  advanced to
ARTRA from a Bagcraft  term loan as discussed  above.  As of September 19, 1997,
ARTRA  had  total   outstanding   borrowings  of  $3,000,000   from  Mr.  Conant
collateralized  by a 75% interest in the common stock of ARTRA's BCA  subsidiary
(the parent of Bagcraft).

         At December  26, 1996 (the end of ARTRA's  most  recent  fiscal  year),
ARTRA was the obligor under two demand notes originally issued to CIPKA S.A., an
unrelated Swiss company,  in the amount of approximately  $2,300,000,  including
accrued  interest.  The notes were issued in October,  1990 with  interest at 15
percent.  In January 1997,  ARTRA received  notice that its obligations to CIPKA
were sold,  effective  October 26,  1996,  to  PRESTWOOD  LIMITED,  an unrelated
company  registered in Tortola,  BVI. In July 1997,  ARTRA paid all  outstanding
interest on these demand notes and reduced the outstanding  borrowings under the
demand notes to approximately  $1,500,000. In October 1997, the lender agreed to
accept  357,720 ARTRA common  shares in payment of the  principal  amount due on
these notes.

         ARTRA also has outstanding  short-term  borrowings from other unrelated
parties aggregating approximately $1,100,000.  The remaining amounts come due at
various  times in 1997 and 1998.  The notes were issued at various  times during
1997 and the  interest  rates vary  between 10 and 12 percent.  The  proceeds of
these loans were used principally for working capital.

         ARTRA has suffered recurring losses from operations in recent years. 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. See "Management's  Discussion and Analysis
of Financial  Condition and Results of  Operations -- Status of Debt  Agreements
and Operating Plan."


         Potential Volatility in Market Price of COMFORCE Common Stock
 
         ARTRA,  along  with  its  wholly  owned  Fill-Mor  subsidiary,  owns  a
significant  minority  interest in COMFORCE,  consisting of 1,727,000  shares or
approximately 13% of the outstanding  common stock of COMFORCE as of October 16,
1997,  with an  aggregate  value as of that  date of  approximately  $14,680,000
(value at December 26, 1996 was  $22,564,000).  The value of COMFORCE  stock has
fluctuated  substantially  in recent periods.  The high per share for the twelve
month period ending September 30, 1997 was $18.375, and the per share low during
the same  period  was  $4.00.  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.

         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  registration
are no longer applicable to it.
  
                                      - 8 -
<PAGE>

         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 (two years as of April 29, 1997) 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.

         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.  

         The sale of 700,000  COMFORCE  common shares held by ARTRA and Fill-Mor
is restricted  because the shares are collateral  for various debt  obligations.
Additionally,  the Company and a lender are  currently  negotiating  the form of
collateral  for certain  promissory  notes issued in June 1997 with an aggregate
principal   amount  of   $2,975,000.   The   collateral  is  anticipated  to  be
substantially  all of it the Company's  otherwise  unencumbered  COMFORCE common
shares  (approximately  1,000,000  shares).  See  "Management's  Discussion  and
Analysis of Financial  Condition  and Results of  Operations  --  Investment  in
COMFORCE Corporation."

  

         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 25, 1997,  options were outstanding that, if exercised,
would  require  ARTRA to  repurchase  72,984  shares of its Common  Stock for an
aggregate of approximately $3,300,000. 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." See also
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations - Liquidity and Capital Resources."


           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.

                                      - 9 -
<PAGE>

         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
demanded  warrants as additional  consideration for agreeing to extend credit to
the  Company.  Warrants  to  purchase  approximately  2,708,676  shares  of  the
Company's  common  stock (at  exercise  prices  equal to the  market  price when
issued,  which has ranged  from $3.50 to $8.00 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.  See  "Management's  Discussion  and
Analysis of  Financial  Condition  and Results of  Operations  -- Status of Debt
Agreements and Operating Plan."


         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 25, 1997, ARTRA has outstanding  total amounts due from
Peter R. Harvey,  including accrued interest, of $17,315,000.  The advances bear
interest at the prime rate plus 2%, which was 10.5% at September 25, 1997.  This
receivable has been  classified as a reduction of common  shareholder's  equity.
See Note 13 to the Company's condensed consolidated financial statements for the
quarter  ended June 26, 1997 for a further  discussion  of the  receivable  from
Peter R. Harvey.

         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.

         In prior  years,  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 October 16, 1997, the closing market price of PureTec on the
NASDAQ  National  Market was $2.625 per  share.  As  collateral  for a July 1997
advance of $7,475,000,  Mr. Harvey provided ARTRA with additional collateral for
his advances consisting of 652.285 shares of ARTRA Series A redeemable preferred
stock (a 17.4% interest),  1,784.02 shares of BCA Series A redeemable  preferred
stock (a 48.5% interest) and 6,488.8 shares of BCA Series B redeemable preferred
stock (a 79.8% interest).  These ARTRA and BCA redeemable  preferred shares were
pledged by ARTRA as partial  collateral  for the July 1997 private  placement of
ARTRA  promissory  notes that funded the advance to Mr. Harvey.  As of September
25, 1997,  this  additional  collateral  had a carrying  value of the obligation
recorded in ARTRA's consolidated balance sheet of approximately $11,000,000. The
fair market value of this additional collateral is not known.

         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  collateralized  $2,150,000 of the
amount  owed by Mr.  Harvey.  Bank of  America  Illinois  had a senior  security
interest in the amount of $850,000. See "Transactions with Management And Others
-- Settlement  of the Bank of America  Illinois  Debt." In March 1997,  the bank
sold its interest in Mr.  Harvey's note and the related  collateral to a private
investor.  ARTRA  retained  its  $2,150,000  security  interest the real estate,
subordinated to the noteholder's $850,000 security interest in this real estate.


         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


                                     - 10 -
<PAGE>

capital  deficiency  at December 26,  1996.  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
creditagreements,  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. See Note 1 to "Consolidated Financial Statements."


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

         As of October 16, 1997,  there were  8,290,182  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
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 "Description of the Company's
Securities." See also "Risk Factors - Limited Trading Activity."
  

         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 taken 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. See "Management -- Information Regarding Directors."


         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  30,  1997,  the daily  average
number of  shares of Common  Stock  traded on the New York  Stock  Exchange  was
approximately  30,000  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 marketing  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  25,  1997  ARTRA had  accrued  $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.  See "Business and Properties
-- Legal Proceedings."




         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.  See
"Description of the Company's Securities."




         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.  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
June 26, 1997. 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                           $    10,137
                                                               ===========

Redeemable preferred stock currently payable:
   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                      $     2,065
                                                               
   BCA Holdings preferred stock 
      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                             9,642
                                                               -----------
                                                               $    11,707   
                                                               ===========


Long-term debt:
   Bagcraft Credit Agreement,
     Term loan, interest at the lender's index
       rate plus .25%, matures 9/30/02                         $    17,000
     Revolving credit loan, interest at the 
       prime rate plus 1.5%, matures 9/30/02                        13,300
     Unamortized discount                                           (3,309)

   Bagcraft, City of Baxter Springs, 
     Kansas loan agreements, interest, 
       at varying rates to 6.6%, 
       due in varying amounts through 2025                           7,537
                                                               -----------
                                                               $    34,528
                                                               ===========



Redeemable common stock, issued 72,984  shares                 $     3,175
                                                               ===========

Noncurrent redeemable preferred stock:
   ARTRA redeemable preferred stock:
     Series  A,  $1,000  par  value,
     6%  cumulative  payment-in-kind, including
     accumulated dividends, net of unamortized
     discount of $1,101; redeemable March 1, 2000
     at $1,000 per share plus accrued dividends; 
     authorized 2,000,000 shares
     all series; issued 3,750 shares                           $     4,651

   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                   4,473 
                                                               -----------
                                                               $     9,124  
                                                               ===========






                                     - 14 -
<PAGE>

     




                                                          


Common stock, no par value; 
   authorized 20,000,000 shares; 
   issued 7,820,064 shares                                     $    5,920
Additional paid-in capital                                         41,155
Unrealized appreciation of investments                             13,539
Receivable from related party,
   including accrued interest                                      (6,806)
Accumulated deficit                                               (91,167)
                                                               -----------
                                                                  (37,359)
Less treasury stock (7,628 shares), at cost                            52 
                                                               -----------
Total shareholders' deficit                                    $  (37,411)
                                                               ===========

Total capitalization                                           $   31,260
                                                               ===========























                                     - 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 along
with ARTRA's wholly owned Fill-Mor subsidiary, consisting of 1,727,000 shares or
approximately 13% of the outstanding  common stock of COMFORCE as of October 16,
1997.  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 October 16, 1997, the last
reported  sale  price for the  Common  Stock of  COMFORCE  was $8.50 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  3  to  the  Company's  consolidated  financial
statements  for the year  ended  December  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.  The sale of Arcar resulted from
an  unsolicited  offer from an  unrelated  entity for an amount that  management
believed would exceed the long-term appreciation of Arcar's assets.
  


         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  Telecom  Inc.  ("COMFORCE  Telecom"),   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
COMFORCE Telecom 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 June 26, 1997 and December 26, 1996, $271,000 and $348,000,  respectively, of
such   pre-existing  Lori  liabilities  were  classified  in  ARTRA's  condensed
consolidated  balance as current  liabilities of  discontinued  operations.  The
Assumption Agreement also provided for ARTRA to exchange its interest in 100% of
Lori's  Series C cumulative  preferred  stock for 100,000 newly issued shares of
COMFORCE common stock.

 
                                     - 16 -
<PAGE>


         COMFORCE Telecom  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 Telecom was completed on
October 17, 1995.

         Effective July 4, 1995,  COMFORCE'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  Telecom  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 Telecom, if successfully concluded,
would have on the 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  ownership  interest in COMFORCE common
stock  was  reduced  to  approximately  14% and 25% at  December  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 6 to the  Company's  consolidated
financial  statements  for the  year  ended  December  26,  1996  for a  further
discussion of the accounting treatment of ARTRA's investment in COMFORCE.

         Effective  December  19,  1996,  ARTRA  and  COMFORCE  agreed to settle
various  differences in the interpretation of certain agreements relating to the
COMFORCE  Telecom acquisition, whereby, among other things:
     
 
         (a)  COMFORCE  delivered  to ARTRA  100,000  shares of COMFORCE  common
              stock  in  consideration  of  ARTRA's  guarantee  of  the COMFORCE
              Telecom  purchase  price to  the  seller  and  100,000  shares  of
              COMFORCE  common  stock  for  the  cancellation  of  the  Series C
              Preferred Stock.  ARTRA's financial statements have reflected  the
              issuance of these 200,000 COMFORCE common  shares to  ARTRA  since
              the fourth quarter of 1995.

         (b)  ARTRA delivered to COMFORCE  certificates evidencing its ownership
              of 100% of the Lori Series C Preferred Stock.


         (c)  COMFORCE  agreed to  include  in a  proposed  underwritten  public
              offering 380,000 shares of COMFORCE common stock held by ARTRA and
              its Fill-Mor  subsidiary.  


         (d)  ARTRA  agreed to a Lock-up  Agreement  which limits its ability to
              sell its remaining COMFORCE common shares for a period of 360 days
              after the  effective  date  of  COMFORCE's  proposed  underwritten
              public offering.

         (e)  ARTRA  agreed to deposit  125,000  shares of its  COMFORCE  common
              stock  into an  escrow  account  to  collateralize  its  remaining
              obligations under the Assumption Agreement.
  

         COMFORCE did not retain an  underwriter  for the proposed  underwritten
public  offering and,  accordingly,  effective April 30, 1997 ARTRA was released
from the provisions of the Lock-up Agreement.






                                    - 17 -
<PAGE>
         Results of Operations


         The Company,  through its wholly-owned  Bagcraft subsidiary,  currently
operates  in one  industry  segment  as a  manufacturer  of  packaging  products
principally  serving  the food  industry.  Bagcraft  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.

         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. Accordingly,  the following
discussion of results of  operations  is presented for the Company's  continuing
operations,   which  are  conducted  by  the  Company's   wholly-owned  Bagcraft
subsidiary.



Six Months Ended June 26, 1997 vs. Six Months Ended June 27, 1996


         The following table presents,  as a percentage of net sales,  operating
expenses and other income (expense)  included the Company's earnings (loss) from
continuing  operations  for the six month  periods  ended June 26,  1997 and 27,
1996.

          
                                                            Six Months Ended  
                                                           ------------------ 
                                                            June 26,  June 27,
                                                              1997    1996
                                                             ------   ------

     Net sales                                                100.0%   100.0%
                                                             ------   ------
     Costs and expenses:
       Cost of goods sold,  
         exclusive of depreciation and amortization            79.8%    80.4%
       Selling, general and administrative                     13.3%    13.1%
       Depreciation and amortization                            3.6%     3.2%
                                                             ------   ------ 
                                                               96.7%    96.7%
                                                             ------   ------
    Operating earnings                                          3.3%     3.3%
                                                             ------   ------
    Other income (expense):
       Interest expense                                        -6.9%    -5.6%
       Amortization of debt discount                           -2.2%     -.1%
       Realized gain on disposal of
         available-for-sale securities                           .4%     7.4%
       Other income (expense), net                               .3%     -.3%
                                                             ------   ------ 
                                                               -8.4%     1.4%
                                                             ------   ------
    Earnings (loss) before income taxes,
       minority interest and extraordinary credit              -5.1%     4.7%
    Provision for income taxes                                  -.1%     -.1%
    Minority interest                                          -1.2%      .3%
                                                             ------   ------    
    Earnings (loss) before extraordinary credit                -6.4%     4.9%
                                                             ======   ====== 




         Net sales of  $60,274,000  for the six months  ended June 26, 1997 were
$491,000, or .8%, lower than net sales for the six months ended June 27, 1996. A
decrease in 1997 food services sales combined with increased June 1996 shipments
due to a July 1996 planned  temporary  plant shutdown,  was partially  offset by
incremental  1997 sales  attributable to Bagcraft's  January 1997 acquisition of
the business assets of AB Specialty.  The 1997 decrease in food service sales is
attributable to customer deferrals of certain key promotions in 1997 and to 1996
sales to a former food service customer.



                                      - 18 -
<PAGE>


         The  Company's  cost of sales of  $48,113,000  for the six months ended
June 26, 1997  decreased  $743,000 as compared to the six months  ended June 27,
1996.  Cost of sales for the six  months  ended  June 26,  1997 was 79.8% of net
sales  compared to a cost of sales  percentage of 80.4% for the six months ended
June 27,  1996.  The decrease in cost of sales and cost of sales  percentage  is
primarily attributable to improved production efficiencies in 1997.

         Selling,  general and  administrative  expenses were $8,032,000 for the
six months  ended June 26,  1997 as compared  to  $7,972,000  for the six months
ended June 27, 1996. Selling,  general and administrative expenses were 13.3% of
net sales for the six months  ended June 26,  1997 as  compared  to 13.1% of net
sales for the six months  ended June 27,  1996.  The 1997  increase  in selling,
general and  administrative  expenses is primarily  attributable  to  Bagcraft's
January 1997  acquisition  of the business  assets of AB Specialty and increased
employee  compensation costs,  partially offset by costs accrued in June 1996 to
consolidate Bagcraft's distribution facilities.

         Depreciation and amortization expense was $2,152,000 for the six months
ended June 26, 1997 as compared to $1,959,000  for the six months ended June 27,
1996.  Depreciation and amortization  expense was 3.6 % of net sales for the six
months  ended June 26,  1997 as compared to 3.2% of net sales for the six months
ended June 27, 1996.  The 1997  increase in  depreciation  and  amortization  is
primarily  attributable to Bagcraft's  January 1997  acquisition of the business
assets of AB Specialty.

         The Company  had  operating  earnings in the six months  ended June 26,
1997 of  $1,977,000  as compared to operating  earnings of $1,978,000 in the six
months ended June 27, 1996. Slightly improved 1997 operating margins were offset
by  increased  selling,   general  and  administrative  expenses  and  increased
depreciation and amortization, as noted above.

         Interest  expense  for the six  months  ended June 26,  1997  increased
$739,000 as compared to the six months ended June 27, 1996. The 1997 increase is
principally  attributable  to an increased  level of borrowings at the Corporate
level and related loan fees incurred.

         Amortization  of debt discount was  $1,351,000 for the six months ended
June 26, 1997 as compared to $80,000 for the six months ended June 27, 1996. The
1997 increase is  attributable to the December 1996 amendment and restatement of
Bagcraft's Credit Agreement.

         No income tax benefit was  recognized in connection  with the Company's
1997  pre-tax  loss  due  to  the  Company's  tax  loss  carryforwards  and  the
uncertainty of future taxable income. The 1996 extraordinary credit represents a
net gain from discharge of  indebtedness.  No income tax expense is reflected in
the Company's financial  statements resulting from the 1996 extraordinary credit
due to the utilization of tax loss carryforwards.



                                      - 19 -
<PAGE>

  
         The following table presents,  as a percentage of net sales,  operating
expenses and other income  (expense)  included in the Company's  earnings (loss)
from continuing  operations for the three years in the period ended December 26,
1996.
<TABLE>
<CAPTION>

                                                                      Year Ended
                                                       ------------------------------------------ 
                                                       December 26,   December 28,   December 29,
                                                           1996           1995           1994
                                                       -----------    -----------    -----------

<S>                                                        <C>            <C>            <C>   
Net sales                                                  100.0%         100.0%         100.0%
                                                           -----          -----          -----

Costs and expenses:
   Cost of goods sold,
      exclusive of 
      depreciation and  amortization                        78.4%          84.1%          84.7%
   Selling, general and administrative                      13.0%          15.7%          15.0%
   Depreciation and amortization                             3.3%           3.6%           3.9%
   Write-down of idle machinery and equipment                --             1.2%           --
                                                           -----          -----          -----
                                                            94.7%         104.6%         103.6%
                                                           -----          -----          -----

Operating earnings (loss)                                   5.3%           -4.6%          -3.6%
                                                           -----          -----          -----

Other income (expense):
   Interest expense                                        -6.6%           -8.0%          -7.7%
   Realized gain on disposal of
      available-for-sale securities                         4.8%            --             --
   Other income (expense), net                             -0.1%           -0.1%           --
   Equity in loss of COMFORCE                               --             -0.4%           --
                                                           -----          -----          -----
                                                            -1.9%          -8.5%          -7.7%
                                                           -----          -----          -----

Earnings (loss) from continuing operations
   before income taxes and minority interest                 3.4%         -13.1%         -11.3%
Provision for income taxes                                  -0.1%           --             --
Minority interest                                           -0.4%          -0.7%          -0.8%
                                                           -----          -----          -----
Earnings (loss) from continuing operations                   2.9%         -13.8%         -12.1%
                                                          ======          =====         ======

</TABLE>

Year Ended December 26, 1996 vs. Year Ended Decemer 28, 1995


         Continuing Operations

         Net sales from continuing operations of $120,699,000 for the year ended
December 26, 1996 were $1,180,000, or 1.0%, lower than net sales from continuing
operations  for the year ended  December  28, 1995.  The 1996 sales  decrease is
attributable to an overall volume decrease partially offset by increased selling
prices. The 1996 volume decrease is principally attributable to purchases of the
Company's  products by a major fast food  customer  relating to a  non-recurring
1995  promotion.  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 $94,613,000
for the year ended  December 26, 1996  decreased  $7,895,000  as compared to the
year ended December 28, 1995.  Cost of sales from  continuing  operations in the
year ended  December 26, 1996 was 78.4% of net sales compared to a cost of sales
percentage of 84.1% for the year ended  December 28, 1995.  The decrease in cost
of sales is primarily  attributable  to lower paper costs and the decreased 1996
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.

                                     - 20 -
<PAGE>


         Selling, general and administrative expenses from continuing operations
were  $15,638,000 in the year ended December 26, 1996 as compared to $19,131,000
in the year  ended  December  28,  1995.  Selling,  general  and  administrative
expenses were 13.0% of net sales in the year ended December 26, 1996 as compared
to 15.7% of net sales in the year ended  December 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
staffing services business.

         Depreciation  and amortization  expense from continuing  operations was
$3,927,000 in the year ended  December 26, 1996 as compared to $4,330,000 in the
year ended December 28, 1995. Depreciation and amortization expense was 3.3 % of
net sales in the year ended  December  26, 1996 as compared to 3.6% of net sales
in the year ended  December  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.

         In recent  years,  Bagcraft had  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 28, 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.

         The Company had operating  earnings in the year ended December 26, 1996
of  $6,521,000  as compared to operating  loss of  $5,593,000  in the year ended
December 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 year ended December
26, 1996  decreased  $1,777,000 as compared to the year ended December 28, 1995.
The 1996 decrease is principally  due to discharges of bank  indebtedness in the
fourth quarter of 1995 and the first quarter of 1996.

         During 1996 ARTRA sold 193,000  COMFORCE  common  shares in the market,
with the net proceeds of  approximately  $3,7000,000  used for working  capital.
During 1996 certain lenders  received 105,000 COMFORCE common shares held by the
Company as additional  consideration  for short-term  loans.  In October 1996, a
lender exercised the conversion  rights of a short-term loan and received 33,333
COMFORCE  common  shares  in  settlement  of  the  Company's   obligation.   The
disposition of these 331,333  COMFORCE  common shares resulted in realized gains
of $5,818,000  during the year ended December 26, 1996,  with cost determined by
average cost.

         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 in due to the
utilization of tax loss  carryforwards,  except for Federal  alternative minimum
tax  incurred  in 1996.  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.


         Discontinued Operations

         Earnings  from  discontinued  operations  of $10,000 for the year ended
December 28, 1995 consisted of a charge to operations of $6,430,000 to write-off
the remaining goodwill of COMFORCE's jewelry business, a provision of $1,000,000
for loss on disposal of  COMFORCE's  jewelry  business and  operating  losses of
COMFORCE's  jewelry  business,  offset  by a gain on sale  of  Bagcraft's  Arcar
subsidiary of $8,483,000 and operating earnings of Bagcraft's Arcar subsidiary.


                                     - 21 -
<PAGE>


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

     Continuing Operations

         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.

         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.

 

                                     - 22 -
<PAGE>


     Discontinued Operations

         Earnings  from  discontinued  operations  of $10,000 for the year ended
December 28, 1995 consisted of a charge to operations of $6,430,000 to write-off
the remaining goodwill of COMFORCE's jewelry business, a provision of $1,000,000
for loss on disposal of  COMFORCE's  jewelry  business and  operating  losses of
COMFORCE'  jewelry  business,  offset  by a gain  on sale  of  Bagcraft's  Arcar
subsidiary of $8,483,000 and operating earnings of Bagcraft's Arcar subsidiary.

         The loss from discontinued operations of $15,906,000 for the year ended
December 29, 1994 consisted principally of a charge to operations of $10,800,000
to  write-off  goodwill  of  COMFORCE's  former New  Dimensions  subsidiary  and
operating losses of COMFORCE's jewelry business.

  

Liquidity and Capital Resources

         Cash and Cash Equivalents and Working Capital


         Cash and cash equivalents increased $55,000 during the six months ended
June 26, 1997. Cash flows from financing  activities of $4,769,000 exceeded cash
flows  used by  operating  activities  of  $1,980,000  and  cash  flows  used by
investing  activities of $2,734,000.  Cash flows from financing  activities were
principally  attributable to a net increase in long-term borrowings.  Cash flows
used by operating  activities were principally  attributable to a net investment
in receivables and inventory at the Company's  Bagcraft  subsidiary.  Cash flows
from  investing  activities  principally  represent  funds  expended to complete
Bagcraft's  acquisition  of the  business  assets of AB  Specialty  and  capital
expenditures.

 
         Cash and cash equivalents  decreased  $2,176,000  during the year ended
December  26,  1996.  Cash  flows used by  operating  activities  of  $4,380,000
exceeded  cash flows from  investing  activities of $915,000 and cash flows from
financing activities of $1,289,000. Cash flows used by operating activities were
principally  attributable to funds used to pay down accounts payable and accrued
liabilities. Cash flows from investing activities principally represent proceeds
from  the  sale  of  COMFORCE   common  stock,   partially   offset  by  capital
expenditures. Cash flows from financing activities were principally attributable
to a net increase in long-term borrowings.


         The  Company's   consolidated   working  capital  deficiency  increased
$11,227,000  to  $14,619,000  during the six months  ended  June 26,  1997.  The
increase in working capital deficiency is principally attributable to unrealized
depreciation of available-for-sale securities (COMFORCE common stock).


         The  Company's   consolidated   working  capital  deficiency  decreased
$22,973,000 to $3,392,000  during the year ended December 26, 1996. The decrease
in   working   capital   deficiency   is   principally   attributable   to   the
reclassification of available-for-sale securities (COMFORCE common stock) from a
noncurrent to a current asset at December 26, 1996. The Company's operating plan
for fiscal year 1997 anticipates the sale of these marketable  securities,  with
proceeds to be used  principally to pay down Corporate debt obligations and fund
working capital requirements.




                                     - 23 -
<PAGE>

         Status of Debt Agreements and Operating Plan

         At December 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.  In  December  1996,  Bagcraft's  credit  agreement  was  extended  until
September 30, 2002.  See Notes 6 and 7 to the Company's  condensed  consolidated
financial statements for the quarter ended June 26, 1997 and discussion below.


        ARTRA Corporate


         As of June 26, 1997,  the Company's  corporate  entity had  outstanding
short-term indebtedness of approximately $15,233,000 as discussed below.


         Promissory Notes

         1997 Private Placements

         In June 1997, ARTRA completed  private  placements of $4,975,000 of 12%
promissory  notes  due  in  December  1997.  As  additional   consideration  the
noteholders  received  warrants to purchase an aggregate of 228,750 ARTRA common
shares at a price of $5.00 per share.  The  warrants  expire in June  1999.  The
warrantholders  have the right to put these  warrants  back to ARTRA at any time
during a six month period  commencing  in December  1997,  at prices of $2.00 to
$2.40 per share.  The cost of this obligation  ($517,000 if all warrants are put
back to the Company) is being accrued in the Company's financial statements as a
charge to interest expense over the period June 1997 (the  commencement  date of
the private  placement)  through December 1997 (the maturity date of the notes).
The proceeds from the private  placement were used principally to pay down other
debt  obligations.  The  promissory  notes  are  collateralized  principally  as
follows:

         Promissory  notes with an aggregate  principal amount of $2,000,000 are
         collateralized  by a 25%  interest  in the common  stock of ARTRA's BCA
         subsidiary (the parent of Bagcraft).

         The  Company  and the  lender  are  currently  negotiating  the form of
         collateral  for certain  promissory  notes with an aggregate  principal
         amount of $2,975,000,  which is anticipated to be substantially  all of
         the   Company's   otherwise   unencumbered   COMFORCE   common   shares
         (approximately 1,000,000 shares).


         In July 1997, ARTRA completed  private  placements of $7,475,000 of 12%
promissory  notes  due  in  January  1998.  As  additional   consideration   the
noteholders  received  warrants to purchase an aggregate of 199,310 ARTRA common
shares at a price of $4.50 per share.  The  warrants  expire in July  1998.  The
warrantholders  have the right to put these  warrants  back to ARTRA at any time
during a six month commencing on the earlier of the date the principal amount of
the notes are paid or the  maturity  date of the notes,  at a price of $3.00 per
share. The cost of this obligation ($598,000 if all warrants are put back to the
Company)  will be accrued in the Company's  financial  statements as a charge to
interest  expense over the period July 1997 (the date of the private  placement)
through  January (the scheduled  maturity date of the notes).  In the event of a
default,  as  defined in the note  agreements,  the  promissory  notes will bear
interest  at 37%.  These  promissory  notes are  collateralized  principally  as
follows:

         A  $4,000,000  note is  collateralized  by 575,000  shares of  COMFORCE
         common stock owned by the Company's Fill-Mor subsidiary and a secondary
         interest in the common stock of ARTRA's BCA  subsidiary  (the parent of
         Bagcraft).

         Promissory  notes with an aggregate  principal amount of $3,475,000 are
         collateralized by 652.285 shares of ARTRA redeemable preferred stock (a
         17.4% interest),  1,784.02 shares of BCA Series A redeemable  preferred
         stock (a 48.5%  interest) and 6,488.8 shares of BCA Series B redeemable
         preferred stock (a 79.8% interest).


         The proceeds  from the July 1997  private  placement  were  advanced to
Peter R. Harvey as discussed in Note 13 to the condensed  consolidated financial
statements for the quarterly period ended June 26, 1997.


                                    - 24 -
<PAGE>

         1996 Private Placement

         In April 1996, ARTRA commenced a private placement of $7,675,000 of 12%
promissory notes due April 15, 1997. As additional consideration the noteholders
received  warrants to purchase an aggregate of 418,750  ARTRA common shares at a
price of $6.00 per share. The warrants expire April 15, 1999. The warrantholders
have the right to put these warrants back to ARTRA at any time during the period
April 15, 1997 to October 15, 1998,  at a price of $2.00 per share.  The cost of
this  obligation  ($837,500  if all  warrants  are put back to the  Company) was
accrued in the Company's  financial  statements as a charge to interest  expense
over the period April 15, 1996 (the commencement date of the private  placement)
through  April 15, 1997 (the  maturity date of the notes as well as the date the
warrantholders  have the  right to put  their  warrants  back to  ARTRA).  These
promissory  notes were  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.  During  the second  quarter  of 1997,  the  Company  repaid  these
promissory notes with the proceeds of additional  short-term borrowings and with
funds received from the Company's  Bagcraft  subsidiary in accordance with a May
1997 amendment to its credit agreement.


         Amounts Due To Related Parties

         In August,  1996,  ARTRA borrowed  $500,000 from Howard Conant,  then a
private  investor,  evidenced  by an  short-term  note,  due  December 23, 1996,
bearing  interest  at 10%.  The loan was  collateralized  by  125,000  shares of
COMFORCE common stock owned by the Company's Fill-Mor subsidiary.  As additional
compensation  for the loan, Mr. Conant received a warrant,  expiring in 2001, to
purchase 25,000 ARTRA common shares at a price of $5.00 per share.  The proceeds
of the loan were used for working  capital.  At the Company's  annual meeting of
shareholders,  held August 29,  1996,  Mr.  Conant was elected to the  Company's
board of directors.  In December,  1996,  the loan was extended  until April 23,
1997 and Mr. Conant received, as additional  compensation,  a warrant , expiring
in 2001, to purchase 25,000 ARTRA common shares at a price of $5.875 per share.

         In January, 1997, ARTRA borrowed an additional $300,000 from Mr. Conant
evidenced by an short-term note, due December 23, 1997,  bearing interest at 8%.
The loan was collateralized  by 100,000 shares of COMFORCE common stock owned by
the Company's Fill-Mor subsidiary.  As additional compensation for the loan, Mr.
Conant  received a warrant,  expiring in 2002,  to purchase  25,000 ARTRA common
shares at a price of $5.75 per share.

         In March 1997, ARTRA borrowed an additional  $1,000,000 from Mr. Conant
evidenced by a short-term  note, due May 26, 1997,  bearing interest at 12%. The
loan was  collateralized by 585,000 shares of COMFORCE common stock owned by the
Company's Fill-Mor subsidiary.  As additional compensation,  Mr. Conant received
an option to  purchase  25,000  shares of  COMFORCE  common  stock  owned by the
Company's  Fill-Mor  subsidiary at a price of $4.00 per share, with the right to
put the option  back to ARTRA on or before May 30, 1997 for a total put price of
$50,000.  In May 1997,  Mr.  Conant  exercised  his rights and put the  COMFORCE
option back to ARTRA for $50,000.  The proceeds from this loan were used in part
to repay an ARTRA/Fill-Mor $2,500,000 bank term loan.

         In April 1997, ARTRA borrowed $5,000,000 from Mr. Conant evidenced by a
note, due April 20, 1998,  bearing interest at 10%. As additional  compensation,
the lender received a warrant to purchase 333,333 ARTRA common shares at a price
of $5.00 per share. The  warrantholder has the right to put this warrant back to
ARTRA at any time  during the period  April 21,  1998 to April 20,  2000,  for a
total purchase price of $1,000,000.  The cost of this obligation will be accrued
in the Company's  financial  statements as a charge to interest expense over the
period  April 21, 1997 (the date of the loan)  through  April 21, 1998 (the date
the warrantholder has the right to put the warrant back to ARTRA).  The proceeds
from  this  loan  were used to repay  Mr.  Conant's  outstanding  borrowings  of
$1,800,000 and to pay down other ARTRA debt obligations.


         In June 1997, ARTRA borrowed an additional  $1,000,000 from Mr. Conant,
due December 10, 1997, bearing interest at 12%. As additional compensation,  the
lender  received a warrant to purchase  40,000 ARTRA common shares at a price of
$5.00 per share.  The  warrantholder  has the right to put this  warrant back to
ARTRA at any time during the period  December 10, 1997 to June 10,  1998,  for a
total purchase price of $80,000.  The cost of this obligation will be accrued in
the  Company's  financial  statements  as a charge to interest  expense over the
period June 10, 1997 (the date of the loan) through  December 10, 1997 (the date
the warrantholder has the right to put the warrant back to ARTRA).  The proceeds
from this loan were used to pay down other ARTRA debt obligations. In July 1997,




                                       25
<PAGE>

borrowings from Mr. Conant were reduced to $3,000,000 with proceeds  advanced to
ARTRA from a Bagcraft  term loan as discussed  above.  As of September 19, 1997,
ARTRA  had  total   outstanding   borrowings  of  $3,000,000   from  Mr.  Conant
collateralized  by  collaterallized  by a 75%  interest  in the common  stock of
ARTRA's BCA subsidiary (the parent of Bagcraft).


         Other

         At December  26, 1996 (the end of ARTRA's  most  recent  fiscal  year),
ARTRA was the obligor under two demand notes origininally  issued to CIPKA S.A.,
an unrelated Swiss company, in the amount of approximately $2,300,000, including
accrued  interest.  The notes were issued in October,  1990 with  interest at 15
percent.  In January 1997,  ARTRA received  notice that its obligations to CIPKA
were sold,  effective  October 26,  1996,  to  PRESTWOOD  LIMITED,  an unrelated
company  registered in Tortola,  BVI. In July 1997,  ARTRA paid all  outstanding
interest on these demand notes and reduced the outstanding  borrowings under the
demand notes to approximately  $1,500,000.  ARTRA is currently  negotiating with
the noteholder to extend or refinance this obligation.

         ARTRA also has outstanding  short-term  borrowings from other unrelated
parties aggregating approximately $1,100,000.  The remaining amounts come due at
various  times in 1997 and 1998.  The notes were issued at various  times during
1997 and the  interest  rates vary  between 10 and 12 percent.  The  proceeds of
these loans were used principally for working capital.

         ARTRA has  suffered  recurring  losses  from  operations  and has a net
capital  deficiency.  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.

         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.

         At December 26, 1996,  ARTRA had  outstanding  borrowings of $3,000,000
from The Research Center of Kabbalah ("RCK"), an unaffiliated  company currently
holding  approximately  7% of ARTRA's  outstanding  common stock. The loans were
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.  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.  Interest on the loans has been paid through
March,  1997. Payment on the loans was due March 31, 1994,  however,  the lender
did not demand  payment.  In  February  1997,  the lender  received a warrant to
purchase  an  additional  100,000  ARTRA  common  shares at $5.625  per share as
consideration for not demanding  payment of this obligation.  In April 1997, the
lender received a warrant to purchase an additional  100,000 ARTRA common shares
at  $5.00  per  share  as  consideration  for  not  demanding  payment  of  this
obligation. In June 1997 outstanding borrowings to the unaffiliated company were
reduced to $300,000 with the proceeds from other short-term borrowings.  In July
1997 ARTRA repaid all remaining obligations under these loans.

         In  March  1997,   ARTRA  borrowed   $1,000,000  from  an  unaffiliated
corporation  evidenced by a short-term note, due May 26, 1997,  bearing interest
at 12%. The loan was  collateralized  by 630,000 shares of COMFORCE common stock
owned by the Company's  Fill-Mor  subsidiary.  As additional  compensation,  the
lender  received an option to purchase  25,000  shares of COMFORCE  common stock
owned by the Company's  Fill-Mor  subsidiary at a price of $4.00 per share, with
the right to put the option  back to ARTRA on or before  May 30,  1997 for a put
price of $50,000. Under certain circumstances, ARTRA had the right to repurchase
the option for $50,000.  In May 1997,  ARTRA  repurchased the option for $50,000
and repaid this loan . The proceeds from this loan were used in part to repay an
ARTRA/Fill-Mor $2,500,000 bank term loan.


                                     - 26 -
<PAGE>

         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,  which
provided for interest  payable  monthly at the bank's  reference  rate (8.25% at
December 26, 1996) was guaranteed by ARTRA and was  collateralized  by 1,265,000
shares of  COMFORCE  common  stock.  Proceeds  of the loan were used for working
capital.  In March 1997, the loan was repaid with proceeds from other short-term
borrowings,  principally  the  two  $1,000,000  loans  from  Mr.  Conant  and an
unaffiliated corporation, as discussed above.
  
         In May,  1996,  ARTRA borrowed  $100,000 from Edward A. Celano,  then a
private investor, evidenced by an unsecured short-term note, due August 7, 1996,
and renewed to February 6, 1997,  bearing  interest at 10%.  The proceeds of the
loan  were  used  for  working  capital.  At the  Company's  annual  meeting  of
shareholders,  held August 29,  1996,  Mr.  Celano was elected to the  Company's
board of  directors.  Effective  January 17,  1997,  Mr.  Celano  exercised  his
conversion rights and received 18,182 shares of ARTRA common stock as payment of
the principal balance of his note.

         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 were collateralized  by 215,000  shares of COMFORCE  common stock
owned by the Company's Fill-Mor  subsidiary.  The proceeds of the loan were used
for working  capital.  In January,  1997, the loan was repaid with proceeds from
other short-term borrowings.

         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."

         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  was  collateralized  by a
mortgage on certain  real  estate  owned by Mr.  Harvey.  B of A's rights to the
remaining  $850,000 of the  indebtedness had priority over ARTRA's rights to the
$2.15 million.  In March 1997,  the bank sold its interest in Mr.  Harvey's note
and the related collateral to a private investor.  ARTRA retained its $2,150,000
security  interest the real estate,  subordinated to the  noteholder's  $850,000
security interest in this real estate.

         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."

                                     - 27 -
<PAGE>

         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.

        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%  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 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  13 to  the  Company's  condensed  consolidated
financial  statements  for the  quarter  ended  June 26,  1997,  ARTRA has total
amounts  due from  its  president,  Peter R.  Harvey,  of which  $8,677,000  and
$7,998,000,  including accrued interest,  remained  outstanding at June 26, 1997
and December 26, 1996, respectively.  The amounts due bear interest at the prime
rate plus 2% (10.50% at June 26,  1997 10.25% and at December  26,  1996).  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.

         In prior  years,  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 October 16, 1997, the closing market price of PureTec on the
NASDAQ  National  Market was $2.625 per  share.  As  collateral  for a July 1997
advance of $7,475,000,  Mr. Harvey provided ARTRA with additional collateral for
his advances consisting of 652.285 shares of ARTRA Series A redeemable preferred
stock (a 17.4% interest),  1,784.02 shares of BCA Series A redeemable  preferred
stock (a 48.5% interest) and 6,488.8 shares of BCA Series B redeemable preferred
stock (a 79.8% interest).  These ARTRA and BCA redeemable  preferred shares were
pledged by ARTRA as partial  collateral  for the July 1997 private  placement of
ARTRA  promissory  notes that funded the advance to Mr. Harvey.  As of September
25, 1997,  this  additional  collateral  had a carrying  value of the obligation
recorded in ARTRA's consolidated balance sheet of approximately $11,000,000. The
fair market value of this additional collateral is not known.

         In  addition,   in   connection   with  a  discharge  of  certain  bank
indebtedness  discussed above, 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  collateralized  $2,150,000 of the

                                     - 28 -
<PAGE>
amount  owed by Mr.  Harvey.  Bank of  America  Illinois  had a senior  security
interest in the amount of $850,000. See "Transactions with Management And Others
-- Settlement  of the Bank of America  Illinois  Debt." In March 1997,  the bank
sold its interest in Mr.  Harvey's note and the related  collateral to a private
investor.  ARTRA  retained  its  $2,150,000  security  interest the real estate,
subordinated to the noteholder's $850,000 security interest in this real estate.

         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 25, 1997,  options were outstanding that, if exercised,
would  require  ARTRA to  repurchase  72,984  shares of its Common  Stock for an
aggregate of approximately $3,300,000. 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.

         As  discussed  in  Note  9  to  the  condensed  consolidated  financial
statements for the quarter ended June 26, 1997,  ARTRA,  Bagcraft and Bagcraft's
parent BCA have  various  redeemable  preferred  stock  issues with an aggregate
carrying  value of  $20,831,000  at June 26, 1997.  Redeemable  preferred  stock
issues with an aggregate  carrying value of $11,707,000 at June 26, 1997, mature
in 1997.  The Bagcraft  redeemable  preferred  stock,  with a carrying  value of
$2,065,000 at June 26, 1997, is payable in June 1997.  Bagcraft  anticipates  it
will fund this payment with funds available under its revolving credit loan. The
BCA Series B redeemable  preferred stock, with a carrying value of $9,642,000 at
June 26, 1997, is also payable in June 1997. ARTRA does not have available funds
to satisfy  this  obligation.  The  Company is  currently  negotiating  with the
redeemable preferred  shareholders to restructure or extend the maturity date of
this  obligation  beyond 1997.  In August and September  1997 ARTRA  repurchased
certain  ARTRA and BCA  redeemable  preferred  stock  with a  carrying  value of
approximately $800,000 for cash of approximately $430,000.

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


         Bagcraft

         Bagcraft entered into a Credit Agreement, dated as of December 17, 1993
(the "Credit  Agreement")  that initially  provided for a revolving  credit loan
with interest at the lender's  index rate plus 1.5% and two separate term loans.
The term loans were 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.

         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 11 to
the Company's consolidated financial statements).

         In  December  1996,  the Credit  Agreement  was  amended  and  restated
whereby,  among other  things,  the maturity  date of the Credit  Agreement  was
extended to September 30, 2002 and certain loan  covenants  were  amended.  Term
Loan A and Term Loan B, as  previously  defined  in the  Credit  Agreement  were
consolidated  into a new  $20,000,000  term loan with  interest at the  lender's
index rate plus .25% (8.5% at December 26, 1996).  Principal  payments under the
term loan were  modified to provide for annual  principal  payments  (payable in
quarterly  installments)  in the  amount of  $2,000,000  in 1997  through  1999;
$3,000,000 in 2000 and 2001;  and  $8,000,000 in 2002.  The amended and restated
Credit  Agreement  also provided for a $3,00,000  capital  expenditures  line of
credit with interest at the lender's index rate plus .25%.

         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 June 26, 1997 and December 26, 1996, approximately $3,800,000
and  $6,200,000,  respectively,  was available and unused by Bagcraft  under the
revolving  credit loan.  Borrowings  under the revolving credit loan are payable
upon maturity of the Credit  Agreement,  unless  accelerated  under terms of the
Credit  Agreement.  At June 26, 1997 and December 26, 1996, the interest rate on
the revolving credit loan was 8.5% and 8.25%, respectively.

                                     - 29 -
<PAGE>

         Borrowings under the Credit Agreement are  collateralized by the common
stock and 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 December 26, 1996 Bagcraft was in
compliance with the provisions of its Credit Agreement.

         Effective May 15, 1997, the Credit Agreement was amended to provide for
a $5,000,000  term loan (Term Loan B) with  interest at the lender's  index rate
plus .75%. Term Loan B is payable on May 8, 1998, unless accelerated under terms
of the Credit  Agreement.  The  proceeds  of Term Loan B were  advanced to ARTRA
under terms of an intercompany note payable to Bagcraft on May 8, 1998.  Because
the  ARTRA/Bagcraft  note results from an intercompany  transaction,  it has not
been  included in ARTRA's  short-term  indebtedness.  ARTRA used the proceeds of
this loan to repay certain ARTRA debt obligations


         Effective  July 17, 1997,  the Credit  Agreement was amended to provide
for a $7,500,000  term loan (Term Loan C) with  interest at the  lender's  index
rate plus 1%. Term Loan C is payable on July 15, 2000, unless  accelerated under
terms of the Credit  Agreement.  The  proceeds  of Term Loan C were  advanced to
ARTRA under terms of an intercompany  note payable to Bagcraft on July 15, 2000.
ARTRA used the proceeds of this loan to repay certain ARTRA debt obligations.


         As additional  compensation for borrowings under the Credit  Agreement,
in December 1993, the lender received a detachable warrant ("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
was required to repurchase the Warrant from the lender. The determination of the
repurchase  price of the Warrant was 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 January 1997, in accordance
with the December 1996 amendment to the Credit Agreement,  Bagcraft  repurchased
50% of the Warrant  (6.5% of the fully  diluted  common  equity of Bagcraft) for
$1,500,000. Bagcraft can repurchase the remaining 50% of the Warrant on or after
December 17, 1997 for an amount based upon the  Warrant's  pro rata share of the
highest of book  value,  appraised  value or market  value of  Bagcraft as noted
above.  In accordance  with the May 1997  amendment to the Credit  Agreement the
Warrant  was  amended.  In the event there is a change in  Bagcraft's  ownership
through May 30, 1998,  the lender is entitled to receive an amount equal to 6.5%
of the fully  diluted  common  equity of Bagcraft,  based upon the fair value of
Bagcraft at the date of a change of ownership,  less the  $1,500,000  the lender
received in January 1997 when Bagcraft repurchased 50% of the Warrant.

         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 June 26, 1997 and December 26, 1996, Bagcraft
         had outstanding borrowings of $5,600,000 under this loan agreement.

         A  $5,000,000   subordinated   promissory   note  payable  as  follows:
         $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 June 26, 1997
         and  December  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 June 26, 1997 and  December 26, 1996,
         Bagcraft  had   outstanding   borrowings   of  $224,000  and  $231,000,
         respectively, under this loan agreement.



                                     - 30 -
<PAGE>
         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
ircumstances,  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  anticipates that its 1997 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.
  
         As  discussed  in  Note  14 to  the  condensed  consolidated  financial
statements  for the  quarter  ended June 26,  1997,  effective  January 2, 1997,
Bagcraft  completed  the  purchase of the  business  assets,  subject to buyer's
assumption of certain liabilities, of AB Specialty Holding Company, Inc. ("AB").
The  consideration  consisted  of cash of  approximately  $2.4  million,  funded
through  borrowings under Bagcraft's  Credit Agreement,  of which  approximately
$1.2 million was paid as a deposit in December 1996.  The  acquisition of AB, is
expected to enhance Bagcraft's specialty bag business.
 
        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.  


         Investment In COMFORCE Corporation

         ARTRA,  along  with  its  wholly  owned  Fill-Mor  subsidiary,  owns  a
significant  minority  interest in COMFORCE,  consisting of 1,727,000  shares or
approximately 13% of the outstanding  common stock of COMFORCE as of October 16,
1997,  with an  aggregate  value as of that  date of  approximately  $14,680,000
(value at December 26, 1996 was  $22,564,000).  The value of COMFORCE  stock has
fluctuated  substantially  in recent periods.  The high per share for the twelve
month period ending  September 30, 1997 was $18.375 and the per share low during
the same  period  was  $4.00.  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  registration
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 (two years as of April 29, 1997) 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.
         
                                     - 31 -
<PAGE>

         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.  Effective  December 19, 1996, ARTRA
and  COMFORCE  entered into a Settlement  Agreement  pursuant to which  COMFORCE
agreed to include in its proposed underwritten public offering 380,000 shares of
COMFORCE common stock held by ARTRA and its Fill-Mor  susidiary and ARTRA agreed
to a Lock-up  agreement which limits its ability to sell its remaining  COMFORCE
common  shares for a period of 360 days after the  effective  date of COMFORCE's
proposed  underwritten  public offering.  COMFORCE did not retain an underwriter
for the proposed underwritten public offering and, accordingly,  effective April
30,  1997 ARTRA was  released  from the  provisions  of the  Lock-up  Agreement.
Currently, the sale of 700,000 COMFORCE common shares held by ARTRA and Fill-Mor
is restricted  because the shares are collateral  for various debt  obligations.
Additionally,  the Company and a lender are  currently  negotiating  the form of
collateral  for certain  promissory  notes issued in June 1997 with an aggregate
principal   amount  of   $2,950,000.   The   collateral  is  anticipated  to  be
substantially  all of it the Company's  otherwise  unencumbered  COMFORCE common
shares (approximately 1,000,000 shares).

         The Company's  operating plan for fiscal year 1997 anticipates the sale
of these marketable securities, with proceeds to be used principally to pay down
Corporate debt obligations and fund working capital requirements.

         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 consolidated
balance sheet at December 26, 1996 as other  receivables 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 19, 1997, no options to
acquire any of the 200,000 COMFORCE common shares had been exercised.

         In June  1997,  ARTRA  sold  5,000  COMFORCE  shares in the  market for
proceeds of  approximately  $33,000.  In March 1997,  a lender  received  25,000
COMFORCE  common  shares  held  by  ARTRA  as  additional  consideration  for  a
short-term  loan. The disposition of these 30,000 COMFORCE shares during the six
months ended June 26, 1997  resulted in realized  gains of  $255,000,  with cost
determined by average cost.

         As  additional  consideration  for a February  1996  short-term  loan 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.  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 238,000
COMFORCE  shares  during the quarter  ended June 27, 1996 resulted in additional
realized gains of $4,495,000, with cost determined by average cost.

         During the year ended  December 26, 1996,  ARTRA sold 193,000  COMFORCE
common shares in the market, with the net proceeds of approximately  $3,7000,000
used for working capital.  During 1996 certain lenders received 105,000 COMFORCE
common shares held by the Company as  additional  consideration  for  short-term
loans. In October 1996, a lender exercised the conversion rights of a short-term
loan and received 33,333 COMFORCE common shares in settlement of the Company's

  
                                     - 32 -
<PAGE>

obligation.  The disposition of these 331,333 COMFORCE common shares resulted in
realized gains of $5,818,000  during the year ended December 26, 1996, with cost
determined by average cost.

         At October 16, 1997 ARTRA's remaining investment in COMFORCE (1,727,000
shares,  or approximately a 13% common stock ownership  interest) was classified
in  the   Company's   consolidated   balance   sheet  in   current   assets   as
"Available-for-sale securities."
 
         In conjunction with the COMFORCE Telecom  acquisition,  ARTRA agreed to
assume  substantially  all pre-existing  COMFORCE  liabilities  (i.e.,  COMFORCE
liabilities  existing  from  operations  prior to the  acquisition  of  COMFORCE
Telecom)  and  indemnify  COMFORCE  in the event any  future  liabilities  arise
concerning  pre-existing  environmental matters and business related litigation.
Accordingly, at June 26, 1997 and December 26, 1996, respectively,  $271,000 and
$348,000 of such  pre-existing  COMFORCE  liabilities were classified in ARTRA's
condensed  consolidated  balance sheet as current  liabilities  of  discontinued
operations.  See Note 4 to the condensed  consolidated  financial statements for
the  quarter  ended  June  26,  1997 and  Note 6 to the  consolidated  financial
statements  for the year ended  December  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  12 to the
Company's condensed consolidated financial statements for the quarter ended June
26,  1997.  At June 26,  1997 and  December  26,  1996,  the Company had accrued
$1,900,000  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 June 26, 1997, the Company and its  subsidiaries  had Federal income
tax loss  carryforwards of approximately  $36,000,000,  expiring  principally in
2002 - 2010,  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.


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

         During 1997, the Financial  Accounting Standards Board issued Statement
of Financial  Accounting  Standards ("SFAS") No. 128, "Earnings per Share", SFAS
No. 129,  "Disclosure of  Information  about Capital  Structure,"  SFAS No. 130,
"Reporting  Comprehensive Income Summary," and SFAS No. 131,  "Disclosures About
Segments of an Enterprise and Related Information".

         SFAS No. 128 establishes  standards for the computation,  presentation,
and disclosure  requirements  for earnings per share.  SFAS No. 129 consolidates
the existing  requirements  relating to the  disclosure  of certain  information
about an entity's  capital  structure.  SFAS No. 130  establishes  standards for
reporting  comprehensive  income to present a measure  of all  changes in equity
that result from  renegotiated  transactions  and other  economic  events of the
period  other  than  transactions  with  owners  in their  capacity  as  owners.
Comprehensive income is defined as the change in equity of a business enterprise
during a period  from  transactions  and other  events  and  circumstances  from
nonowner  sources  and  includes  net  income.  SFAS No. 131  specifies  revised
guidelines for determining an entity's operating segments and the type and level
of financial information to be disclosed. This standard requires that management
identify operating  segments based on the way that management  disaggregates the
entity for making internal operating decisions.

                                     - 33 -
<PAGE>


         SFAS No. 128 and SFAS No. 129 are effective  for the  Company's  fiscal
year ending  December 25, 1997.  SFAS No. 130 and SFAS No. 131 are effective for
the  Company's  fiscal  year  ending  December  31,  1998.  Management  has  not
determined what impact these standards, when adopted, will have on the Company's
financial statements.




                             BUSINESS AND PROPERTIES

General

         Through its wholly-owned  subsidiary,  Bagcraft  Corporation of America
("Bagcraft"), ARTRA 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  (then  known  as The  Lori  Corporation),  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 Telecom Inc. ("COMFORCE  Telecom"),  formerly Spectrum Global Services,
Inc.  d/b/a YIELD  Global.  COMFORCE  Telecom  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.  In the fourth quarter of 1995,
ARTRA's investment in COMFORCE was reduced to approximately 25% and, at December
26, 1996  ARTRA's  interest  in  COMFORCE  common  stock was further  reduced to
approximately  14%. See Notes 3 and 6 to the  Company's  consolidated  financial
statements for a further discussion of ARTRA's investment in COMFORCE.

         
         Packaging Products Business

         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 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 three billion bags and three 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  15  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 2,000  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 1996.

 
                                      - 34 -
<PAGE>
 
       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  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.


         During 1996,  Bagcraft's products were sold by four marketing divisions
as described below.  However, in 1997,  Bagcraft  restructured its marketing its
marketing  department  into  seven  segments:  Concessions,  Distributors,  Food
Service,  Microwave  Popcorn,  Supermarket  Deli/Bakery,  Retail  Packaging  and
International.



         Paper Division

         Bagcraft  believes it is the industry  leader in specialty  paper bags,
which represented  approximately 31% of Bagcraft's 1996 sales.  Bakeries account
for  approximately  63%  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  Walgreen's,  Albertson's,  Dunkin' Donuts and Boston Market and Publix.
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  46% of
Bagcraft's 1996 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.  When used to replace  rigid  packaging,  it  represents
significant source reduction to the solid waste system.  Additionally,  Bagcraft
was the first manufacturer to print 6-color sheets.


                                     - 35 -
<PAGE>


         Specialty Bag Division

         The Specialty Bag Division represented  approximately 17% of Bagcraft's
1996 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.  This division  provides  bags with  transparent  windows,  metal tin tie
attachments  and  convenient  self-opening  bottoms.  Customers for the division
include Bake-Line Products and Interstate Brands.



         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. 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.  Bagcraft is
the leading  supplier of popcorn bags to theater  chains such as General  Cinema
Corporation, Carmike and Mann Theaters.



         As  discussed  in  Note  14 to  the  condensed  consolidated  financial
statements  for the  quarter  ended June 26,  1997,  effective  January 2, 1997,
Bagcraft purchased the business assets, subject to buyer's assumption of certain
liabilities,  of AB Specialty Holding Company,  Inc. ("AB").  The acquisition of
AB, is expected to enhance Bagcraft's specialty bag business.






         Microwave Popcorn Division



         The Microwave Popcorn Division,  which represented  approximately 6% of
Bagcraft's  1996 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.



                                     - 36 -

<PAGE>



         Discontinued Business - Arcar



         As  discussed  in  Note  3  to  the  Company's  consolidated  financial
statements  for the year  ended  December  26,  1996,  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 26, 1996,  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 900 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, expiring in 1997
                                       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 (5)             Manufacturing, warehouse and office facility
                                       of approximately 265,000 sq. ft.                        Owned


    Hialeah, FL (2) (3)                Manufacturing, warehouse and office facility            Leased, expiring in 1998
                                       of approximately 25,000 sq. ft.


    Medley, FL (3) (4)                 Warehouse facility of approximately 20,000 sq. ft       Leased, expiring in 1999
                                     


    Forest Park, GA (5)                Warehouse and office facility                           Owned
                                       of approximately 35,000 sq. ft

</TABLE>





                                     - 37 -

<PAGE>



(1)       This lease provides for a one-year renewal option.  Effective December
          1995, the building was purchased by a trust owned by John Harvey,  the
          Company's  Chairman of the board of  directors.  

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

(3)       This  lease  was  assumed  in  conjunction  with  Bagcraft's   January
          acquisition of AB Specialty Holding Company.

(4)       This lease provides for a two-year renewal option.

(5)       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 it was closed in
          June 1996.



Legal Proceedings
 

         The  Company  and  its  subsidiaries  are  the  defendants  in  various
business-related  litigation  and  environmental  matters.  At June 26, 1997 and
December  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 by 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.




                                      - 38 -
<PAGE>

         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 the Company's  Bagcraft  subsidiary  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, 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 to formally  extinguish the EPA claim. In September 1989,  Bagcraft was
served with a complaint filed by the State of Illinois against seventeen parties
for alleged  involvement  with the Cross Brothers  site.  The complaint  alleged
Bagcraft was responsible  for the costs of cleanup  incurred and to be incurred.
Although  Bagcraft  has denied  liability  for the site,  it has entered  into a
settlement agreement with the State, along with the other potential  responsible
parties,  to resolve all claims associated with the site. In July, 1997 Bagcraft
paid approximately $150,000 to formally extinguish the state claim.



         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 gas 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.  In April  1997,  the EPA  filed an
administrative complaint and has proposed a $250,000 civil penalty. Bagcraft has
filed a response to the complaint and is attempting to negotiate a settlement.



                                     - 39 -
<PAGE>

         Bagcraft has been notified that it may have responsibility with respect
to a clean-up  site on Basket Creek Road,  Georgia.  Bagcraft  presently  has no
indication of its liability, if any or whether it is a responsible party.

         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 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.



                                     - 40 -
<PAGE>

         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  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.  In February  1997,  the Second  Amended
Complaint was dismissed, with the right to replead. In April 1997, the plaintiff
appealed the dismissal of the Second Amended Compliant.

         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. A.G. Holding's motion for summary judgment was granted
on September 19, 1996.
 
         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. This liability was paid
in September 1996.
  


                                     - 41 -
<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  25, 1997 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
25, 1997 and the past two fiscal years were as follows:


                            1997               1996                  1995 
                     ---------------    -----------------     -----------------
                      High     Low       High       Low        High       Low 
                     ------  -------    ------    -------     ------    ------- 

First quarter       6 - 3/8  4 - 1/2    6 - 3/4   4 - 5/8     5 - 3/4   3 - 1/2 


Second quarter      5 - 3/4  3 - 7/8    9 - 1/4   5 - 3/4     5 - 1/2   3 - 1/4 


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


Fourth quarter                          6 - 3/4   5           5 - 1/8   3 - 5/8 



 
         No dividends were paid in 1996 or 1995 nor are any anticipated in 1997.
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 1997 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.
  

                                     - 42 -

<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  8,290,182  shares have been
issued and are  outstanding as of October 16, 1997, 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.  During 1990, 3,750 shares of a series designated "Series A Preferred
Stock" were issued,  of which  3,583.62  shares are  outstanding  as of the date
hereof. As of the date hereof,  there were approximately 2,500 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.

                                     - 43 -
<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.

         During August and September 1997 to date, ARTRA has repurchased  166.38
shares of its Series A  redeemable  preferred  stock  with a  carrying  value of
approximately $210,000 for cash of approximately $120,000.

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




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.





                                     - 44 -

<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).



                                     - 45 -

<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.

         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 19, 1997, a private  corporation,  of which a major  shareholder
and  executive  officer is a director  of ARTRA,  held in the  aggregate  72,984
shares of the Common  Stock  subject to put  options  requiring  the  Company to
repurchase shares for approximately $3,300,000 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 October 16, 1997, investors held warrants to purchase 2,558,983 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 and 1996
Stock Option Plans to purchase 913,050 shares in the aggregate of Common Stock.


  

                                     - 46 -
<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                   65          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  13%  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              62           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    13%    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               45          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              58          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              73          Retired  Chairman  of  the   Board  of
                                          Interstate  Steel  Co.,  1970 to 1990,
                                          and a consultant to Interstate through
                                          1992.

                                     - 47 -
<PAGE>





Maynard K. Louis              67          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             61          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 13%
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            65         Chairman of the Board and Chief Executive
                                  Officer of ARTRA

Peter R. Harvey        62         President and Chief Operating Officer of ARTRA

John G. Hamm           58         Executive Vice President of ARTRA

Robert S. Gruber       64         Vice President - Corporate Relations of ARTRA

James D. Doering       60         Vice President, Treasurer and Chief  Financial
                                  Officer of ARTRA


John Conroy            53         Vice President  - Corporate  Administration of
                                  ARTRA

Lawrence D. Levin      45         Controller of ARTRA

Edwin G. Rymek         67         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


                                     - 48
 -

<PAGE>



July 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 26, 1996, December 28, 1995 and
December 29, 1994, 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  26,  1996 and  whose  compensation  exceeded
$100,000 in 1996.
  

                                     - 49 -
<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,         1996     $137,811      $  -0-      $ -0-     141,000          $5,456 (4)
      Chairman and Chief      1995      126,200         -0-        -0-         -0-           2,520 (5)
      Executive Officer       1994      126,200         -0-        -0-         -0-           2,520 (5)
  

      James D. Doering,       1996      133,600         -0-        -0-      57,500           6,000 (4)
     Vice President and       1995       49,900       83,500       -0-         -0-           3,470 (5)
   Chief Financial Officer    1994      111,133       22,267       -0-         -0-           3,000 (5)
          
                                       
        John G. Hamm,         1996      133,600         -0-        -0-     101,250           6,000 (4)
          Executive           1995       49,900       83,500       -0-         -0-           3,470 (5)
        Vice President        1994      111,133       22,267       -0-         -0-           3,000 (5)
           
                                     
      Robert S. Gruber,       1996      110,400         -0-         -0-     97,750           6,000 (4)
        Vice President        1995       92,000       69,000        -0-        -0-           2,868 (5)
     Corporate Relations      1994          -0-       18,400        -0-        -0-           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 1996 (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 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  1996 Stock  Option  Plan at an  exercise  price of $5.25 per
         share, being the closing price of the Company's common stock on the New
         York Stock  Exchange  on the date of grant  (October  4,  1996).  These
         options expire October 4, 2006.

(4)      These amounts  include the Company's  contributions  to the 401(k) plan
         during  1996 and  1995  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   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. Effective August 1, 1995, the Company terminated the
         ESOP and  subsequently  distributed  the related  Employee  accounts to
         participants.
  
</FN>
</TABLE>
                                     - 50 -
<PAGE>

 
         The following  table sets forth  information  concerning  the aggregate
number and potential realizable values of options granted to the Chief Executive
Officer and the other  executive  officers of the Company  listed in the Summary
Compensation  Table during the fiscal year ended December 26, 1996. The Board of
Directors  authorized  the issuance of options on October 5, 1996 at a per share
exercise price of $5.25 (being the closing price on October 4, 1996).


                       OPTION GRANTS IN FISCAL YEAR 1996
<TABLE>
<CAPTION>
                                                                                                    Potential Realizable
                                                                                                      Value at Assumed
                                                                                                       Annual Rates of
                                                                                                      Appreciation for
                                            Individual Grants                                          Option Term (1)
                       -----------------------------------------------------------------         ------------------------- 
                       Number of     % of Total Options
                        Options         Granted to          Exercise Price    Expiration
       Name             Granted      Employees in 1996      ($ per share)        Date                 5%            10%
-------------------    --------      -----------------      -------------     ----------         ----------     ---------- 
<S>                     <C>               <C>                   <C>             <C>              <C>            <C>       
John Harvey             141,000           26.5%                 $ 5.25          10-04-06         $  466,710     $1,184,400

James D. Doering         57,500           10.8%                 $ 5.25          10-04-06         $  190,325     $  784,875

John G. Hamm            101,250           19.0%                 $ 5.25          10-04-06         $  335,138     $  850,500

Robert S. Gruber         97,750           18.3%                 $ 5.25          10-04-06         $  323,553     $  821,100

</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 26, 1996 which were granted to such officers in  consideration of their
services as officers or directors  of the Company.  No other options held by the
Chief Executive Officer or any other executive officers of the Company listed in
the Summary Compensation Table were exercised in 1996.

                     AGGREGATED OPTION EXERCISES IN 1996 AND
                      OPTION VALUES AS OF DECEMBER 26, 1996
<TABLE>
<CAPTION>                       
                                                                     Number of           Value of Unexercised
                                                                    Unexercised             In-the-Money
                                                                Options at 12-26-96      Options at 12-26-96
                           Shares Acquired          Value           Exercisable/            Exercisable/
      Name                   on Exercise          Realized        Unexercisable(1)         Unexercisable(2)
------------------         ---------------        ---------     -------------------       ------------------ 
<S>                            <C>                 <C>                <C>                     <C>           
John Harvey                       0                $    0             221,000/                $321,000/None
                                                                           0

James D. Doering               8,500                18,000            111,000/                 180,000/None
                                                                           0

John G. Hamm                      0                     0             140,450/                 184,000/None
                                                                           0

Robert S. Gruber                  0                     0             118,750/                 136,000/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 $5.25 per share. The market price of Common Stock as
         of the close of  trading  on  December  26,  1996 on the New York Stock
         Exchange was $6.125 per share.
  
</FN>
</TABLE>
                                     - 51 -
<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
1996. 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.
  








                                     - 52 -

<PAGE>

                             PRINCIPAL SHAREHOLDERS


         As of October 16,  1997,  there were  8,290,412  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 16, 1997 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 16,  1997,  3,750  shares of Series A Preferred  Stock of
ARTRA,  par value $1,000 per share,  had been issued,  of which 3,583.62  shares
were  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.



                                               Number           
                                             of Shares
                                           Beneficially
Name of Beneficial Owner                       Owned            Percent
------------------------                       -----            -------

Research Center of Kabbalah(1)                 647,250            7.5%
PRESTWOOD LIMITED (2)                          357,270            4.3%
Peter R. Harvey(3)     Common                  440,243            5.3%
                       Preferred                 2,175           60.7%
John Harvey(4)                                 423,796            6.1%
Gerard M. Kenny (5)                            240,048            2.9%
Maynard K. Louis(6)                            121,000            1.4%
Howard R. Connant(7)                           592,333            6.8%
Edward A. Celano                                18,182              *
Robert L. Johnson                                2,873              *
John G. Hamm(8)                                142,232            1.7%
Robert S. Gruber(9)                            141,104            1.7%
James D. Doering(10)                           124,311            1.5%
All directors and executive officers
  as a group (12 persons)                    2,572,816           26.2%


*        Less than 1% of the outstanding shares.


(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 361,000 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,  65,000 shares of Common Stock issuable
     issuable  under a warrant  which  expires  December 31, 1998 at an exercise
     price of $7.00 per share,  100,000  shares of Common Stock issuable under a
     warrant which expires  February 14, 2002 at an exercise price of $5.625 per
     share and 100,000  shares of Common Stock  issuable  under a warrant  which
     expires April 13, 2002 at an exercise price of $5.00 per share.

(2)  PRESTWOOD LIMITED,  a British Virgin Islands Company,  at Tortola,  B.V.I.,
     holds 357,270 shares of common stock directly.
         
(3)  Mr. Peter R. Harvey's  business address is 500 Central Avenue,  Northfield,
     Illinois  60093.  The shares  beneficially  owned by Mr. Harvey  consist of
     375,790  shares held directly by him (of which 373,615 are Common Stock and
     2,175 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.


                                     - 53 -
<PAGE>

(4)  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.

(5)  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 $83.45 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 $21.19 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."
 
(6)  Mr.  Louis is the holder of warrants to  purchase  121,000  shares of ARTRA
     common stock at prices of $4.50 to $8.00 per share which warrants expire on
     various dates commencing in 1997 and ending June 13, 2001.

(7)  Mr. Conant holds 150,000 ARTRA common shares  directly,  Mrs.  Conant holds
     9,000 ARTRA common shares and Mr. Conant holds  warrants to acquire 433,000
     shares of ARTRA  common  stock at prices of $5.00 to $5.875 per share which
     warrants expire on various dates in 2001 and 2002.  
  
(8)  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,
     1,639  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.

(9)  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.

(10) The shares of Common Stock  beneficially  owned by Mr.  Doering  consist of
     10,500 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,
     22,500 shares  issuable under an option which expires  December 19, 2000 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.  

                                     - 54 -
<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 Telecom, Inc. ("COMFORCE
Telecom"),  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  COMFORCE  Telecom  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 June 26,  1997 and  December  26,  1996,
$271,000 and $348,000, respectively, of such  pre-existing Lori liabilities were
classified in ARTRA's condensed  consolidated  balance as current liabilities of
discontinued operations.


         Effective July 4, 1995,  COMFORCE'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 COMFORCE Telecom 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 COMFORCE  Telecom,  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 ownership interest in
COMFORCE common stockwas  reduced to  approximately  14% and 25% at December 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 6 to the  Company's
consolidated  financial  statements  for the year ended  December 26, 1996 for a
further  discussion  of  the  accounting  treatment  of  ARTRA's  investment  in
COMFORCE.
 
         Effective  December  19,  1996,  ARTRA  and  COMFORCE  agreed to settle
various  differences in the interpretation of certain agreements relating to the
COMFORCE  Telecom acquisition, whereby, among other things:
     
         (a)  COMFORCE  delivered  to ARTRA  100,000  shares of COMFORCE  common
              stock  in  consideration  of  ARTRA's  guarantee  of the  COMFORCE
              Telecom  purchase  price  to the  seller  and  100,000  shares  of
              COMFORCE  common  stock  for  the  cancellation  of the  Series  C
              Preferred Stock.  ARTRA's financial  statements have reflected the
              issuance of these  200,000  COMFORCE  common shares to ARTRA since
              the fourth quarter of 1995.

         (b)  ARTRA delivered to COMFORCE  certificates evidencing its ownership
              of 100% of the Lori Series C Preferred Stock.
 




                                     - 55 -
<PAGE>



         (c)  COMFORCE  agreed to  include  in a  proposed  underwritten  public
              offering 380,000 shares of COMFORCE common stock held by ARTRA and
              its Fill-Mor  subsidiary.  


         (d)  ARTRA  agreed to a Lock-up  Agreement  which limits its ability to
              sell its remaining COMFORCE common shares for a period of 360 days
              after  the  effective  date of  COMFORCE's  proposed  underwritten
              public offering.

         (e)  ARTRA  agreed to deposit  125,000  shares of its  COMFORCE  common
              stock  into an  escrow  account  to  collateralize  its  remaining
              obligations under the Assumption Agreement.


         COMFORCE did not retain an  underwriter  for the proposed  underwritten
public offering referred to in paragraph (c) and,  accordingly,  effective April
30,   1997   ARTRA   was   released   from  the   provisions   of  the   Lock-up
Agreement.
        
         During 1995,  ARTRA  received  $399,000 of advances from  COMFORCE.  In
1996,  COMFORCE advanced ARTRA an additional  $54,000.  During 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 COMFORCE  Telecom 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
March  1997,  the bank sold its  interest in Mr.  Harvey's  note and the related
collateral  to a  private  investor.  ARTRA  retained  its  $2,150,000  security
interest the real estate,  subordinated to the  noteholder's  $850,000  security
interest in this real estate.


                                     - 56 -
<PAGE>

         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 June 26, 1997 was $8,677,000.  ARTRA has accrued  interest in
the sum of  $1,871,000  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
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." In March 1997, the bank sold its interest in Mr.  Harvey's note
and the related collateral to a private investor.  ARTRA retained its $2,150,000
security  interest the real estate,  subordinated to the  noteholder's  $850,000
security interest in this real estate.

         In July 1997,  ARTRA  advanced  an  additional  $7,475,000  to Peter R.
Harvey.  Mr. Harvey provided ARTRA with  additional  collateral for his advances
consisting  of 652.285  shares of ARTRA Series A redeemable  preferred  stock (a
17.4% interest),  1,784.02 shares of BCA Series A redeemable  preferred stock (a
48.5% interest) and 6,488.8 shares of BCA Series B redeemable preferred stock (a
79.8% interest). These ARTRA and BCA redeemable preferred shares were pledged by
ARTRA  as  partial  collateral  for the July  1997  private  placement  of ARTRA
promissory  notes that funded the advance to Mr.  Harvey.  As of  September  25,
1997,  this  additional  collateral  had a carrying  value of the  obligation in
ARTRA's consolidated balance sheet of approximately $11,000,000. The fair market
value of this additional  collateral is not known. The advances were funded with
the proceeds from the July 1997 private placement of ARTRA notes.

         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).
        

                                     - 57 -
<PAGE>

         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.

         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 ($21.188 at December 26, 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.
        
                                     - 58 -
<PAGE>

         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  Series  A  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 June 26, 1997,  dividends in the amount
of $798,000 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
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  was  collateralized  by a
mortgage on certain  real  estate  owned by Mr.  Harvey.  B of A's rights to the
remaining  $850,000 of the  indebtedness had priority over ARTRA's rights to the
$2.15 million.  In March 1997,  the bank sold its interest in Mr.  Harvey's note
and the related collateral to a private investor.  ARTRA retained its $2,150,000
security  interest the real estate,  subordinated to the  noteholder's  $850,000
security interest in this real estate.

         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.


                                     - 59 -
<PAGE>

         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.



         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  7% of  ARTRA's  outstanding  Common  Stock  (including  the stock
issuable  upon the exercise of  warrants) as of December 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 these loans 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.  Interest on the loans has been paid
through March, 1997. Payment on the loans was due March 31, 1994,  however,  the
lender did not demand  payment.  In February 1997, the lender received a warrant
to purchase an  additional  100,000  ARTRA common  shares at $5.625 per share as
consideration for not demanding  payment of this obligation.  In April 1997, the
lender received a warrant to purchase an additional  100,000 ARTRA common shares
at  $5.00  per  share  as  consideration  for  not  demanding  payment  of  this
obligation. In June 1997 outstanding borrowings to the unaffiliated company were
reduced to $300,000 with the proceeds from other short-term borrowings.  In July
1997 ARTRA repaid all remaining obligations under these loans.

         In May,  1996,  ARTRA borrowed  $100,000 from Edward A. Celano,  then a
private investor, evidenced by an unsecured short-term note, due August 7, 1996,
and renewed to February 6, 1997,  bearing  interest at 10%.  The proceeds of the
loan  were  used  for  working  capital.  At the  Company's  annual  meeting  of
shareholders,  held August 29,  1996,  Mr.  Celano was elected to the  Company's
board of  directors.  Effective  January 17,  1997,  Mr.  Celano  exercised  his
conversion rights and received 18,182 shares of ARTRA common stock as payment of
the principal balance of his note.

  


                                     - 60 -
<PAGE>

         In August,  1996,  ARTRA borrowed  $500,000 from Howard Conant,  then a
private  investor,  evidenced  by an  short-term  note,  due  December 23, 1996,
bearing  interest  at 10%.  The loan was  collateralized  by  125,000  shares of
COMFORCE common stock owned by the Company's Fill-Mor subsidiary.  As additional
compensation  for the loan, Mr. Conant received a warrant,  expiring in 2001, to
purchase 25,000 ARTRA common shares at a price of $5.00 per share.  The proceeds
of the loan were used for working  capital.  At the Company's  annual meeting of
shareholders,  held August 29,  1996,  Mr.  Conant was elected to the  Company's
board of directors.  In December,  1996,  the loan was extended  until April 23,
1997 and Mr. Conant received, as additional  compensation,  a warrant , expiring
in 2001, to purchase 25,000 ARTRA common shares at a price of $5.875 per share.

         In January, 1997, ARTRA borrowed an additional $300,000 from Mr. Conant
evidenced by an short-term note, due December 23, 1997,  bearing interest at 8%.
The loan was collateralized  by 100,000 shares of COMFORCE common stock owned by
the Company's Fill-Mor subsidiary.  As additional compensation for the loan, Mr.
Conant  received a warrant,  expiring in 2002,  to purchase  25,000 ARTRA common
shares at a price of $5.75 per share.

         In March 1997, ARTRA borrowed an additional  $1,000,000 from Mr. Conant
evidenced by a short-term  note, due May 26, 1997,  bearing interest at 12%. The
loan was  collateralized by 585,000 shares of COMFORCE common stock owned by the
Company's Fill-Mor subsidiary.  As additional compensation,  Mr. Conant received
an option to  purchase  25,000  shares of  COMFORCE  common  stock  owned by the
Company's  Fill-Mor  subsidiary at a price of $4.00 per share, with the right to
put the option  back to ARTRA on or before May 30, 1997 for a total put price of
$50,000.  In May 1997,  Mr.  Conant  exercised  his rights and put the  COMFORCE
option back to ARTRA for $50,000.  The proceeds from this loan were used in part
to repay an ARTRA/Fill-Mor $2,500,000 bank term loan.

         In April 1997, ARTRA borrowed $5,000,000 from Mr. Conant evidenced by a
note, due April 20, 1998,  bearing interest at 10%. As additional  compensation,
the lender received a warrant to purchase 333,333 ARTRA common shares at a price
of $5.00 per share. The  warrantholder has the right to put this warrant back to
ARTRA at any time  during the period  April 21,  1998 to April 20,  2000,  for a
total purchase price of $1,000,000.  The cost of this obligation will be accrued
in the Company's  financial  statements as a charge to interest expense over the
period  April 21, 1997 (the date of the loan)  through  April 21, 1998 (the date
the warrantholder has the right to put the warrant back to ARTRA).  The proceeds
from  this  loan  were used to repay  Mr.  Conant's  outstanding  borrowings  of
$1,800,000 and to pay down other ARTRA debt obligations.

         In June 1997, ARTRA borrowed an additional  $1,000,000 from Mr. Conant,
due December 10, 1997, bearing interest at 12%. As additional compensation,  the
lender  received a warrant to purchase  40,000 ARTRA common shares at a price of
$5.00 per share.  The  warrantholder  has the right to put this  warrant back to
ARTRA at any time during the period  December 10, 1997 to June 10,  1998,  for a
total purchase price of $80,000.  The cost of this obligation will be accrued in
the  Company's  financial  statements  as a charge to interest  expense over the
period June 10, 1997 (the date of the loan) through  December 10, 1997 (the date
the warrantholder has the right to put the warrant back to ARTRA).  The proceeds
from this loan were used to pay down other ARTRA debt obligations. In July 1997,
borrowings from Mr. Conant were reduced to $3,000,000 with proceeds  advanced to
ARTRA from a Bagcraft  term loan as discussed  above.  As of September 19, 1997,
ARTRA  had  total   outstanding   borrowings  of  $3,000,000   from  Mr.  Conant
collateralized  by  collaterallized  by a 75%  interest  in the common  stock of
ARTRA's BCA subsidiary (the parent of Bagcraft).


                              SELLING SHAREHOLDERS

         The following table sets forth certain  information,  as of October 16,
1997,  when  8,290,182  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.

                                     - 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>  
Robert Abrams (22)                                          4,724            *             4,724
Alltech Associates (42)                                    10,000            *            10,000 
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 Trust (4)                                  5,000            *             5,000
                       (47)                                 7,000            *             7,000   
Morris Belzberg (4)                                        25,000            *            25,000
William Belzberg (4)                                       25,000            *            25,000
K. Reed Berkey (4)                                          2,500            *             2,500
Nora Baker (4)                                              5,000            *             5,000
Belmad L.P. (48)                                          106,667            *           106,667      
Julius Berman (24)                                          6,250            *             6,250
Evelyn Bishop, Trustee (5)                                168,051          2.0%          168,051
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
             (48)                                          13,330            *            13,330      
Fred Broling (22)                                          14,234            *            14,234
Ken Buchanan (48)                                           5,332            *             5,332
Robert A. Calabrese (27)                                   15,000            *            15,000
Thomas J. Carroll (34)                                     28,461            *            28,461
Edward A Celano (12)                                       18,182            *            18,182
Woodrow Chamberlain (4)                                    10,000            *            10,000
                    (47)                                   25,000            *            25,000 
Woodrow & Barbara Chamberlain (48)                         13,330            *            13,330 
Cipka S.A. (6)                                            192,790          2.3%          192,790
Clinton Industries (7)                                     75,001            *            75,001
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)                                     578,333          6.8%         433,333
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
                   (47)                                     4,000            *            4,000                         
Kelly Erickson (15)                                         7,500            *            7,500
Paul Farmer IRA (4)                                         2,500            *            2,500
Leonard Feldman (4)                                        15,000            *           15,000
Barry M. Ferrigno & B. Allan P/S Plan (15)                  7,500            *            7,500
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          1.7%             2,874
Robert Haney (38)                                           1,000            *              1,000
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
Ezra Hamway (46)                                           13,000            *             13,000
John Harvey (9)                                           523,796          6.1%            82,206
Peter R. Harvey (21)                                      442,418          5.3%            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)                                         30,373            *             30,373
Dane Johnson, IRA (15)                                      3,750            *              3,750
Carol M. Jacobsohn (11)                                     2,750            *              2,750
Robert Johnson (22)                                         2,873            *              2,873
Robert Jones (31)                                          16,321            *             16,321
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)                                     22,687            *             22,687
Kwiatt, Silverman & Ruben, Ltd. (45)                       12,000            *             12,000
Kwiatt, Silverman & Ruben, Ltd. 
  Profit Sharing Plan (38)                                 15,000            *             15,000
Michael Laundrie  (44)                                      9,773            *              9,773
R. D. Levy (22)                                             5,364            *              5,364
Steven M. Levy (29)                                        17,877            *             17,877
Levy S.D. (46)                                             22,000            *             22,000     
Robert Lofblad (22)                                        16,154            *             16,154
Frank N. Magid (4)                                          2,500            *              2,500
Maynard K. Louis (13)                                     121,000          1.4%           121,000
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
                 (47)                                       5,000            *              5,000   
John E. Mc Connnaughy (15)                                 75,000            *             75,000
James McHugh (4)                                            5,000            *              5,000
James B. McGill (4)                                         5,000            *              5,000
Johanna B. McGill (4)                                       5,000            *              5,00



</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>  
R & J  Lucas Revocable Trust (43)                          10,000            *            10,000
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
                    (47)                                    3,000            *             3,000
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
The Neff Family Trust (47)                                 12,500            *            12,500 
Paul Neff (48)                                              2,666            *             2,666
Douglas B. Nelson & Jessica M. Swift (47)                  12,500            *            12,500 
Peer Pedersen (46)                                         25,000            *            25,000                     
Jerry Pillard (22)                                            385            *               385
Pollack Family L.L.C. (15)                                  3,750            *             3,750
Janet M. Portelly (15)                                      6,000            *             6,000
PRESTWOOD LIMITED (8)                                     357,720          4.3%          357,720
Ravinia Investors LLC (4)                                   2,500            *             2,500
                      (48)                                  2,666            *             2,666       
Charles Reeder (4)                                         20,000            *            20,000
               (48)                                         5,332            *             5,332
Research Center of Kabbalah (14)                          647,250          7.5%          412,250
William G. Reynolds, Jr. (4)                                1,250            *             1,250
                         (47)                               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 (38)                                       20,687            *            20,687
Barry Rymer (35)                                          160,973          1.9%          160,973


  

</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 Trust  (4)                               15,000            *            15,000
                         (48)                               7,332            *             7,332       
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)                                      2,500            *             2,500
                   (47)                                     2,500            *             2,500     
William Seelbach (4)                                        5,000            *             5,000
                 (47)                                       2,500            *             2,500
Marshall Rodin  (41)                                       18,184            *            18,184
Semamor Enterprises (47)                                   60,000            *            60,000 
Sherwood Securities Corp. (15)                             15,000            *            15,000
Sigma Pairs (24)                                           87,500          1.1%           87,500
The Shipp Family Trust (47)                                 2,000            *             2,000         
Michael Silverman (38)                                     16,687            *            16,687
Lloyd Singer (22)                                           4,724            *             4,724
Alfred Slatin (22)                                          3,276            *             3,276
Paul Smeets (4)                                            10,000            *            10,000
A.E. Staley Trust (47)                                      5,000            *             5,000
Eva Staley Residential Trust (4)                            5,000            *             5,000
Henry M. Staley Trust u/a/d 11/13/73 (4)                    7,500            *             7,500
                                     (47)                   5,000            *             5,000
Henry Staley (48)                                           2,666            *             2,666
Staley Family Agency Account (4)                           20,000            *            20,000
Avery J. Stone Trust (4)                                   20,000            *            20,000
Anita Stone Family Trust (48)                              26,660            *            26,660    
Josef Strahammer (16)                                     136,355          1.6%          136,355
Shepard C. Swift Trust (4)                                 10,000            *            10,000
                       (47)                                 4,000            *             4,000    
Dieter E.A. Tannenberg (39)                                30,000            *            30,000
Michael Targoff (24)                                      125,000          1.5%          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)                                       50,000           *             50,000
                (47)                                       25,000           *             25,000      
Ronald Tarrson (37)                                        40,000           *             40,000
               (47)                                        25,000           *             25,000 
               (48)                                        13,330           *             13,330 
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)                                      301,599         3.5%           301,599
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
               (47)                                         5,000           *              5,000  
Roger D. and Gail L. Williams (15)                          7,500           *              7,500
Diane Wilson (4)                                            1,250           *              1,250
             (47)                                           1,250           *              1,250
D. R. Zaccone (19)                                        174,000         2.1%           174,000
Marc L. Werner (25)                                        90,000         1.1%            90,000
Manufacturers Indemnity and Insurance                                                           
  Co. of America (26)                                       5,000           *              5,000
                                                        ---------        ----          ---------
         TOTAL                                          6,552,842        55.7%         5,192,471     
                                                        =========        ====          =========

                                                       
                                                                                     

<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 8, 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%
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 56,394
shares issuable to the trustee upon the exercise of the following warrants:


 Number of Shares         Exercise Price Per Share    Expiration Date of Warrant
          4,244                     6.000                      05-17-98
          6,367                     6.000                      05-29-98
          6,685                     6.000                      11-29-98
          4,457                     6.000                      11-17-98
          1,560                     5.375                      05-16-98
          7,023                     5.000                      05-28-98
          7,383                     4.750                      11-28-97
          7,764                     3.750                      05-28-98
         10,911                     8.000                      06-13-01



         (6) Consists of 192,790 shares of Common Stock owned of record by Cipka
S.A.
  
         (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 357,720 shares of record owned by PRESTWOOD  LIMITED, a
British Virgin Islands  Company,  issued in payment of the principal amount of a
short-term loan.

         (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
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:







                                     - 68 -

<PAGE>


    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 27,500 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
     12,500                  5.625              08-05-98
  

         (11) Consists of 2,750 shares of Common Stock issuable to Ms. Jacobsohn
upon the  exercise of a warrant  which  expires  December 2, 1997 at an exercise
price of $5.00 per share.

         (12) Consists of 18,182 shares of  Common Stock  owned of record by Mr.
Celano, a director of the Company.

         (13) Consists of 121,000  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              04-01-98
      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
      11,000                    6.000              03-09-98
 

         Mr. Louis is a director of the Company.




                                     - 69 -

<PAGE>


         (14)  Consists  of 361,000  shares of Common  Stock  owned of record by
Research  Center of Kabbalah and 21,250 shares of Common Stock  issuable under a
warrant which expires  October 29, 1998 at an exercise price of $6.00 per share,
65,000 shares of Common Stock  issuable  issuable  under a warrant which expires
December  31, 1998 at an exercise  price of $7.00 per share,  100,000  shares of
Common Stock  issuable  under a warrant  which  expires  February 14, 2002 at an
exercise  price of $5.625 per share and 100,000  shares of Common Stock issuable
under a warrant which  expires April 13, 2002 at an exercise  price of $5.00 per
share.

         (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 136,355  shares of Common Stock owned of record by Mr.
Strahammer.  These shares consist of 20,812 issued to Mr.  Strahammer in lieu of
interest on certain  borrowings and 115,543  shares issued to Mr.  Strahammer in
payment of a $678,000 demand note.

         (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 65,284  shares of Common Stock owned of record by Mr.
Verde and 236,315 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                  5.000                 08-09-97
      37,258                  3.750                 02-09-98
      36,651                  4.125                 08-09-98
      35,555                  5.000                 02-09-99
      10,464                  5.000                 08-09-99
      39,907                  5.000                 02-09-98
  


         (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





                                      -70-
<PAGE>


 
         (20) Consists of 140,000  shares of Common Stock owned of record by Mr.
Conant,  5,000 shares  held by Mrs.  Conant and 433,333  shares of Common  Stock
issuable to Mr. Conant upon the exercise of the following warrants:

    Number of            Exercise Price          Expiration Date
      Shares                per Share              of Warrant

     333,333                  5.000                 04-20-00
      25,000                  5.000                 08-26-01
      25,000                  5.875                 12-22-01
      10,000                  5.750                 01-15-02
      40,000                  5.000                 04-02-00



         (21) The  shares  of  Common  Stock  beneficially  owned by Mr.  Harvey
consist of 375,790  shares  held  directly  by him (of which  373,615 are Common
Stock and 2,175 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.

         (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 15,000  shares of  Common  Stock  owned of record by
Mr.Calabrese.

         (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 17,877  shares of  Common Stock owned of record by Mr.
Levy.
  



                                     - 71 -
<PAGE>

         (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, 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 and 8,000 shares of Common Stock issuable to Mr. Jones upon the exercise of
a warrant at an exercise  price of $4.75 per share,  which warrant  expires June
15, 1999.

         (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 owned of record by Mr.
Schuster.

         (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.Tarrson upon the
exercise of a warrant at an  exercise  price of $5.00 per share,  which  warrant
expires  September  12,  2001 and  12,500  shares of Common  Stock  issuable  to
Mr.Tarrson  upon the  exercise of a warrant at an  exercise  price of $6.125 per
share,  which  warrant  expires  December 22, 2001.  The warrants were 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%
Promissory Notes.

          (37) Consists of:

               (a) 12,500 shares of Common Stock issuable to Mr.Tarrson upon the
exercise of a warrant at an  exercise  price of $5.00 per share,  which  warrant
expires  September  12,  2001 and  12,500  shares of Common  Stock  issuable  to
Mr.Tarrson  upon the  exercise of a warrant at an  exercise  price of $6.125 per
share,  which  warrant  expires  December 22, 2001 . The warrants were 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%
Promissory Notes.

         (38)  Consists of shares of Common Stock  originally  issued to Kwiatt,
Silverman  & Ruben,  Ltd. in payment of  professional  fees and shares of Common
Stock  issued  to Ozite as  consideration  for the  March  1990  acquisition  of
Bagcraft. See note (22) to this listing of Selling Shareholders.
  
         (39)  Consists of 30,000  shares of Common Stock owned of record by Mr.
Tannenberg.




                                     - 72 -
<PAGE>

         (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.
 
         (42)  Consists  of 10,000  shares of Common  Stock  issuable to Alltech
Associates  upon the  exercise  of a warrant at an  exercise  price of $6.00 per
share, which warrant expires July 1, 1998.

         (43)  Consists of 10,000  shares of Common Stock  issuable to R&J Lucas
upon the  exercise of a warrant at an exercise  price of $5.75 per share,  which
warrant expires January 15, 2002.

         (44)  Consists of 9,773 shares of record owned by Mr. Laundrie.

         (45)  Consists of shares of Common Stock  issued to Kwiatt, Silverman &
Ruben,  Ltd. in payment of  professional  fees.

         (46)  Consists of shares of Common Stock  issuable upon the exercise of
warrants.  These warrants were issued as  consideration  for short-term loans or
services provided for the benefit of the Company.

         (47) Consists of shares of Common Stock issuable upon the exercise of a
warrant at an exercise price of $5.00 per share and expiring May 23, 1999. These
warrants  were  issued  under  the  Company's  1997  Private  Placement  of  12%
Promissory Notes.

         (48) Consists of shares of Common Stock issuable upon the exercise of a
warrant at an  exercise  price of $4.50 per share and  expiring  July 14,  1998.
These  warrants  were issued under the Company's  1997 Private  Placement of 12%
Promissory Notes.






                                     - 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 $350,000 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 26, 1996 and  December  28,  1995,  and the related
consolidated  statements of operations,  shareholders' equity (deficit) and cash
flows for each of the three years in the period ended December 26, 1996 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.  through  certain
members of the firm and its  Profit  Sharing  Plan own  88,061  shares of Common
Stock of the Company this represents approximately one (1%) percent of the total
shares outstanding.

  



                                TABLE OF CONTENTS

                                                          

                  Heading                     Page

Additional Information                           2

Prospectus Summary                               3

Risk Factors                                     6

Capitalization                                  14

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

Business and Properties                         34

Legal Proceedings                               38

Market Price of the Company's                   42
Common Stock

Description of the Company's                    43
Securities

Management                                      47

Executive Compensation                          49     ARTRA GROUP Incorporated

Principal Shareholders                          53

Transactions with Management and                55           PROSPECTUS
Others

 

Selling Shareholders                            61        October 17, 1997

  

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
     June 26, 1997 (Unaudited)                                             F-2

 Condensed Consolidated Statements of Operations
     Six Months Ended June 26, 1997 
     and June 27, 1996 (Unaudited)                                         F-4

 Condensed Consolidated Statement of Changes
     in Shareholders' Equity (Deficit)
     Six Months Ended June 26, 1997 (Unaudited)                            F-5

 Condensed Consolidated Statements of Cash Flows
     Six Months Ended June 26, 1997 
     and June 27, 1996  (Unaudited)                                        F-6


 Notes to Condensed Consolidated Financial Statements                      F-7
 


 Report of Independent Accountants                                         F-25

 Consolidated Balance Sheets as of December 26, 1996
     and December 28, 1995                                                 F-26

 Consolidated Statements of Operations
     for each of the three fiscal years
     in the period ended December 26, 1996                                 F-28

 Consolidated Statements of Changes in 
     Shareholders' Equity (Deficit)
     for each of the three fiscal years
     in the period ended December 26, 1996                                 F-29

 Consolidated Statements of Cash Flows
     for each of the three fiscal years 
     in the period ended December 26, 1996                                 F-31

 Notes to Consolidated Financial Statements                                F-33


  Financial Statement Schedules:

        I.      Condensed Financial Information  of Registrant             F-65

       II.      Valuation and Qualifying Accounts                          F-69




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.








                                      F-1
<PAGE>

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




                                                       

          ASSETS
Current assets:
   Cash and equivalents                                      $226  
   Receivables, less allowance for 
        doubtful accounts of $205                          10,589  
   Inventories                                             18,241  
   Available-for-sale securities                           10,438  
   Other                                                    2,777  
                                                      -----------  
               Total current assets                        42,271  
                                                      -----------  


Property, plant and equipment                              48,305  
Less accumulated depreciation and amortization             22,469  
                                                      -----------  
                                                           25,836  
                                                      -----------  

Other assets:
   Excess of cost over net assets acquired,
      
      net of accumulated amortization of $2,235             2,702  
   Other                                                    1,795  
                                                      -----------  
                                                            4,497  
                                                      -----------  
                                                          $72,604  
                                                      ===========  



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


















                                        F-2

<PAGE>

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


                                                        
          LIABILITIES
Current liabilities:
   Notes payable, including amounts       
      due to related parties of $6,300                    $15,233   
   Current maturities of long-term debt                    10,137   
   Accounts payable                                         7,983   
   Accrued expenses                                        11,354   
   Income taxes                                               205   
   Bagcraft detachable put warrant                             -    
   Redeemable preferred stock                              11,707   
   Liabilities of discontinued operations                     271   
                                                      -----------   
               Total current liabilities                   56,890   
                                                      -----------   

Long-term debt                                             34,528   
Bagcraft detachable put warrant                             4,358   
Other noncurrent liabilities                                1,940   
Commitments and contingencies

Redeemable common stock,
   issued 72,984 shares                                     3,175   

Redeemable preferred stock                                  9,124   


          SHAREHOLDERS' EQUITY (DEFICIT)
Common stock, no par value; 
   authorized 20,000,000 shares;     
   issued 7,820,064 shares                                  5,920   
Additional paid-in capital                                 41,155   
Unrealized appreciation of investments                     13,539   
Receivable from related party, 
   including accrued interest                              (6,806)  
Accumulated deficit                                       (91,167)  
                                                      -----------   
                                                          (37,359)  
Less treasury stock, 7,628 shares, at cost                     52   
                                                      -----------   
                                                          (37,411)  
                                                      -----------   
                                                          $72,604   
                                                      ===========   



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












                                       F-3
<PAGE>

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




                                                      
                                                          Six Months Ended
                                                      -----------------------  
                                                        June 26,     June 27,  
                                                          1997         1996  
                                                      ----------   ----------

Net sales                                               $60,274      $60,765
                                                      ----------   ----------

Costs and expenses:
   Cost of goods sold, exclusive of 
      depreciation and amortization                      48,113       48,856
   Selling, general and administrative                    8,032        7,972
   Depreciation and amortization                          2,152        1,959
                                                      ----------   ----------
                                                         58,297       58,787
                                                      ----------   ----------

Operating earnings                                        1,977        1,978
                                                      ----------   ----------

Other income (expense):
   Interest expense                                      (4,143)      (3,404)
   Amortization of debt discount                         (1,351)         (80)
   Realized gain on disposal of 
      available-for-sale securities                         255        4,495
   Other income (expense), net                              178         (210)
                                                      ----------   ----------
                                                         (5,061)         801
                                                      ----------   ----------

Earnings (loss) before income taxes,
    minority interest and extraordinary credit           (3,084)       2,779
Provision for income taxes                                  (41)         (50)
Minority interest                                          (717)         190
                                                      ----------   ----------
Earnings (loss) before extraordinary credit              (3,842)       2,919
Extraordinary credit, net discharge of indebtedness         -           9,424
                                                      ----------   ----------
Net earnings (loss)                                      (3,842)      12,343
Dividends applicable to redeemable preferred stock         (336)        (306)
Reduction of retained earnings applicable
    to redeemable common stock                             (196)        (205)
                                                      ----------   ----------
Earnings (loss) applicable to common shares             ($4,374)     $11,832
                                                      ==========   ==========

Earnings (loss) per share:
   Earnings (loss) before extraordinary credit           ($0.56)       $0.28
   Extraordinary credit                                     -           1.23
                                                      ----------   ----------
   Net earnings (loss)                                   ($0.56)       $1.51
                                                      ==========   ==========

Weighted average number of shares of common stock and
   common stock equivalents outstanding                   7,859        7,834
                                                      ==========   ==========



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








                                       F-4

<PAGE>

                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES
  CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
                   (Unaudited 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 26, 1996         7,624,766  $5,793   $40,211     $25,719     ($6,468)    ($86,793)  7,628    ($52)    ($21,590)
 Net earnings                                -       -         -           -           -       (3,842)      -       -       (3,842)
 Common stock issued 
  to pay liabilities                    39,955      30       184           -           -            -       -       -          214
 Increase in receivable 
  from related party, 
  including accrued interest                 -       -         -           -        (338)           -       -       -         (338)
 Decrease in unrealized 
  appreciation of investments                -       -         -     (12,180)          -            -       -       -      (12,180)
 Exercise of stock options
   and warrants                         39,800      30       148           -           -            -       -       -          178
 Redeemable common stock
  obligation paid by the issuance 
  of additional common shares          115,543      67       612           -           -            -       -       -          679
 Redeemable common 
  stock accretion                            -       -         -           -           -         (196)      -       -         (196)
 Redeemable preferred 
  stock dividends                            -       -         -           -           -         (336)      -       -         (336)
                                    ---------- -------   -------   ---------    --------     --------  ------   -----   ----------
Balance at June 26, 1997             7,820,064  $5,920   $41,155     $13,539     ($6,806)    ($91,167)  7,628    ($52)    ($37,411)
                                    ========== =======   =======   =========    ========     ========  ======   =====   ==========
</TABLE>

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








                                        F-5
<PAGE>

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




                                                            Six Months Ended
                                                          ---------------------
                                                           June 26,     June 27,
                                                             1997         1996
                                                          --------     -------- 

Net cash flows used by operating activities               ($ 1,980)    ($ 1,971)
                                                          --------     -------- 

Cash flows from investing activities:
   Additions to property, plant and equipment               (1,636)      (1,275)
   Acquisition of AB Specialty, net of deposit              (1,131)        --
   Proceeds from sale of COMFORCE common stock                  33        3,717
   Proceeds from collection of Welch notes                    --            342
   Decrease in unexpended plant construction funds            --            552
   Other                                                      --             89
                                                          --------     -------- 
Net cash flows from (used by) investing activities          (2,734)       3,425
                                                          --------     -------- 

Cash flows from financing activities:
   Net decrease in short-term debt                          (3,245)      (4,060)
   Proceeds from long-term borrowings                       70,915       67,753
   Reduction of long-term debt                             (61,612)     (66,676)
   Redemption of detachable put warrants                    (1,600)        --
   Exercise stock options and warrants                         178          169
   Other                                                       133         --
                                                          --------     -------- 
Net cash flows from (used by) financing activities           4,769       (2,814)
                                                          --------     -------- 

Increase (decrease) in cash and cash equivalents                55       (1,360)
Cash and equivalents, beginning of period                      171        2,347
                                                          --------     -------- 
Cash and equivalents, end of period                       $    226     $    987
                                                          ========     ========



Supplemental cash flow information: 
  Cash paid during the period for:
    Interest                                                $3,407     $  2,579
    Income taxes paid, net                                     175            8


Supplemental schedule of noncash investing
  and financing activities:
    BCA Holdings redeemable preferred stock 
      issued in exchange for Bagcraft 
      redeemable preferred stock                              --          8,135
    Issue common stock to pay down liabilities                 214          848
    Issue common stock to pay redeemable 
      common stock put obligation                              679         --




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








                                       F-6
<PAGE>
                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



1.       BASIS OF PRESENTATION

ARTRA GROUP  Incorporated  ("ARTRA" or the "Company"),  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.

The Company's  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 June 26,  1997,  and the  results of  operations  and
changes in cash flows for the six month periods ended June 26, 1997 and June 27,
1996. 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 credit
arrangements  and to fund its debt service and liquidity  requirements  in 1997.
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 6, Notes  Payable,
and Note 7,  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   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 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.  Accordingly,
the Company's  annual report on Form 10-K for the fiscal year ended December 26,
1996, as filed with the  Securities and Exchange  Commission,  should be read in
conjunction  with  the  accompanying  consolidated  financial  statements.   The
condensed  consolidated  balance  sheet as of December 26, 1996 was derived from
the audited consolidated  financial statements 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.       CONCENTRATION OF RISK

The accounts  receivable of the Company's  Bagcraft  subsidiary at June 26, 1997
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 June 26, 1997, Bagcraft had 10 customers with accounts
receivable  balances that  aggregated  approximately  39% of the Company's total
trade accounts receivable.  In fiscal year 1996 no single customer accounted for
10% or more of Bagcraft's sales.


                                       F-7
<PAGE>

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



3.       INVENTORIES

Inventories at June 26, 1997 (in  thousands) consist of:

                                                   

          Raw materials and supplies               $ 6,298     
          Work in process                              318     
          Finished goods                            11,625     
                                                   -------     
                                                   $18,241     
                                                   =======     


4.            INVESTMENT IN COMFORCE CORPORATION

At June  26,  1997  ARTRA's  investment  in  COMFORCE  Corporation  ("COMFORCE",
formerly the Lori Corporation, "Lori"), 1,739,703 shares held by the Company and
its Fill-Mor Holding, Inc. ("Fill-Mor")  subsidiary,  represented  approximately
13% of COMFORCE's  outstanding  common shares. The investment in COMFORCE common
stock is accounted  for under the  provisions  of SFAS No. 115  "Accounting  for
Certain Investments in Debt and Equity Securities." Under this statement ARTRA's
investment in COMFORCE is classified  as available  for sale  securities  and is
stated at fair value.  The Company's  operating plan for the remainder of fiscal
year 1997 anticipates the sale of these marketable securities,  with proceeds to
be used  principally  to pay down Corporate  debt  obligations  and fund working
capital requirements.  Accordingly,  ARTRA's investment in COMFORCE common stock
is  classified  in the  Company's  condensed  consolidated  balance as a current
asset. At June 26, 1997 the gross unrealized gain relating to ARTRA's investment
in COMFORCE,  reflected as a separate  component of  shareholders'  equity,  was
$13,539,000.

At June 26, 1997,  700,00  shares of COMFORCE  common stock owned by the Company
and its Fill-Mor  subsidiary  have been pledged as  collateral  for various debt
obligations.  Additionally,  the Company and a lender are currently  negotiating
the form of collateral for certain  promissory notes issued in June 1997 with an
aggregate  principal  amount of $2,950,000.  The collateral is anticipated to be
substantially  all of it the Company's  otherwise  unencumbered  COMFORCE common
shares (approximately 1,000,000 shares).

In  conjunction  with  COMFORCE's  1995  acquisition  of  its  COMFORCE  Telecom
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 June 26, 1997 and
December 26, 1996,  $271,000 and $348,000,  respectively,  of such  pre-existing
Lori  liabilities  were  classified in ARTRA's  consolidated  balance as current
liabilities of discontinued  operations.  ARTRA has deposited  125,000 shares of
its COMFORCE common stock into an escrow account to collateralize  its remaining
obligations under the Assumption Agreement.

Effective  December  19,  1996,  ARTRA and  COMFORCE  agreed  to settle  various
differences in the interpretation of certain agreements relating to the COMFORCE
Telecom  acquisition  pursuant to which COMFORCE agreed to include in a proposed
underwritten  public  offering  380,000 shares of COMFORCE  common stock held by
ARTRA and its Fill-Mor  subsidiary and ARTRA agreed to a Lock-up agreement which
limits its ability to sell its remaining  COMFORCE common shares for a period of
360 days after the effective  date of COMFORCE's  proposed  underwritten  public
offering.  COMFORCE did not retain an underwriter for the proposed  underwritten
public  offering and,  accordingly,  effective April 30, 1997 ARTRA was released
from the provisions of the Lock-up Agreement.



                                       F-8
<PAGE>

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



In June 1997,  ARTRA sold 5,000  COMFORCE  shares in the market for  proceeds of
approximately $33,000. The disposition of these 5,000 COMFORCE shares during the
quarter ended June 26, 1997  resulted in a realized  gain of $42,000,  with cost
determined by average cost.

In March 1997, a lender  received 25,000 COMFORCE common shares held by ARTRA as
additional  consideration for a short-term loan. The disposition of these 25,000
COMFORCE  common  shares  resulted  in a realized  gain of  $213,000,  with cost
determined by average cost.

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 June 26,  1997 and  December  26,  1996 as other
receivables  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 resulted 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
June 26, 1997, 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 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  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.


5.       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


                                       F-9
<PAGE>

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



with the issuance of BCA (the parent of Bagcraft)  preferred  stock (see Note 9)
along  with  proceeds   received  from  a  short-term  loan  agreement  with  an
unaffiliated  company that was subsequently  repaid in April 1996. 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).

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
                                                                  ========




6.       NOTES PAYABLE

Notes payable at June 26, 1997 (in thousands) consist of:
                                                          

          ARTRA 12% promissory notes - 
               1997 private placement                     $ 4,950

          ARTRA 12% promissory notes - 
               1996 private placement                              
                                                                   
          Amounts due to related parties, 
               interest principally at 10%                  6,300  

          ARTRA bank notes payable, 
          interest at the lender's index rate                --    
          
          Other, interest from 10% to 20%                   3,983  
                                                          -------  
                                                          $15,233  
                                                          =======  



                                      F-10
<PAGE>

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



         Promissory Notes

         1997 Private Placements

         In June 1997, ARTRA completed  private  placements of $4,950,000 of 12%
promissory  notes  due  in  December  1997.  As  additional   consideration  the
noteholders  received  warrants to purchase an aggregate of 227,500 ARTRA common
shares at a price of $5.00 per share.  The  warrants  expire in June  1999.  The
warrantholders  have the right to put these  warrants  back to ARTRA at any time
during a six month period  commencing  in December  1997,  at prices of $2.00 to
$2.40 per share.  The cost of this obligation  ($514,000 if all warrants are put
back to the Company) is being accrued in the Company's financial statements as a
charge to interest expense over the period June 1997 (the  commencement  date of
the private  placement)  through December 1997 (the maturity date of the notes).
The proceeds from the private  placement were used principally to pay down other
debt  obligations.  The  promissory  notes  are  collateralized  principally  as
follows:

         Promissory  notes with an aggregate  principal amount of $2,000,000 are
         collateralized  by a 25%  interest  in the common  stock of ARTRA's BCA
         subsidiary (the parent of Bagcraft).

         The  Company  and the  lender  are  currently  negotiating  the form of
         collateral  for certain  promissory  notes with an aggregate  principal
         amount of $2,950,000,  which is anticipated to be substantially  all of
         the   Company's   otherwise   unencumbered   COMFORCE   common   shares
         (approximately 1,000,000 shares).


         In July 1997, ARTRA completed  private  placements of $7,475,000 of 12%
promissory  notes  due  in  January  1998.  As  additional   consideration   the
noteholders  received  warrants to purchase an aggregate of 199,311 ARTRA common
shares at a price of $4.50 per share.  The  warrants  expire in July  1998.  The
warrantholders  have the right to put these  warrants  back to ARTRA at any time
during a six month commencing on the earlier of the date the principal amount of
the notes are paid or the  maturity  date of the notes,  at a price of $3.00 per
share. The cost of this obligation ($598,000 if all warrants are put back to the
Company)  will be accrued in the Company's  financial  statements as a charge to
interest  expense over the period July 1997 (the date of the private  placement)
through  January (the scheduled  maturity date of the notes).  In the event of a
default,  as  defined in the note  agreements,  the  promissory  notes will bear
interest at 37%. The promissory notes are collateralized principally as follows:

         A  $4,000,000  note is  collateralized  by 575,000  shares of  COMFORCE
         common stock owned by the Company's Fill-Mor subsidiary and a secondary
         interest in the common stock of ARTRA's BCA  subsidiary  (the parent of
         Bagcraft).

         Promissory  notes with an aggregate  principal amount of $3,475,000 are
         collateralized by 652.285 shares of ARTRA Series A redeemable preferred
         stock (a 17.4% interest), 1,784.02  shares of  BCA Series A  redeemable
         preferred stock (a 48.5%  interest) and  6,488.8 shares of BCA Series B
         redeemable preferred stock (a 79.8% interest).


The proceeds  from the July 1997  private  placement  were  advanced to Peter R.
Harvey as discussed in Note 13.


         1996 Private Placement

         In April 1996, ARTRA commenced a private placement of $7,675,000 of 12%
promissory notes due April 15, 1997. As additional consideration the noteholders
received  warrants to purchase an aggregate of 418,750  ARTRA common shares at a
price of $6.00 per share. The warrants expire April 15, 1999. The warrantholders
have the right to put these warrants back to ARTRA at any time during the period
April 15, 1997 to October 15, 1998,  at a price of $2.00 per share.  The cost of
this  obligation  ($837,500  if all  warrants  are put back to the  Company) was
accrued in the Company's financial


                                      F-11
<PAGE>

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



         statements  as a charge to interest  expense  over the period April 15,
1996 (the  commencement  date of the private  placement)  through April 15, 1997
(the maturity date of the notes as well as the date the warrantholders  have the
right  to put  their  warrants  back to  ARTRA).  These  promissory  notes  were
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.  During the second
quarter of 1997, the Company repaid these  promissory notes with the proceeds of
additional  short-term  borrowings  and with funds  received  from the Company's
Bagcraft  subsidiary  in  accordance  with a May 1997  amendment  to its  credit
agreement (see Note 7).


         Amounts Due To Related Parties

At December 26, 1996,  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.  The
proceeds of this loan were used to pay down various ARTRA  short-term  loans and
other debt  obligations.  In December  1995 the  unaffiliated  company  received
126,222 shares of ARTRA common in payment of past due interest  through  October
31, 1995.  Interest on the loans has been paid through March,  1997.  Payment on
the loans was due March 31, 1994, however, the lender did not demand payment. In
February 1997, the lender  received a warrant to purchase an additional  100,000
ARTRA  common  shares at $5.625  per share as  consideration  for not  demanding
payment of this  obligation.  In April  1997,  the lender  received a warrant to
purchase  an  additional  100,000  ARTRA  common  shares  at $5.00  per share as
consideration  for not  demanding  payment  of  this  obligation.  In June  1997
outstanding borrowings to the unaffiliated company were reduced to $300,000 with
the proceeds  from other  short-term  borrowings.  In July 1997 ARTRA repaid all
remaining obligations under these loans.

At December 26, 1996, ARTRA  outstanding  borrowings of $500,000 from an outside
director of the Company  evidenced by a short-term note bearing interest at 10%.
The loan was  collateralized by 125,000 shares of COMFORCE common stock owned by
the Company's Fill-Mor subsidiary. As additional compensation for the loan and a
December 1996 extension, the director received five year warrants to purchase an
aggregate of 50,000 ARTRA common shares at a prices ranging from $5.00 to $5.875
per share. The proceeds of the loan were used for working capital.

In  January  1997,  ARTRA  borrowed  an  additional  $300,000  from this  lender
evidenced by an short-term note, due December 23, 1997,  bearing interest at 8%.
The loan was  collateralized by 100,000 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 2002,  to purchase  25,000 ARTRA common
shares at a price of $5.75 per share.

In March  1997,  ARTRA  borrowed  an  additional  $1,000,000  from  this  lender
evidenced by a short-term  note, due May 26, 1997,  bearing interest at 12%. The
loan was  collateralized by 585,000 shares of COMFORCE common stock owned by the
Company's Fill-Mor subsidiary.  As additional compensation,  the lender received
an option to purchase  25,000  shares of  COMFORCE  common  stock,  owned by the
Company's Fill-Mor subsidiary,  at a price of $4.00 per share. The proceeds from
this loan were used in part to repay  the  ARTRA/Fill-Mor  $2,500,000  bank term
loan described below.

In April 1997, ARTRA borrowed  $5,000,000 from the above director evidenced by a
note, due April 20, 1998,  bearing interest at 10%. As additional  compensation,
the lender received a warrant to purchase 333,333 ARTRA common shares at a price
of $5.00 per share. The  warrantholder has the right to put this warrant back to
ARTRA at any time  during the period  April 21,  1998 to April 20,  2000,  for a
total purchase price of $1,000,000.  The cost of this obligation will be accrued
in the Company's  financial  statements as a charge to interest expense over the
period  April 21, 1997 (the date of the loan)  through  April 21, 1998 (the date
the warrantholder has the right to put the warrant back to ARTRA).  The proceeds
from this loan were used to repay  $1,800,000  of  borrowings  from this  lender
outstanding at March 27, 1997 and pay down other ARTRA debt obligations.


                                      F-12
<PAGE>

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



In June 1997,  ARTRA borrowed an additional  $1,000,000  from the above director
evidenced  by a note,  due  December  10,  1997,  bearing  interest  at 12%.  As
additional compensation,  the lender received a warrant to purchase 40,000 ARTRA
common shares at a price of $5.00 per share. The  warrantholder has the right to
put this warrant  back to ARTRA at any time during the period  December 10, 1997
to June  10,  1998,  for a total  purchase  price of  $80,000.  The cost of this
obligation will be accrued in the Company's financial  statements as a charge to
interest  expense  over the period June 10, 1997 (the date of the loan)  through
December 10, 1997 (the date the  warrantholder  has the right to put the warrant
back to ARTRA).  The  proceeds  from this loan were used to pay down other ARTRA
debt obligations. As of June 26, 1997, ARTRA had total outstanding borrowings of
$6,000,000  from this director  collaterallized  by a 75% interest in the common
stock of  ARTRA's  BCA  subsidiary  (the  parent  of  Bagcraft).  In July  1997,
borrowings from this lender were reduced to $3,000,000 with proceeds advanced to
ARTRA from a Bagcraft term loan as discussed in Note 7.

In May 1996, ARTRA borrowed  $100,000 from a private  investor,  evidenced by an
unsecured  short-term note, due August 7, 1996, and renewed to February 6, 1997,
bearing interest at 10%. The proceeds of the loan were used for working capital.
At the Company's annual meeting of shareholders,  held August 29, 1996,  private
investor was elected to the Company's board of directors.  Effective January 17,
1997,  private  investor  exercised his  conversion  rights and received  18,182
shares of ARTRA common stock as payment of the principal balance of his note.


         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,  which  provided  for
interest  payable monthly at the bank's  reference rate, was guaranteed by ARTRA
and was collateralized by 1,265,000 shares of COMFORCE common stock. Proceeds of
the loan were used for working capital.  In March 1997, the loan was repaid with
proceeds from other short-term borrowings.


         Other

At June 26, 1997 and December 26, 1996,  ARTRA was the obligor  under two demand
notes issued to an unaffiliated company, in the amount of $2,266,000,  including
accrued  interest.  The notes were issued in October,  1990 with  interest at 15
percent.  ARTRA is  currently  negotiating  with the  noteholder  to  extend  or
refinance this obligation.

At June 26, 1997,  ARTRA also had outstanding  short-term  borrowings from other
unrelated parties  aggregating  $1,717,000.  The notes,  issued at various times
during the period June 1994 to June 1997, with interest rates varying between 8%
and 15% mature at various times in 1997 and 1998.

In March  1997,  ARTRA  borrowed  $1,000,000  from an  unaffiliated  corporation
evidenced by a short-term  note, due May 26, 1997,  bearing interest at 12%. The
loan was  collateralized by 630,000 shares of COMFORCE common stock owned by the
Company's Fill-Mor subsidiary.  As additional compensation,  the lender received
an option to  purchase  25,000  shares of  COMFORCE  common  stock  owned by the
Company's  Fill-Mor  subsidiary at a price of $4.00 per share, with the right to
put the  option  back to  ARTRA on or  before  May 30,  1997 for a put  price of
$50,000.  Under certain  circumstances,  ARTRA has the right to  repurchase  the
option for $50,000.  In May 1997,  ARTRA  repurchased the option for $50,000 and
repaid  this  loan.  The  proceeds  from this loan were used in part to repay an
ARTRA/Fill-Mor $2,500,000 bank term loan.

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 were  collateralized  by 215,000 shares of COMFORCE common stock owned
by the  Company's  Fill-Mor  subsidiary.  The proceeds of the loan were used for
working  capital.  In January 1997, the loan was repaid with proceeds from other
short-term borrowings.


                                      F-13
<PAGE>

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



7.       LONG-TERM DEBT

         Long-term debt at June 26, 1997 (in thousands) consists of:
                                                             
                                                          
                                                          
          Bagcraft:
            Credit Agreement:
                Term Loan A, interest at the
                  lender's index rate plus .25%           $ 19,000   

                Term Loan B, interest at the 
                  lender's index rate plus .75%              5,000   

                Revolving credit loan,  
                  interest at the lender's index rate       13,300   

                Unamortized discount                        (3,309)  

            City of Baxter Springs, 
                Kansas loan agreements, 
                interest at varying rates                   10,674   
                                                          --------   
                                                            44,665   
          
                Current scheduled maturities               (10,137)  
                                                          --------   
                                                          $ 34,528   
                                                          ========   


Bagcraft  entered  into a credit  agreement,  dated as of December 17, 1993 (the
"Credit  Agreement")  that initially  provided for a revolving  credit loan with
interest at the lender's  index rate plus 1.5% and two separate term loans.  The
term loans were 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.  The Credit Agreement, as amended, had been extended
to mature on September 30, 1997.

In December 1996, the Credit Agreement was amended and restated  whereby,  among
other  things,  the  maturity  date of the  Credit  Agreement  was  extended  to
September 30, 2002 and certain loan covenants were amended. Term Loan A and Term
Loan B, as previously  defined in the Credit Agreement were  consolidated into a
new  $20,000,000  term loan with  interest at the lender's  index rate plus .25%
(8.75% at June 26, 1997).  Principal  payments under the term loan were modified
to provide for annual principal payments (payable in quarterly  installments) in
the amount of $2,000,000 in 1997 through 1999;  $3,000,000 in 2000 and 2001; and
$8,000,000  in 2002.  The  amended and  restated  Credit  Agreement  reduced the
interest  on the  revolving  credit  loan to the  lender's  index  rate and also
provided for a $3,000,000  capital  expenditures line of credit with interest at
the lender's index rate plus .25%.

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 June 26, 1997, approximately $3,800,000 was available and unused
by Bagcraft  under the  revolving  credit loan.  Borrowings  under the revolving
credit  loan  are  payable  upon  maturity  of  the  Credit  Agreement,   unless
accelerated under terms of the Credit Agreement. At June 26, 1997 , the interest
rate on the revolving credit loan was 8.5%.


                                      F-14
<PAGE>

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



Borrowings under the Credit Agreement are collateralized by the common stock and
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 limit future 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 June 26, 1997  Bagcraft was in
compliance with the provisions of its Credit Agreement.

Effective  May 5,  1997,  the Credit  Agreement  was  amended  to provide  for a
$5,000,000 term loan (Term Loan B) with interest at the lender's index rate plus
 .75%. Term Loan B is payable on May 8, 1998,  unless  accelerated under terms of
the Credit  Agreement.  The proceeds of Term Loan B were advanced to ARTRA under
terms of an intercompany note payable to Bagcraft on May 8, 1998. ARTRA used the
proceeds of this loan to repay certain ARTRA debt obligations.

Effective  July 17,  1997,  the Credit  Agreement  was  amended to provide for a
$7,500,000 term loan (Term Loan C) with interest at the lender's index rate plus
1%. Term Loan C is payable on July 15, 2000,  unless  accelerated under terms of
the Credit  Agreement.  The proceeds of Term Loan C were advanced to ARTRA under
terms of an intercompany  note payable to Bagcraft on July 15, 2000.  ARTRA used
the  proceeds  of this loan to repay  certain  ARTRA  debt  obligations  and for
working capital.

As  additional  compensation  for  borrowings  under the  Credit  Agreement,  in
December 1993, the lender received a detachable warrant ("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 January 1997, in accordance
with the December 1996 amendment to the Credit Agreement,  Bagcraft  repurchased
50% of the Warrant  (6.5% of the fully  diluted  common  equity of Bagcraft) for
$1,500,000. Bagcraft can repurchase the remaining 50% of the Warrant on or after
December 17, 1997 for an amount based upon the  Warrant's  pro rata share of the
highest of book  value,  appraised  value or market  value of  Bagcraft as noted
above.  In accordance  with the May 5, 1997 and July 17, 1997  amendments to the
Credit  Agreement  the  Warrant was  amended.  In the event there is a change in
Bagcraft's ownership through July 15, 2000, the lender is entitled to receive an
amount equal to 6.5% of the fully diluted common equity of Bagcraft,  based upon
the fair  value of  Bagcraft  at the date of a  change  of  ownership,  less the
$1,500,000 the lender received in January 1997 when Bagcraft  repurchased 50% of
the Warrant.

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 June 26,  1997,  Bagcraft  had  outstanding
         borrowings of $5,600,000 under this loan agreement.

         A  $5,000,000   subordinated   promissory   note  payable  as  follows:
         $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 June 26, 1997,
         Bagcraft  had  outstanding  borrowings  of  $4,850,000  under this loan
         agreement.


                                      F-15
<PAGE>

                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES
       NOTES TO CONDENSED 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 June 26, 1997, Bagcraft had outstanding
         borrowings of $224,000 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.

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.


8.       REDEEMABLE COMMON STOCK

In recent  years 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 at a premium  over the initial  sales  price.
The  increment  in the option price over the initial  sales price of  redeemable
common stock is reflected in the Company's  financial  statements by a charge to
retained earnings. At June 26, 1997 options were outstanding that, if exercised,
would  require  ARTRA to  repurchase  72,984  shares of its common  stock for an
aggregate amount of $3,175,000.

During 1987,  ARTRA entered into an agreement with a private  corporation  under
which it sold its common shares along with a put option that  required  ARTRA to
repurchase  these shares at the option of the holder.  A major  shareholder  and
executive  officer of the  private  corporation  is an ARTRA  director.  The put
option  agreement has been extended from time to time, most recently in November
1992. The private corporation  received the right to sell to ARTRA 23,004 shares
of ARTRA  common  stock at an initial put price of $56.76 pre share.  The option
price  increases  by 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. At
June 26, 1997, the option price was $89.52 per share.

As additional  consideration  for its guaranty of $2,500,000 of ARTRA bank notes
during the period March 1989 through March 1994, the private  corporation  noted
above received 49,980 ARTRA common shares. On March 31, 1994, ARTRA entered into
a series  of  agreements  with  its bank  lender  and  with  the  above  private
corporation.  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
ARTRA note payable and an option to put back to ARTRA its 49,980 shares of ARTRA
common stock at a price of $15.00 per share. The option price increases by $2.25
per share annually ($22.31 per share at June 26, 1997). During the first quarter
of 1996 the ARTRA  bank notes were  discharged  (see Note 5) and the  $2,500,000
note payable to the private corporation and related accrued interest was paid in
full principally with proceeds from additional short-term borrowings.

In January  1997,  the Company  settled an  obligation  that would have required
ARTRA to repurchase  25,750  common  shares for a total of $679,000.  The option
holder  retained the 25,750 ARTRA common shares subject to the option  agreement
and  received an  additional  89,793 ARTRA common  shares in  settlement  of all
obligations due under the option  agreement.  Accordingly,  the 25,750 shares of
ARTRA common stock subject to the option  agreement were removed from redeemable
common stock and reclassified to shareholders' equity.


                                      F-16
<PAGE>

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



9.       REDEEMABLE PREFERRED STOCK

         Redeemable preferred stock at June 26, 1997 (in thousands) consists of:

      Currently payable:
        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                                   $  2,065    

        BCA Holdings preferred stock, Series B,
          $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                       9,642    
                                                                 -------    
                                                                $ 11,707    
                                                                 =======    

      Noncurrent:
        ARTRA redeemable preferred stock,
          Series A, $1,000 par value,
          6% cumulative payment-in-kind,
          including accumulated dividends,
          net of unamortized discount
          of $1,101 in 1997; redeemable March 1, 2000          
          at $1,000 per share plus accrued dividends;
          authorized 2,000,000 shares all series;
          issued 3,750 shares                                   $  4,651  
 
        BCA Holdings preferred stock, Series A,
          $1.00 par value, 6% cumulative,
          including accumulated dividends;
          redeemable in 1997 with a liquidation
          preference of $1,000 per share;
          10,000 shares authorized; issued 3,675 shares            4,473  
                                                                 -------  
                                                                $  9,124  
                                                                 =======  
 

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 $2,002,000 were accrued at June
26, 1997.


                                      F-17
<PAGE>

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



         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 Series A preferred stock
having a liquidation value of $3,000,000. Accumulated dividends of $798,000 were
accrued at June 26, 1997.

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  $1,200,000  were
accrued at June 26, 1997.

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
consolidated statement of operations as minority interest.

The BCA Series B  preferred  stock is  redeemable  on June 1, 1997.  Accumulated
dividends of $1,507,000 were accrued at June 26, 1997.

In conjunction with the preferred stock exchange  agreement,  Bagcraft's  lender
consented to an advance of $4,135,000 under Bagcraft's  revolving credit loan 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
Note 5.


10.      INCOME TAXES

No income tax benefit was  recognized  in  connection  with the  Company's  1997
pre-tax loss due to the Company's tax loss  carryforwards and the uncertainty of
future taxable income. The 1996 extraordinary  credit represents a net gain from
discharge of  indebtedness.  No income tax expense is reflected in the Company's
financial  statements  resulting from the 1996  extraordinary  credit due to the
utilization of tax loss carryforwards.

At June 26, 1997, the Company and its  subsidiaries  had Federal income tax loss
carryforwards of approximately $36,000,000, expiring principally in 2002 - 2010,
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


                                      F-18
<PAGE>

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



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.


11.      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.


12.      LITIGATION

The Company and its subsidiaries are the defendants in various  business-related
litigation and environmental  matters. At June 26, 1997, the Company had accrued
current liabilities of $1,900,000 for potential 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  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 by 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 and junior debentures 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.


                                      F-19
<PAGE>

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



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.

In January,  1985 the United  States  Environmental  Protection  Agency  ("EPA")
notified the Company's Bagcraft subsidiary 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,  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 to
formally extinguish the EPA claim. In September 1989, Bagcraft was served with a
complaint filed by the State of Illinois against  seventeen  parties for alleged
involvement  with the Cross Brothers site.  The complaint  alleged  Bagcraft was
responsible  for the costs of  cleanup  incurred  and to be  incurred.  Although
Bagcraft  has denied  liability  for the site,  it has entered into a settlement
agreement with the State, along with the other potential responsible parties, to
resolve  all  claims  associated  with the site.  In July,  1997  Bagcraft  paid
approximately $150,000 to formally extinguish the state claim.

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'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.

                                      F-20
<PAGE>

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



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.  In April  1997,  the EPA  filed an
administrative complaint and has proposed a $250,000 civil penalty. Bagcraft has
filed a response to the complaint and is attempting to negotiate a settlement.

Bagcraft reported a release  associated with solvent tanks located in a vault at
its Chicago  manufacturing  facility.  After seeking  approval from the Illinois
Environmental  Protection Agency ("IEPA"),  Bagcraft  installed and is currently
operating  a soil vapor gas  extraction  system  designed  to  achieve  remedial
objectives which the IEPA has determined to be appropriate to the site. Bagcraft
has since received a No Further Recommendation Letter from the IEPA.

Bagcraft has been  notified  that it may have  responsibility  with respect to a
clean-up  site  on  Basket  Creek  Road,  Georgia.  Bagcraft  presently  has  no
indication of its liability, if any or whether it is a responsible party.

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 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


                                      F-21
<PAGE>

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



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.

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 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.


13.      RELATED PARTY TRANSACTIONS

At June 26, 1997, 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         $   8,677    

     Less interest for the period January 1,
       1993 to date, accrued and fully reserved            (1,871)   
                                                        ---------    
           Net advances                                 $   6,806    
                                                        =========    


                                      F-22
<PAGE>

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



ARTRA has total  advances  due from its  president,  Peter R.  Harvey,  of which
$8,677,000,  including accrued interest,  remained outstanding at June 26, 1997.
The advances  bear  interest at the prime rate plus 2% (10.5% at June 26, 1997).
This  receivable  from Peter R. Harvey has been  classified  as a  reduction  of
common shareholders' equity.

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%. In April 1995  advances  from
ARTRA's Fill-Mor  subsidiary to Peter R. Harvey totaling  $1,540,000  (including
$398,000 of accrued interest) 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 six months  ended June 26, 1997 and June 27,
1996 totaled $341,000 and $205,000, 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.

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 1996 discharge of
bank  indebtedness (see Note 5), 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
March  1997,  the bank sold its  interest in Mr.  Harvey's  note and the related
collateral  to a  private  investor.  ARTRA  retained  its  $2,150,000  security
interest the real estate,  subordinated to the  noteholder's  $850,000  security
interest in this real estate.

In July 1997,  ARTRA advanced an additional  $7,475,000 to Peter R. Harvey.  Mr.
Harvey provided ARTRA with additional  collateral for his advances consisting of
652.285 shares of ARTRA redeemable preferred stock (a 17.4% interest),  1,784.02
shares of BCA Series A redeemable preferred stock (a 48.5% interest) and 6,488.8
shares of BCA Series B redeemable preferred stock (a 79.8% interest). As of June
26, 1997, this additional  collateral had a carrying value in ARTRA's  condensed
consolidated  balance  sheet of  approximately  $10,700,000.  The advances  were
funded with the proceeds from the July 1997 private  placement of ARTRA notes as
discussed in Note 6.


                                      F-23
<PAGE>

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



In conjunction  with COMFORCE's  October 1995  acquisition of COMFORCE  Telecom,
ARTRA agreed to assume  substantially all pre-existing  COMFORCE liabilities and
indemnify  COMFORCE  in  the  event  any  future  liabilities  arise  concerning
pre-existing environmental matters and business related litigation. Accordingly,
at June 26, 1997 and December 26, 1996,  respectively,  $271,000 and $348,000 of
such  pre-existing  Lori  liabilities  were  classified in ARTRA's  consolidated
balance sheet at as current liabilities of discontinued operations.

For a discussion of certain other related party debt obligations see Note 6.


14.      OTHER INFORMATION

Effective January 2, 1997,  Bagcraft  purchased the business assets,  subject to
buyer's assumption of certain liabilities, of AB Specialty Holding Company, Inc.
("AB") for consideration  consisting of cash of approximately $2.4 million.  The
purchased assets  consisted  principally of plant and equipment of approximately
$1.3 million and inventory of approximately $1.1 million. The acquisition of AB,
funded through borrowings under Bagcraft's Credit Agreement,  has been accounted
for by the purchase  method and,  accordingly,  the assets and liabilities of AB
were included in the Company's  financial  statements  at their  estimated  fair
market value at the date of acquisition. The results of operations of AB are not
considered  material to the Company's  consolidated  financial  statements.  The
acquisition of AB is expected to enhance Bagcraft's  specialty bag business.  At
December 26, 1996, other  noncurrent  assets included a deposit of approximately
$1.2 million related to the acquisition of AB.
























                                      F-24
<PAGE>



                        REPORT OF INDEPENDENT ACCOUNTANTS


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

We  have  audited  the  consolidated  financial  statements  and  the  financial
statement  schedules of ARTRA GROUP  Incorporated  and Subsidiaries as listed in
the  index  on page  F-1 of this  Form  10-K.  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 26, 1996 and December 28,
1995, and the consolidated  results of their operations and their cash flows for
each of the  three  fiscal  years  in the  period  ended  December  26,  1996 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 1997.  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
April 2, 1997











                                      F-25
<PAGE>
                                

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

<TABLE>
<CAPTION>

                                                                  December 26,     December 28,
                                                                      1996             1995
                                                                  ------------     ------------

                                      ASSETS
<S>                                                                   <C>              <C>
Current assets:
   Cash and equivalents                                                  $171           $2,347
   Restricted cash and equivalents                                         -               552
   Receivables, less allowance for doubtful accounts
      and markdowns of $512 in 1996 and $250 in 1995                    8,267           10,897
   Inventories                                                         14,967           16,634
   Available-for-sale securities                                       22,564            1,427
   Other                                                                  931              324
                                                                  ------------     ------------
               Total current assets                                    46,900           32,181
                                                                  ------------     ------------

Property, plant and equipment
    Land                                                                  417              930
    Buildings                                                          11,672           11,679
    Machinery and equipment                                            32,346           30,547
    Construction in in progress                                           979            1,117
                                                                  ------------     ------------
                                                                       45,414           44,273
Less accumulated depreciation and amortization                         20,480           17,335
                                                                  ------------     ------------
                                                                       24,934           26,938
                                                                  ------------     ------------

Other assets:
   Available-for-sale securities                                           -            15,519
   Excess of cost over net assets acquired,
      net of accumulated amortization of 
      $2,083 in 1996 and $1,778 in 1995                                 2,995            3,258
   Other                                                                2,550               53
                                                                  ------------     ------------
                                                                       28,109           18,830
                                                                  ------------     ------------
                                                                      $77,379          $77,949
                                                                  ============     ============


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










                                      F-26
<PAGE>
                                                         
                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                 (In thousands, except share and per share data)

<TABLE>
<CAPTION>
                                                                  December 26,     December 28,
                                                                      1996             1995
                                                                  ------------     ------------

                                    LIABILITIES
<S>                                                                   <C>              <C>
Current liabilities:
   Notes payable, including amounts  
      due to related parties of 
      $3,600 in 1996 and $5,675 in 1995                               $18,631          $25,300
   Current maturities of long-term debt                                 2,712            3,512
   Accounts payable, including amounts due
       to a related party of $399 in 1995                               5,129           10,925
   Accrued expenses                                                    10,394           14,106
   Income taxes                                                           478              203
   Bagcraft detachable put warrant                                      1,500               -
   Redeemable preferred stock                                          11,100               -
   Liabilities of discontinued operations                                 348            4,500
                                                                  ------------     ------------
               Total current liabilities                               50,292           58,546
                                                                  ------------     ------------

Long-term debt                                                         34,207           34,113
Other noncurrent liabilities                                            2,135              650
Commitments and contingencies

Redeemable common stock,
   issued 98,734 shares in 1996
   and 283,965 shares in 1995                                           3,657            4,774

Redeemable preferred stock                                              8,678           18,631


                          SHAREHOLDERS' EQUITY (DEFICIT)
Common stock, no par value;
   authorized 20,000,000 shares in 1996
   and 7,500,000 shares in 1995;
   issued 7,624,766 shares in 1996  
   and 7,102,979 shares in 1995                                         5,793            5,540
Additional paid-in capital                                             40,211           38,526
Unrealized appreciation of investments                                 25,719           21,047
Receivable from related party, 
   including accrued interest                                          (6,468)          (4,318)
Accumulated deficit                                                   (86,793)         (98,755)
                                                                  ------------     ------------
                                                                      (21,538)         (37,960)
Less treasury stock (7,628 shares in 1996 
   and 57,038 shares in 1995), at cost                                     52              805
                                                                  ------------     ------------
                                                                      (21,590)         (38,765)
                                                                  ------------     ------------
                                                                      $77,379          $77,949
                                                                  ============     ============


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








                                      F-27
<PAGE>
                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (In thousands, except per share data)

<TABLE>
<CAPTION>



                                                                         Fiscal Year
                                                             ----------------------------------- 
                                                                1996        1995         1994
                                                             ---------   ----------   ----------

<S>                                                          <C>          <C>          <C>     
Net sales                                                    $120,699     $121,879     $111,837
                                                             ---------   ----------   ----------

Costs and expenses:
   Cost of goods sold, 
      exclusive of depreciation and amortization               94,613      102,508       94,766
   Selling, general and administrative                         15,638       19,131       16,760
   Depreciation and amortization                                3,927        4,330        4,337
   Write-down of idle machinery and equipment                      -         1,503           -
                                                             ---------   ----------   ----------
                                                              114,178      127,472      115,863
                                                             ---------   ----------   ----------

Operating earnings (loss)                                       6,521       (5,593)      (4,026)
                                                             ---------   ----------   ----------

Other income (expense):
   Interest expense                                            (8,005)      (9,782)      (8,618)
   Realized gain on disposal of 
      available-for-sale securities                             5,818           -            -
   Other income (expense), net                                   (107)         (88)          13
   Equity in loss of COMFORCE                                      -          (533)          -
                                                             ---------   ----------   ----------
                                                               (2,294)     (10,403)      (8,605)
                                                             ---------   ----------   ----------

Earnings (loss) from continuing operations
   before income taxes and minority interest                    4,227      (15,996)     (12,631)
Provision for income taxes                                       (152)         (51)          (9)
Minority interest                                                (526)        (896)        (889)
                                                             ---------   ----------   ----------
Earnings (loss) from continuing operations                      3,549      (16,943)     (13,529)
Earnings (loss) from discontinued operations                       -            10      (15,906)
                                                             ---------   ----------   ----------
Earnings (loss) before extraordinary credit                     3,549      (16,933)     (29,435)
Extraordinary credit, net discharge of indebtedness             9,424       14,030        8,965
                                                             ---------   ----------   ----------
Net earnings (loss)                                            12,973       (2,903)     (20,470)
Dividends applicable to 
   redeemable preferred stock                                    (621)        (565)        (516)
Reduction of retained earnings 
   applicable to redeemable common stock                         (390)        (767)        (309)
                                                             ---------   ----------   ----------
Earnings (loss) applicable to common shares                   $11,962      ($4,235)    ($21,295)
                                                             =========   ==========   ==========

Earnings (loss) per share:
   Continuing operations                                        $0.28       ($2.69)      ($2.56)
   Discontinued operations                                         -            -         (2.74)
                                                             ---------   ----------   ----------
   Loss before extraordinary credit                              0.28        (2.69)       (5.30)
   Extraordinary credit                                          1.23         2.06         1.57
                                                             ---------   ----------   ----------
               Net earnings (loss)                              $1.51       ($0.63)      ($3.73)
                                                             =========   ==========   ==========

Weighted average number of shares of common stock 
   and common stock equivalents outstanding                     7,939        6,776        5,702
                                                             =========   ==========   ==========

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








                                      F-28
<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 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)














                                      F-29
<PAGE>







 Net earnings                            -        -          -            -           -       12,973       -        -        12,973
 Common stock issued 
    to pay liabilities              125,012       94        362           -           -           -  (120,554)     818        1,274
 Common stock issued 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           -        -          -            -       (2,150)         -        -        -        (2,150)
 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          -        -          -         4,672          -           -        -        -         4,672
 Exercise of stock options
    and warrants                     61,000       46        213           -           -           -   (16,900)     109          368
 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                      -        -          -            -           -        (390)       -        -          (390)
 Redeemable preferred 
    stock dividends                      -        -          -            -           -        (621)       -        -          (621)
                                  ---------- -------  ---------- ------------  ---------- ----------- -------- -------- ------------
Balance at December 26, 1996      7,624,766   $5,793    $40,211      $25,719     ($6,468)   ($86,793)   7,628     ($52)    ($21,590)
                                  ========== =======  ========== ============  ========== =========== ======== ======== ============
<FN>
 The accompanying notes are an integral part of the consolidated financial statements.
</FN>
</TABLE>















                                      F-30
<PAGE>


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


<TABLE>
<CAPTION>

                                                                                              Fiscal Year
                                                                                --------------------------------------
                                                                                  1996           1995           1994
                                                                                --------       --------       --------
<S>                                                                             <C>            <C>            <C>      
Cash flows from operating activities:
   Net earnings (loss)                                                          $ 12,973       ($ 2,903)      ($20,470)
                                                                                --------       --------       --------
      Adjustments to reconcile net earnings (loss)
             to cash flows from operating activities:
         Extraordinary gain from net discharge of indebtedness                    (9,424)       (14,030)        (8,965)
         Gain on disposal of discontinued operations                                --           (8,183)          --
         Depreciation of property, plant and equipment                             3,622          4,120          4,252
         Amortization of excess of cost over net assets acquired                     305            837          1,693
         Impairment of goodwill                                                     --            6,430         10,800
         Amortization of other assets                                                548            689            963
         Inventory valuation reserve                                                 191            290           --
         Gain on sale of property, plant and equipment                                78           --              (59)
         Write-down of idle equipment and machinery                                 --            1,503           --
         Gain on sale of COMFORCE common stock                                    (5,818)          --             --
         Equity in loss of COMFORCE                                                 --              533           --
         Minority interest                                                           526            896            889
         Contribution to ARTRA  ESOP                                                --               42             77
         Other, principally common stock issued as compensation                      220          1,300            485
     Changes in assets and liabilities, net of effects of
        businesses acquired and discontinued:
          (Increase) decrease in receivables                                       2,630           (184)        (1,923)
          (Increase) decrease in inventories                                       1,476            453           (727)
          (Increase) decrease in other current and noncurrent assets                (169)         1,421          1,068
          Increase (decrease) in payables and accrued expenses                    (5,980)           611          4,675
          Increase (decrease) in other current and noncurrent liabilities         (4,497)           450           (763)
          Decrease  in receivable from related party,
               including accrued interest                                         (1,061)          (218)          (257)
                                                                                --------       --------       --------
Net cash flows used by operating activities                                       (4,380)        (5,943)        (8,262)
                                                                                --------       --------       --------

Cash flows from investing activities:
   Proceeds from sale of COMFORCE common stock                                     3,717           --             --
   Proceeds from sale of property, plant and equipment                               132           --            2,251
   Additions to property, plant and equipment                                     (2,645)        (2,820)       (11,881)
   Proceeds from collection of Welch notes                                           342          3,000           --
   Decrease in restricted cash                                                       552            772           --
   AB Specialty acquisition deposit                                               (1,183)          --             --
   Acquisition of Arcar                                                             --             --           (2,264)
   Proceeds from sale of Arcar                                                      --           20,318           --
   Retail fixtures                                                                  --             (631)          (665)
   Other                                                                            --             --              101
                                                                                --------       --------       --------
Net cash flows from (used by) investing activities                                   915         20,639        (12,458)
                                                                                --------       --------       --------

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









                                      F-31
<PAGE>


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

<TABLE>
<CAPTION>

                                                                                              Fiscal Year
                                                                                 -----------------------------------------
                                                                                   1996            1995            1994
                                                                                 --------        --------        --------
<S>                                                                             <C>             <C>             <C>  
Cash flows from financing activities:
   Net increase in short-term debt                                                    286           5,488           1,920
   Proceeds from long-term borrowings                                             141,896         136,756         116,775
   Reduction of long-term debt                                                   (140,850)       (156,641)       (100,131)
   Proceeds from private placements of ARTRA common stock                            --              --             3,230
   Proceeds from exercise of stock options and warrants                               369              48              30
   Exercise of redeemable common stock put options                                   (510)           --               (50)
   Other                                                                               98             (70)            (44)
                                                                                 --------        --------        --------
Net cash flows from (used by) financing activities                                  1,289         (14,419)         21,730
                                                                                 --------        --------        --------

Increase (decrease) in cash and cash equivalents                                   (2,176)            277           1,010
Cash and equivalents, beginning of year                                             2,347           2,070           1,060
                                                                                 --------        --------        --------
Cash and equivalents, end of year                                               $     171       $   2,347       $   2,070
                                                                                 ========        ========        ========



Supplemental cash flow information:
 Cash paid during the year for:
  Interest                                                                      $   5,320       $   5,847       $   8,811
  Income taxes paid (refunded), net                                                   157             (22)             59


Supplemental schedule of noncash investing and financing activities:
    Issue common stock and redeemable common stock
       to pay down current liabilities                                          $   1,274       $   1,040       $     791
    Issue common stock as additional consideration
       for short-term borrowings                                                      661           1,266            --
    BCA Holdings redeemable preferred stock issued in exchange for
       Bagcraft redeemable preferred stock                                          8,135            --              --
    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
    Notes issued to sellers as consideration for Arcar acquisition                   --              --             8,000


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










                                      F-32
<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.

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,  and to fund its
debt service and liquidity requirements in 1997. 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 8, Notes Payable,  and Note 9, 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 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 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 as discussed in Note
3.

As  discussed  in Note 3, on October  17,  1995,  COMFORCE  acquired  all of the
capital stock of COMFORCE Telecom Inc. ("COMFORCE  Telecom"),  formerly Spectrum
Global   Services,   Inc.  d/b/a  YIELD  Global.   COMFORCE   Telecom   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 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 COMFORCE Telecom acquisition, ARTRA's 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
during the fourth  quarter of 1995.  At December 28,  1995,  the  investment  in
COMFORCE was recognized as a marketable  security  available for sale and stated
at fair value.  At December 26,  1996,  ARTRA's  ownership  interest in COMFORCE
common  stock  was  reduced  to  approximately  14%.  See  Note 6 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.









                                      F-33
<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



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
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 7, 8 and 11 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.

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.


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.








                                      F-34
<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



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.

Effective for the fiscal year ending  December 26, 1996 the Company adopted SFAS
No. 121,  "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of ". The  pronouncement  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.  The adoption of SFAS No. 121
did not have a material impact on the Company's financial statements.


G.   Revenue Recognition

Sales to customers are recorded at the time of shipment.


H.   Income Taxes

Income taxes are accounted  for as  prescribed in SFAS 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.


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.










                                      F-35
<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



J.   Stock-Based Compensation

Effective for the fiscal year ending  December 26, 1996 the Company adopted SFAS
No.  123,   "Accounting  for  Stock-Based   Compensation".   The   pronouncement
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. The Company did not adopt the new fair
value accounting,  but instead chose to comply with the disclosure  requirements
of SFAS No.  123.  Accordingly,  the  adoption  of SFAS  No.  123 did not have a
material impact on the Company's financial statements.


K.   Recently Issued Accounting Pronouncements

         Earnings Per Share

In February 1997, the Financial  Accounting  Standards Board issued Statement of
Financial  Accounting  Standards No. 128,  Earnings Per Share ("SFAS 128"). SFAS
128 specifies the  computation,  presentation,  and disclosure  requirements for
earnings per share. This new accounting principle is effective for the Company's
fiscal year ending  December 25, 1997.  The Company  believes that adoption will
not have a material impact on its financial statements.


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.


         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 the jewelry business.

Effective  October 17,  1995,  COMFORCE  acquired  all of the  capital  stock of
COMFORCE Telecom Inc. ("COMFORCE Telecom"), 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
















                                      F-36
<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



COMFORCE for  guaranteeing the payment of the $6.4 million purchase price to the
seller.  Additionally,  in conjunction  with the COMFORCE  Telecom  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 December 26, 1996 and December
28, 1995,  $348,000 and  $4,500,000,  respectively,  of such  pre-existing  Lori
liabilities  were  classified  in  ARTRA's   consolidated   balance  as  current
liabilities  of  discontinued   operations.   These  Lori  liabilities   consist
principally  of notes and  accounts  payable  incurred  by  Lori's  discontinued
jewelry operations. The Assumption Agreement also provided for ARTRA to exchange
its interest in 100% of Lori's Series C cumulative  preferred  stock for 100,000
newly issued shares of COMFORCE common stock.

COMFORCE Telecom 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  Telecom was funded  principally  by
private placements of approximately 1,950,000 shares of COMFORCE common stock at
$3.00 per share (total  proceeds of  approximately  $5,800,000)  plus  five-year
detachable warrants to purchase  approximately 970,000 shares of COMFORCE common
stock at $3.375 per share.

Effective July 4, 1995, COMFORCE'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 Telecom 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 in the third 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 Telecom, 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 ownership interest in COMFORCE common stock was reduced to
approximately  14%  and  25%  at  December  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 6 for a further  discussion  of the  accounting
treatment of ARTRA's investment in COMFORCE.

Effective  December  19,  1996,  ARTRA and  COMFORCE  agreed  to settle  various
differences in the interpretation of certain agreements relating to the COMFORCE
Telecom acquisition, whereby, among other things:

           (a)    COMFORCE  delivered to ARTRA 100,000 shares of COMFORCE common
                  stock in  consideration  of ARTRA's  guarantee of the COMFORCE
                  Telecom  purchase  price to the seller and  100,000  shares of
                  COMFORCE  common  stock for the  cancellation  of the Series C
                  Preferred Stock.  ARTRA's financial  statements have reflected
                  the issuance of these 200,000  COMFORCE common shares to ARTRA
                  since the fourth quarter of 1995.

           (b)    ARTRA  delivered  to  COMFORCE  certificates   evidencing  its
                  ownership of 100% of the Lori Series C Preferred Stock.

           (c)    COMFORCE agreed to include in a proposed  underwritten  public
                  offering 380,000 shares of COMFORCE common stock held by ARTRA
                  and  its  Fill-Mor  subsidiary.  Sales  proceeds  will be used
                  principally  to  discharge  certain  ARTRA and  Fill-Mor  debt
                  obligations.







                                      F-37
<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



           (d)    ARTRA agreed to a Lock-up  Agreement  which limits its ability
                  to sell its remaining  COMFORCE  common shares for a period of
                  360 days  after  the  effective  date of  COMFORCE's  proposed
                  underwritten public offering.

           (e)    ARTRA agreed to deposit  125,000 shares of its COMFORCE common
                  stock into an escrow  account to  collateralize  its remaining
                  obligations under the Assumption Agreement.


The proposed underwritten public offering referred to in paragraph (c) above has
not  occurred as of the date of this Form 10-K.  If COMFORCE  does not retain an
underwriter  by April 30, 1997,  ARTRA will released from the  provisions of the
Lock-up Agreement.


         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 COMFORCE and
its  majority-owned  subsidiaries  effective  October  1995.  The  1995 and 1994
operating results (in thousands) of Bagcraft's discontinued Arcar subsidiary and
COMFORCE's   discontinued   jewelry   business  and  net  gain  on  disposal  of
discontinued operations consist of:

                                                1995        1994
                                              --------    --------
                                                                               
     Net sales                                $ 16,932    $ 40,278
                                              ========    ========

     Loss from operations 
       before income taxes                    $ (8,156)   $(15,832)

     
     Provision for income taxes                    (17)        (74)
                                              --------    --------
     Loss from operations                       (8,173)    (15,906)
                                              --------    --------       


     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)
                                              ========    ========
 









                                      F-38
<PAGE>

                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



4.       CONCENTRATION OF RISK

The accounts  receivable  of the Company's  Bagcraft  subsidiary at December 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  December 26 1996,  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 1996 sales.


5.       INVENTORIES

Inventories (in thousands) consist of:
         
                                           December 26,    December 28,
                                               1996            1995
                                             -------         -------
                                                             
         Raw materials and supplies          $ 5,582         $ 5,645
         Work in process                         287              40
         Finished goods                        9,098          10,949
                                             -------         -------
                                             $14,967         $16,634
                                             =======         =======


6.            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  3,  due to the  issuances  of  COMFORCE  common  shares  in
conjunction with the acquisition of COMFORCE Telecom, ARTRA's 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  requirements  of APB Opinion
No. 18 "The Equity Method of Accounting for  Investments in Common Stock" during
the fourth quarter of 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  common stock was 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 was classified as available for
sale and was stated at fair value. At December 28, 1995,  COMFORCE common shares
with a fair value of $1,427,000,  disposed of in the first quarter of 1996, were
classified  in the Company's  consolidated  balance sheet as a current asset and
the  remaining  COMFORCE  common  shares with a fair value of  $15,519,000  were
classified in the Company's  consolidated  balance sheet as a noncurrent  asset.
The adoption of SFAS No. 115 resulted in an increase to shareholders'  equity in
the fourth quarter of 1995 of $21,047,000.






                                      F-39
<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



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 consolidated
balance sheet at December 26, 1996 as other  receivables 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
resulted 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 December 26, 1996, no options to
acquire any of the 200,000 COMFORCE common shares had been exercised.

During 1996 ARTRA sold 193,000  COMFORCE  common shares in the market,  with the
net proceeds of approximately  $3,7000,000 used for working capital. During 1996
certain lenders  received  105,000 COMFORCE common shares held by the Company as
additional  consideration  for  short-term  loans.  In  October  1996,  a lender
exercised  the  conversion  rights  of a  short-term  loan and  received  33,333
COMFORCE  common  shares  in  settlement  of  the  Company's   obligation.   The
disposition of these 331,333  COMFORCE  common shares resulted in realized gains
of $5,818,000  during the year ended December 26, 1996,  with cost determined by
average cost.

At December 26, 1996 ARTRA's remaining investment in COMFORCE (1,744,703 shares,
currently  a  common  stock  ownership   interest  of  approximately  14%)  were
classified  in the  Company's  consolidated  balance sheet as a current asset as
"Available-for-sale  securities." At December 26, 1996 the gross unrealized gain
relating to ARTRA's investment in COMFORCE, reflected as a separate component of
shareholders' equity, was $25,719,000.

As  discussed  in Note 8, at December  26,  1996,  1,715,000  shares of COMFORCE
common stock owned by the Company and its Fill-Mor  subsidiary have been pledged
as collateral  for various  short-term  borrowings and 54,703 shares of COMFORCE
common  stock  owned  by  the  Company  and  its  Fill-Mor   subsidiary   remain
unencumbered.


7.       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 8
and 11 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).








                                      F-40
<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO 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
                                                                  ======== 


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.


         COMFORCE Debt Restructuring

Per terms of a debt settlement  agreement,  borrowings due a bank under the loan
agreements  of COMFORCE and its  discontinued  jewelry  operations  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  of  December  23,  1994.  Upon  the
satisfaction of certain conditions of the debt settlement agreement in 1995, the
balance of this indebtedness was discharged.

The Company  recognized an extraordinary gain of $8,965,000 ($1.57 per share) in
December 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
                                                                 =========






                                      F-41
<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



On March 31,  1995,  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  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
                                                                 =========


8.       NOTES PAYABLE

Notes payable (in thousands) consist of:
                                                 December 26,  December 28,
                                                      1996         1995
                                                    -------      -------

     ARTRA bank notes payable, 
       at various interest rates                    $ 2,500      $12,063

     ARTRA 12% promissory notes                       7,675         --
                                                            
     ARTRA 12% convertible subordinated 
       promissory notes                                --          2,500
                                                       
     Amounts due to related parties, 
       interest principally at 10%                    3,600        5,675

     Other, interest from 10% to 20%
                                                      4,856        5,062
                                                    -------      -------
                                                    $18,631      $25,300
                                                    =======      =======


         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,  which  provided  for
interest  payable  monthly at the bank's  reference  rate (8.25% at December 26,
1996) was  guaranteed  by ARTRA and was  collateralized  by 1,265,000  shares of
COMFORCE common stock.  Proceeds of the loan were used for working  capital.  In
March 1997, the loan was repaid with proceeds from other  short-term  borrowings
as discussed below.








                                      F-42
<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)



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 a  lawsuit  in
connection  with the  acquisition  and subsequent  reorganization  of Envirodyne
Industries,  Inc. as  discussed  in Note 18.  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 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 11)  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 19), 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.


         Promissory Notes

         In April 1996, ARTRA commenced a private placement of $7,675,000 of 12%
promissory notes due April 15, 1997. As additional consideration the noteholders
received  warrants to purchase an aggregate of 418,750  ARTRA common shares at a
price of $6.00 per share. The warrants expire April 15, 1999. The warrantholders
have the right to put these warrants back to ARTRA at any time during the period
April 15, 1997 to October 15, 1998,  at a price of $2.00 per share.  The cost of
this obligation  ($837,500 if all warrants are put back to the Company) is being
accrued in the Company's  financial  statements as a charge to interest  expense
over the period April 15, 1996 (the commencement date of the private  placement)
through  April 15, 1997 (the  maturity date of the notes as well as the date the
warrantholders  have the  right to put  their  warrants  back to  ARTRA).  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 promissory notes discussed above.






                                      F-43
<PAGE>


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




         Amounts Due To Related Parties

At December 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.  The  proceeds  of this  loan were  used to pay down  various  ARTRA
short-term loans and other debt  obligations.  In December 1995 the unaffiliated
company  received 126,222 shares of ARTRA common in payment of past due interest
through  October 31, 1995. In 1996 and 1997 the  unaffiliated  company  received
cash  payments  of  approximately  $390,000  representing  interest  due through
December, 1996. Payment on the loans was due March 31, 1994, however, the lender
has not demanded  payment.  In February 1997,  the lender  received a warrant to
purchase  an  additional  100,000  ARTRA  common  shares at $5.625  per share as
consideration for not demanding payment of this obligation.

         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
private investor received a warrant,  expiring in 2001, to purchase 25,000 ARTRA
common shares at a price of $5.00 per share.  The proceeds of the loan were used
for working  capital.  At the Company's  annual  meeting of  shareholders,  held
August 29,  1996,  the private  investor was elected to the  Company's  board of
directors.  In December 1996, the loan was extended until April 23, 1997 and the
lender received,  as additional  compensation,  a warrant , expiring in 2001, to
purchase  25,000 ARTRA common shares at a price of $5.875 per share. In January,
1997,  ARTRA  borrowed an additional  $300,000 from this lender  evidenced by an
short-term  note,  due December 23,  1997,  bearing  interest at 8%. The loan is
collateralized by 100,000 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 2002, to purchase 25,000 ARTRA common shares at
a price of $5.75  per  share.  In  March  1997,  ARTRA  borrowed  an  additional
$1,000,000  from this lender  evidenced by a short-term  note, due May 26, 1997,
bearing  interest  at 12%.  The loan is  collateralized  by  585,000  shares  of
COMFORCE common stock owned by the Company's Fill-Mor subsidiary.  As additional
compensation,  the  lender  received  an option  to  purchase  25,000  shares of
COMFORCE common stock, owned by the Company's Fill-Mor subsidiary, at a price of
$4.00 per share, with the right to put the option back to ARTRA on or before May
30, 1997 for a total put price of $50,000.  If the note is not paid at maturity,
the option  price is reduced to $2.00 per share and,  for every 30 days the note
is outstanding past June 26, 1997, the lender will receive an option to purchase
an additional  5,000 COMFORCE  common shares at a price of $2.00 per share.  The
proceeds from this loan were used in part to repay the ARTRA/Fill-Mor $2,500,000
bank  term  loan  described  above.  As of  March  31,  1997,  ARTRA  had  total
outstanding  borrowings of $1,800,000 from this lender collateralized by 810,000
shares of COMFORCE common stock.

In May, 1996, ARTRA borrowed $100,000 from a private  investor,  evidenced by an
unsecured  short-term note, due August 7, 1996, and renewed to February 6, 1997,
bearing interest at 10%. The proceeds of the loan were used for working capital.
At the Company's annual meeting of shareholders,  held August 29, 1996,  private
investor was elected to the Company's board of directors.  Effective January 17,
1997,  private  investor  exercised his  conversion  rights and received  18,182
shares of ARTRA common stock as payment of the principal balance of his note.

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 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.




                                      F-44
<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)



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
($21.188 per share at December 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

At December 26, 1996,  ARTRA was the obligor under two demand notes issued to an
unaffiliated  company, in the amount of $2,322,000,  including accrued interest.
The notes were issued in  October,  1990 with  interest at 15 percent.  ARTRA is
currently   negotiating   with  the  noteholder  to  extend  or  refinance  this
obligation.

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 were  collateralized  by 215,000 shares of COMFORCE common stock owned
by the  Company's  Fill-Mor  subsidiary.  The proceeds of the loan were used for
working  capital.  In January 1997, the loan was repaid with proceeds from other
short-term borrowings.

At December 26, 1996,  ARTRA also has  outstanding  short-term  borrowings  from
other unrelated parties aggregating  approximately $1,900,000, of which $150,000
is past due. The remaining  amounts come due at various times in 1997. The notes
were issued at various times during the period May 1991 to December  1996,  with
interest rates varying between 8 % 15%.

In March  1997,  ARTRA  borrowed  $1,000,000  from an  unaffiliated  corporation
evidenced by an short-term note, due May 26, 1997,  bearing interest at 12%. The
loan is  collateralized  by 630,000 shares of COMFORCE common stock owned by the
Company's Fill-Mor subsidiary.  As additional compensation,  the lender received
an option to  purchase  25,000  shares of  COMFORCE  common  stock  owned by the
Company's  Fill-Mor  subsidiary at a price of $4.00 per share, with the right to
put the  option  back to  ARTRA on or  before  May 30,  1997 for a put  price of
$50,000.  Under certain  circumstances,  ARTRA has the right to  repurchase  the
option for  $50,000.  If the note is not paid at  maturity,  the option price is
reduced to $2.00 per share and, for every 30 days the note is  outstanding  past
June 26, 1997, the lender will receive an option to purchase an additional 5,000
COMFORCE  common  shares at a price of $2.00 per share.  The proceeds  from this
loan  were used in part to repay the  ARTRA/Fill-Mor  $2,500,000  bank term loan
described above.

The weighted average interest rate on all short-term  borrowings at December 26,
1996 and December 28, 1995 was 11.3% and 9.8%, respectively.

In  conjunction  with the  February  1996  discharge  of bank debt,  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






                                      F-45
<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)



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  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 conjunction with the COMFORCE debt settlement  agreement discussed in Note 7,
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 COMFORCE common stock. 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.


9.   LONG-TERM DEBT

     Long-term debt (in thousands) consists of:
<TABLE>
<CAPTION>
                                                                             December 26,  December 28,
                                                                                  1996         1995
                                                                                --------    -------- 

     <S>                                                                        <C>         <C>     
     Bagcraft Credit Agreement:
         Term loan, interest at the lender's index rate plus .25%               $ 20,000

         Term loan A, interest at the lender's index rate plus 1.75%                --      $ 12,000
 
         Term loan B, interest at the lender's index rate plus 3%                   --         4,600

         Revolving credit loan, interest at the lender's index rate
           in 1996 and the lender's index rate plus 1.5% in 1995                   7,990       9,231

         Unamortized discount                                                     (1,752)       --

     Bagcraft:
         City of Baxter Springs, Kansas loan agreements,
             interest at varying rates                                            10,681      11,794
                                                                                --------    -------- 
                                                                                  36,919      37,625
     Current scheduled maturities                                                 (2,712)     (3,512)
                                                                                --------    -------- 
                                                                                                     
                                                                                $ 34,207    $ 34,113
                                                                                ========    ========

</TABLE>







                                      F-46
<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)



Bagcraft  entered  into a Credit  Agreement,  dated as of December 17, 1993 (the
"Credit  Agreement")  that initially  provided for a revolving  credit loan with
interest at the lender's  index rate plus 1.5% and two separate term loans.  The
term loans were 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.

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 11).

In December 1996, the Credit Agreement was amended and restated  whereby,  among
other  things,  the  maturity  date of the  Credit  Agreement  was  extended  to
September 30, 2002 and certain loan covenants were amended. Term Loan A and Term
Loan B, as previously  defined in the Credit Agreement were  consolidated into a
new  $20,000,000  term loan with  interest at the lender's  index rate plus .25%
(8.5% at  December  26,  1996).  Principal  payments  under  the term  loan were
modified  to  provide  for  annual  principal  payments  (payable  in  quarterly
installments)  in the amount of $2,000,000  in 1997 through 1999;  $3,000,000 in
2000 and 2001; and $8,000,000 in 2002. The amended and restated Credit Agreement
also provided for a $3,00,000 capital  expenditures line of credit with interest
at the lender's index rate plus .25%.

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  December  26,  1996  and  December  28,  1995,  approximately
$6,200,000 and  $6,600,000,  respectively,  was available and unused by Bagcraft
under the revolving credit loan.  Borrowings under the revolving credit loan are
payable upon maturity of the Credit Agreement, unless accelerated under terms of
the Credit  Agreement.  At December 26, 1996, the interest rate on the revolving
credit loan was 8.25%.

As  additional  compensation  for  borrowings  under the  Credit  Agreement,  in
December 1993, the lender received a detachable warrant ("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
was required to repurchase the Warrant from the lender. The determination of the
repurchase  price of the Warrant was 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 January 1997, in accordance
with the December 1996 amendment to the Credit Agreement,  Bagcraft  repurchased
50% of the Warrant  (6.5% of the fully  diluted  common  equity of Bagcraft) for
$1,500,000. Bagcraft can repurchase the remaining 50% of the Warrant on or after
December 17, 1997 for an amount based upon the  Warrant's  pro rata share of the
highest of book  value,  appraised  value or market  value of  Bagcraft as noted
above.

Borrowings under the Credit Agreement are collateralized by the common stock and
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 limit future 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 December 26, 1996 Bagcraft was in
compliance with the provisions of its Credit Agreement.






                                      F-47
<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)



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  26, 1996 and  December  28, 1995,
         Bagcraft had  outstanding  borrowings  of  $5,600,000  and  $6,300,000,
         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 26, 1996 and December  28, 1995,  Bagcraft had  outstanding
         borrowings of $4,850,000 and $5,000,000,  respectively, 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 December  26, 1996 and  December  28,
         1995,  Bagcraft had  outstanding  borrowings  of $231,000 and $494,000,
         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, $552,000 of borrowings from the above loan agreements was reflected in the
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 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 December  26, 1996 the  aggregate  amount of yearly  maturities  of long-term
debt,  exclusive of debt discharged,  is: 1997,  $2,712,000;  1998,  $5,137,000;
1999, $5,137,000; 2000, $3,712,000; 2001, $3,712,000; thereafter, $16,509,000.


10.      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 December 26, 1996 and December 28, 1995  options were  outstanding  that,  if
exercised,  would require ARTRA to repurchase  98,734 and 283,965  shares of its
common stock for an aggregate amount of $3,657,000 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





                                      F-48
<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)



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  and options that would
have required the Company to repurchase  19,118 shares of ARTRA common stock for
an aggregate of expired unexercised.  Accordingly, these 185,231 shares of ARTRA
common stock were  removed from  redeemable  common  stock and  reclassified  to
shareholders' equity.


11.   REDEEMABLE PREFERRED STOCK

      Redeemable preferred stock in (thousands) consists of:
<TABLE>
<CAPTION>

                                                               December 26,    December 28,
                                                                   1996            1995
                                                                 -------         -------
      <S>                                                       <C>             <C>
      Currently payable:
        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 in 1996                           $  2,007

        BCA Holdings preferred stock, Series B, 
          $1.00 par value, 6% cumulative, 
          including accumulated dividends;                       
          redeemable in 1997 with a liquidation 
          preference of $1,000 per share;
          8,135 shares authorized and issued                       9,093
                                                                 -------
                                                                $ 11,100

      Noncurrent:
        ARTRA redeemable preferred stock,
          Series A, $1,000 par value,
          6% cumulative payment-in-kind, 
          including accumulated dividends,
          net of unamortized discount 
          of $1,271 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                                   $   4,315       $  3,694
                
        Bagcraft redeemable preferred stock 
          payable to a related party, 
          cumulative $.01 par value, 13.5%; 
          including accumulated dividends; 
          redeemable in 1997 with a liquidation                    10,794
          preference equal to $100 per share;                 
          issued 50,000 shares in 1995                               --

        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            4,363           4,143
                                                                 -------         -------                
                                                                
     
                                                                $  8,678        $ 18,631
                                                                 =======         =======
</TABLE>


                                      F-49
<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)



         ARTRA

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 $1,836,000 and $1,519,000 were
accrued at December 26, 1996 and December 28, 1995, respectively.


         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 $688,000 were accrued at December 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  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 $1,142,000 were outstanding at December 26, 1996.

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
consolidated statement of operations as minority interest.

The BCA Series B  preferred  stock is  redeemable  on June 1, 1997.  Accumulated
dividends of $958,000 were accrued at December 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
7 and 8.






                                      F-50
<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)



12.      STOCK OPTIONS AND WARRANTS

         Stock Option Plans

In August,  1996, ARTRA's  shareholders  approved a stock option plan (the "1996
Plan") for certain officers, key employees and others who render services to the
Company or its  subsidiaries.  The 1996 Plan  reserves  2,000,000  shares of the
Company's common stock for the granting of options on or before August 29, 2006.
Options  granted under the Plan shall be in the form of incentive  stock options
("ISOs"),  as defined  under the Internal  Revenue Code of 1986, as amended (the
"Code")  or  non-statutory  options  which do not  qualify  under  such the Code
("NSOs"),  or both,  at the  discretion  of the Company.  The purchase  price of
options  granted under the 1996 Plan shall be not less than fair market value at
the date of grant for ISOs,  not less than 110% of fair market value on the date
of grant for an ISO granted to a shareholder  possessing  10% more of the voting
stock of the Company and the fair market value per share on the date of grant in
the case of NSOs. Effective October 4, 1996, the Company issued certain officers
and key  employees of ARTRA options to purchase  532,750  shares of ARTRA common
stock at $5.25 per share, the fair market value on the date of grant.
The options vested immediately and expire ten years from the date of grant.

In  August,  1996,  ARTRA's  shareholders  also  approved  a 1996  Disinterested
Directors  Stock  Option Plan (the "1996  Director  Plan") for  directors of the
Company who are not  employees  or officers.  The 1996  Director  Plan  reserves
200,000  shares of the  Company's  common  stock for the  granting of NSOs on or
before  August 29, 2006 at a price  equal to fair market  value per share on the
date of grant.  No options were granted  under the Director Plan during the year
ended December 26, 1996.

In July,  1985,  ARTRA's  shareholders  approved a stock  option plan (the "1985
Plan")  for  certain   officers  and  key  employees  of  the  Company  and  its
subsidiaries.  The 1985  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 granted under the 1985 Plan
was not less  than the  market  value at the date of grant for ISOs 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.

Effective for the fiscal year ending  December 26, 1996, the Company has adopted
the  disclosure-only  provisions of SFAS No. 123,  "Accounting  for  Stock-Based
Compensation". In 1996 all stock options were granted at an exercise price equal
to fair  market  value at the date of grant and,  accordingly,  no  compensation
expense has been recognized in connection with the Company's stock option plans.
Had compensation  cost for the Company's stock option plan been determined based
on the fair  value on the date of grant for awards in 1996  consistent  with the
provisions  of SFAS  No.  123,  the  Company's  earnings  applicable  to  common
shares would have been reduced to the pro forma amounts indicated below:

               
                                                 As Reported    Pro forma
                                                 -----------    ---------
      Earnings applicable to 
        common shares (in thousands)               $11,962       $10,512
                                                   =======       =======
                                                         
      Earnings per share                             $1.51         $1.33
                                                     =====         =====
 

The  fair  value of stock  options  granted  in 1996  was  estimated  using  the
Black-Scholes   option  pricing  model  with  the  following   weighted  average
assumptions:

              Expected life (years)                  5
              Interest rate                        6.5%
              Volatility                          50.0%
              Dividend yield                       --






                                      F-51
<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)



Information regarding stock option plans for the three years in the period ended
December 26, 1996 is as follows:

<TABLE>
<CAPTION>
                                                                
                                                      1996           1995          1994
                                                   ----------    -----------    ----------

     <S>                                           <C>              <C>           <C>    
     Options outstanding at beginning of year        431,500        445,460       450,760

     Options granted                                 532,750           --          20,000

     Options exercised                               (40,400)       (12,100)      (25,300)

     Options canceled                                 (6,000)        (1,860)         --
                                                  ----------    -----------    ----------
     Options outstanding at end of year              917,850        431,500       445,460
                                                  ==========    ===========    ==========

     Options exercisable at end of year              917,850        431,500       445,460
                                                  ==========    ===========    ==========

     Options available for grant at end of year    1,467,250           --         390,814
                                                  ==========    ===========    ==========


     Weighted average option prices:
         Outstanding at beginning of year             $ 3.89          $5.80        $ 5.86
         Options granted                              $ 5.25            --         $ 5.25
         Options exercised                            $ 5.01         $ 4.00        $ 5.25
         Options canceled                             $10.00         $20.50           --
         Outstanding at end of year                   $ 4.61         $ 3.89        $ 5.80
         Exercisable at end of year                   $ 4.61         $ 3.89        $ 5.80
</TABLE>


Significant  option groups outstanding at December 26, 1996 and related weighted
average price and remaining life information are as follows:

                                                                      Remaining
                          Options         Options        Exercise       Life 
         Grant Date     Outstanding     Exercisable        Price       (Years)
         ----------     -----------     -----------      --------      ------- 

          10-04-96        532,750         532,750         $ 5.25          9
                                            
          01-08-93        148,100         148,100         $ 3.75          6 
                                         
          06-22-92          6,000           6,000         $ 5.25          5
                                          
          09-19-91         52,967          52,967         $ 3.65          4 
                                           
          12-19-90        178,033         178,033         $ 3.65          3
                                                            


         Warrants

At December 26, 1996, warrants were outstanding to purchase a total of 1,711,032
common  shares at prices  ranging from $3.50 per share to $9.875 per share.  The
warrants,  exercisable  from the date of issue,  expire at various dates through
2003.  These  warrants were issued  principally as additional  compensation  for
various short-terms loans.

During 1996 ARTRA issued  warrants to purchase an aggregate of 632,583 shares of
its  common  stock at prices  ranging  from  $4.00 per share to $8.00 per share,
principally to certain lenders as additional  compensation for short-term loans.
The  warrants  expire at various  dates from 1999 to 2001.  Warrants to purchase
37,500 shares of ARTRA common stock at prices





                                      F-52
<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)



ranging from $3.75 per share to $5.00 per share were  exercised  during 1996 and
warrants to purchase  32,600 shares of ARTRA common stock at prices ranging from
$5.375 per share to $10.50 per share expired unexercised during 1996.

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.

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 to 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.


13.      COMMITMENTS AND CONTINGENCIES

The Company and its subsidiaries lease certain buildings and equipment which are
used in its  manufacturing  and distribution  operations.  At December 26, 1996,
future  minimum lease payments  under  operating  leases that have an initial or
remaining noncancellable term of more than one year (in thousands) are:

          Year
          1997                               $   928
          1998                                   532
          1999                                   361
          2000                                   182
          2001                                   191
          After 2001                             784
                                              ------        
                                             $ 2,978
                                              ======


Rental expense was $975,000,  $861,000 and $1,116,000 in fiscal years 1996, 1995
and 1994,  respectively.  Effective  December  1995,  the  building in which the
Company  leases office space for its corporate  headquarters  was purchased by a
trust owned by John Harvey,  the  Company's  Chairman of the board of directors.
The lease expires in December 1997, with an option to renew for one year. Rental
expense for this lease was $126,000 for the year ended December 26, 1996.

In October 1995,  Bagcraft entered into an agreement for the purchase of various
ink products 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.  For the contract year ended  September 30, 1996,
Bagcraft  had a  short-fall  of  approximately  $126,000.  In  January  1997 the
agreement was amended to revise the original minimum  purchase  requirements and
the annual  contract  period.  Beginning in November  1996,  the minimum  dollar
amounts  required  for  each  of  the  remaining  years  ending  October  31 are
$4,426,000 in 1997;  $4,500,000 in 1998;  $3,375,000 in 1999;  and $2,250,000 in
2000. The shortfall  incurred during contract year one was incorporated into the
purchase  requirement  for  contract  year two.  Bagcraft has issued a letter of
credit of $1,000,000 in conjunction with this agreement.

In conjunction with a prior  self-insurance plan, Bagcraft maintained a $875,000
letter of credit at December 26, 1996.







                                      F-53
<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)



The Company and its subsidiaries are the defendants in various  business-related
litigation  and  environmental  matters.  At December  26, 1996 and December 28,
1995, the Company had accrued current  liabilities of $1,900,000 and $1,800,000,
respectively,   for  potential  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 ("PRP") 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 to
formally extinguish the EPA claim. In September 1989, Bagcraft was served with a
complaint filed by the State of Illinois against  seventeen  parties for alleged
involvement  with the Cross  Brothers site.  The complaint  alleges  Bagcraft is
responsible  for the costs of  cleanup  incurred  and to be  incurred.  Bagcraft
denies the material  allegations an is participating  in settlement  discussions
with the State and thirteen other potential  responsible  parties to resolve all
claims  associated with the State. An agreement has been reached in principal to
settle  the State  claim,  pending  resolution  of the  terms of an  appropriate
consent  order.  Bagcraft's  share of the proposed  settlement is  approximately
$150,000.

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'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.  In April  1997,  the EPA  filed an
administrative complaint and has proposed a $250,000 civil penalty. Bagcraft has
filed a response to the complaint and is attempting to negotiate a settlement.

Bagcraft reported a release  associated with solvent tanks located in a vault at
its Chicago  manufacturing  facility.  After seeking  approval from the Illinois
Environmental  Protection Agency ("IEPA"),  Bagcraft  installed and is currently
operating  a soil vapor gas  extraction  system  designed  to  achieve  remedial
objectives which the IEPA has determined to be appropriate to the site. Bagcraft
has since received a No Further Recommendation Letter from the IEPA.







                                      F-54
<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)



Bagcraft has been  notified  that it may have  responsibility  with respect to a
clean-up  site  on  Basket  Creek  Road,  Georgia.  Bagcraft  presently  has  no
indication of its liability, if any or whether it is a responsible party.

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 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.

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.







                                      F-55
<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)



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 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.


14.      INCOME TAXES

The  provision  (credit)  for income  taxes (in  thousands)  is  included in the
statements of operations as follows:


                                           1996     1995      1994
                                          ------   ------    ------

     Continuing operations               $   152  $    51   $     9
     Extraordinary credit                    200     --        --
     Discontinued  operations                --        17        74
                                          ------   ------    ------ 
                                         $   352  $    68   $    83
                                          ======   ======    ======


A summary of the  provision  (credit)  for  income  taxes (in  thousands)  is as
follows:


                                           1996     1995      1994
                                          ------   ------    ------ 

     Current:
         Federal                         $   200  $  --     $  --
         State                               152       68        83
                                          ------   ------    ------ 
                                         $   352  $    68   $    83
                                          ======   ======    ======



The 1996, 1995 and 1994 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 in due to the utilization of
tax loss  carryforwards,  except for Federal alternative minimum tax incurred in
1996.








                                      F-57
<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



14.      INCOME TAXES, continued

In 1996,  1995 and 1994,  the  effective  tax rates from  operations,  including
discontinued operations were 2.5%, (3.9)% and (.4)% respectively, as compared to
the statutory Federal rate, which are reconciled (in  thousands) as follows:


                                                     1996     1995      1994
                                                    ------   ------    ------ 

     Provision (credit) for income taxes
       using statutory rate                        $ 4,709   $  (600)  $(6,629)
     State and local taxes,
       net of Federal benefit                          152        68        73
     Current year tax loss not utilized               --        --       3,151
     Deferred finance fee                              127      --        --
     Amortization of goodwill                          104       155       206
     Previously unrecognized benefit
       from utilizing tax loss carryforwards        (4,767)   (2,136)     --
     Effect of not including all subsidiaries
        in the consolidated tax return                --       2,546     3,249
     Other                                              27        35        33
                                                   -------   -------   -------
                                                   $   352   $    68   $    83
                                                   =======   =======   =======














                                      F-58
<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



14.      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 26, 1996 and December 28,
1995 and their approximate tax effects (in thousands) are as follows:
<TABLE>
<CAPTION>

                                                                  1996                     1995
                                                          --------------------      -------------------- 
                                                         Temporary      Tax        Temporary      Tax
                                                         Difference  Difference    Difference  Difference
                                                         ----------  ----------    ----------  ----------
     <S>                                                   <C>         <C>           <C>         <C>     
     Trade accounts receivable                             $   --      $    100      $    200    $    100
     Investment in Emerald Acquisition Corporation           10,600       4,100          --          --
     Investment in COMFORCE Corporation                      39,500      15,400          --          --
     Accrued personnel costs                                  1,600         600         1,800         700
     Restructuring reserve                                      100        --             200         100
     Environmental reserve                                      500         200           400         200
     Other                                                      600         200         2,900       1,100
     Capital loss carryforward                                2,100         800        11,000       4,300
     Net operating loss                                      35,900      14,000        44,000      17,200
                                                                       --------                  --------
               Total deferred tax assets                                 35,300                    23,700
                                                                       --------                  --------

     Inventories                                             (4,500)     (1,700)       (6,700)     (2,600)
     Accumulated depreciation                                (6,400)     (2,500)       (7,900)     (3,100)
     Other                                                   (1,000)       (300)         (800)       (300)
                                                                       --------                  --------
               Total deferred tax liabilities                            (4,500)                   (6,000)
                                                                       --------                  --------
               Valuation allowance                                      (30,800)                  (17,700)
                                                                       --------                  --------
               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 26, 1996,  the Company and its  subsidiaries  had Federal income tax
loss carryforwards of approximately $36,000,000,  expiring principally in 2002 -
2010,  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.






                                      F-59
<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



15.      EMPLOYEE BENEFIT PLANS

The Company maintains a defined contribution 401 (k) plan covering substantially
all employees. Both employee and employer contributions are generally determined
as a percentage of the covered employee's annual compensation. The total expense
charged to operations  relating to this plan amounted to $513,000,  $477,000 and
$333,000 in 1996, 1995 and 1994, respectively.

Effective   January  1,  1996,   Bagcraft   established  an  unfunded   deferred
compensation  plan for  certain  key  executives  providing  for  payments  upon
retirement,  death or permanent disability.  Under the plan, retirement payments
are  determined  as a  percentage  of the value of  Bagcraft  and the  extent of
participation in the plan. Participants vest on a pro-rata basis over four years
from the plan's origination date. At December 26, 1996,  Bagcraft recorded other
noncurrent assets and other  liabilities of $515,000 and $685,000,  respectively
related  to  the  deferred  compensation  plan.  Deferred  compensation  expense
relating to this plan amounted to $170,000 for the year ended December 26, 1996.

Effective  June 1, 1990, the Company  adopted an Employee  Stock  Ownership Plan
("ESOP")  which  covered  eligible   employees  of  ARTRA  and  certain  of  its
subsidiaries.  Employer  contributions  to the Plan  were at the  discretion  of
ARTRA's Board of Directors. Employee contributions were not permitted. Effective
August 1, 1995, the Company terminated the ESOP and subsequently distributed the
related Employee accounts to participants.  The Company  contributed 8,750 ARTRA
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 and 15,000 ARTRA 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.

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.


16.      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.


17.      INDUSTRY SEGMENT INFORMATION

At December 26, 1996, 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,  ARTRA's then majority owned subsidiary,  COMFORCE,
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.

As discussed in Note 3, on September 11, 1995,  COMFORCE signed a stock purchase
agreement  to  participate  in the  acquisition  of one  hundred  percent of the
capital stock of COMFORCE Telecom. COMFORCE Telecom 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.  On October 17, 1995, COMFORCE
completed  the  acquisition  of one  hundred  percent  of the  capital  stock of
COMFORCE Telecom.










                                      F-60
<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



Due to  the  issuances  of  COMFORCE  common  shares  in  conjunction  with  the
acquisition of COMFORCE Telecom,  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 equity  method  during the fourth  quarter of 1995.  As
discussed in Note 5, 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
1996, 1995 and 1994.


18.      LITIGATION

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 by 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 and junior debentures 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.

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






                                      F-61
<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



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.

The  Company  and  its   subsidiaries   are  the  defendants  in  various  other
business-related  litigation and environmental matters (see Note 13). Management
does not  believe  the  outcome of these  matters  will have a material  adverse
effect on the Company's financial statements.


19.      RELATED PARTY TRANSACTIONS

Advances to Peter R. Harvey,  ARTRA's  president,  classified  in the  Company's
consolidated  balance sheet as a reduction of common  shareholders'  equity, (in
thousands) consist of:

                                                      December 26,  December 28,
                                                           1996          1995
                                                         -------       ------- 
    
    Total advances, including accrued interest           $ 7,998       $ 5,369
    Less interest for the period January 1, 1993    
      to date, accrued and fully reserved                 (1,530)       (1,051)
                                                         -------       ------- 
          Net advances                                   $ 6,468       $ 4,318
                                                         =======       =======


ARTRA has total  advances  due from its  president,  Peter R.  Harvey,  of which
$7,998,000 and $5,369,000,  including accrued interest,  remained outstanding at
December  26, 1996 and  December  28,  1995,  respectively.  The  advances  bear
interest  at the prime rate plus 2% (10.25% at  December  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.  See Note 8 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 (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.








                                      F-62
<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



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 years ended  December  26, 1996 and December
28, 1995 totaled $479,000 and $436,000, 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.

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 COMFORCE's October 1995 acquisition of COMFORCE Telecom (see
Note 3), 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  December  26,  1996  and  December  28,  1995,  respectively,  $348,000  and
$4,500,000 of such  pre-existing  Lori  liabilities  were  classified in ARTRA's
consolidated balance at as current liabilities of discontinued operations.

For a discussion of certain other related party debt obligations see Note 8.









                                      F-63
<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



20.      SUBSEQUENT EVENT

Effective January 2, 1997,  Bagcraft  purchased the business assets,  subject to
buyer's assumption of certain liabilities, of AB Specialty Holding Company, Inc.
("AB") for consideration  consisting of cash of approximately $2.4 million.  The
acquisition of AB, funded through  borrowings under Bagcraft's Credit Agreement,
will  accounted  for by the  purchase  method and,  accordingly,  the assets and
liabilities  of AB will be included in the  Company's  financial  statements  at
their  estimated fair market value at the date of  acquisition.  At December 26,
1996, other noncurrent  assets includes a deposit of approximately  $1.2 million
related to the acquisition of AB.





















                                      F-64
<PAGE>

                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES
           SCHEDULE I . CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                            ARTRA GROUP INCORPORATED
                                 BALANCE SHEETS
                         (Registrant Only In Thousands)


                                                  December 26,   December 28,
                                                      1996           1995
                                                  ------------   ------------

                   ASSETS
Current assets:
   Cash                                                  $162         $2,347
   Receivables                                             30             25
   Other current assets                                   853             85
                                                  ------------   ------------
                                                        1,045          2,457
                                                  ------------   ------------

Property, plant and equipment                              33             25
Less accumulated depreciation and amortization             33             14
                                                  ------------   ------------
                                                                          11
                                                  ------------   ------------

Investments in and advances to affiliates               8,266          2,567
                                                  ------------   ------------
                                                        $9,311         $5,035
                                                  ============   ============


                   LIABILITIES
Current liabilities:
   Notes payable                                      $16,131        $25,300
   Accounts payable                                        25            509
   Accrued expenses                                     6,508          9,323
   Income taxes                                           265            200
                                                  ------------   ------------
                                                       22,929         35,332
                                                  ------------   ------------

Redeemable common stock                                 3,657          4,774
                                                  ------------   ------------

Redeemable preferred stock                              4,315          3,694
                                                  ------------   ------------

         SHAREHOLDERS' EQUITY (DEFICIT)
Common stock                                            5,793          5,540
Additional paid-in capital                             40,211         38,526
Unrealized appreciation of investments                 25,719         21,047
Receivable from related party,
   including accrued interest                          (6,468)        (4,318)
Accumulated deficit                                   (86,793)       (98,755)
                                                  ------------   ------------
                                                      (21,538)       (37,960)
Less treasury stock, at cost                               52            805
                                                  ------------   ------------
                                                      (21,590)       (38,765)
                                                  ------------   ------------
                                                       $9,311         $5,035
                                                  ============   ============


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





                                      F-65
<PAGE>

                                                          
                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES
           SCHEDULE I . CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                            ARTRA GROUP INCORPORATED
                            STATEMENTS OF OPERATIONS
                         (Registrant Only In Thousands)
<TABLE>
<CAPTION>



                                                                      Fiscal Year
                                                             ------------------------------
                                                               1996      1995        1994
                                                             --------  --------   ---------

<S>                                                           <C>       <C>         <C>   
Selling, general and administrative expenses                  $1,998    $1,760      $2,158
Depreciation and amortization                                     19        27           4
Interest expense                                               3,997     4,953       3,139
Equity in (earnings) loss of affiliates                       (7,745)    7,817       6,129
Other expense, net                                                 1       424         308
                                                             --------  --------   ---------
Loss from continuing operations before income taxes            1,730   (14,981)    (11,738)
Benefit (charge) equivalent to  income taxes                   1,819    (1,962)     (1,791)
                                                             --------  --------   ---------

Loss from continuing operations                                3,549   (16,943)    (13,529)

Equity in earnings (loss) of discontinued affiliate               -         10     (15,906)
                                                             --------  --------   ---------
Loss before extraordinary credit                               3,549   (16,933)    (29,435)

Extraordinary credit, net discharge of indebtedness            9,424    14,030       8,965
                                                             --------  --------   ---------

Net earnings (loss)                                          $12,973   ($2,903)   ($20,470)
                                                             ========  ========   =========



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









                                      F-66
<PAGE>
                                                            

                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES
           SCHEDULE I . CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                            ARTRA GROUP INCORPORATED
                            STATEMENTS OF CASH FLOWS
                         (Registrant Only In Thousands)
<TABLE>
<CAPTION>


                                                                                             Fiscal Year
                                                                                ----------------------------------- 
                                                                                    1996         1995        1994
                                                                                ----------    ---------   ---------

<S>                                                                               <C>          <C>        <C>
Cash flows from operating activities:
   Net earnings (loss)                                                            $12,973      ($2,903)   ($20,470)
     Adjustments to reconcile net loss
     to cash flows from operating activities:
        Extraordinary gain from 
          net discharge of indebtedness                                            (9,424)     (14,030)     (8,965)
        Equity in loss of affiliates                                               (7,745)       7,817       6,129
        Equity in (earnings) loss of discontinued operations                           -           (10)     15,906
        Equity in (earnings) loss of discontinued operations
       Other, principally common stock issued as compensation                         239        1,370         489
       Changes in assets and liabilities:
            Increase (decrease) in other current and noncurrent assets             (1,315)          32          56
            Increase in other current and noncurrent liabilities                    1,696        1,738       2,152
           (Increase) decrease in receivable from related party                    (1,061)        (218)       (257)
                                                                                ----------    ---------   ---------
Net cash flows used by operating activities                                        (4,637)      (6,204)     (4,960)
                                                                                ----------    ---------   ---------

Cash flows from investing activities:
   Proceeds from collection of Welch notes                                            342        3,000                 -
   Dividends and advances from (to) subsidiaries                                    4,473           -         (772)
   Additions to property, plant and equipment                                          (8)          (6)         (9)
                                                                                ----------    ---------   ---------
Net cash flows from (used by) investing activities                                  4,807        2,994        (781)
                                                                                ----------    ---------   ---------

Cash flows from financing activities:
   Proceeds from private placements of ARTRA common stock                              -            -        3,230
   Proceeds from exercise of stock options and warrants                               369           48          30
   Net increase (decrease) in short-term borrowings                                (2,214)       5,488       1,226
   Exercise of redeemable common stock options                                       (510)         (70)        (50)
                                                                                ----------    ---------   ---------
Net cash flows from (used by) financing activities                                 (2,355)       5,466       4,436
                                                                                ----------    ---------   ---------

Net increase (decrease) in cash                                                    (2,185)       2,256      (1,305)
Cash balance beginning of year                                                      2,347           91       1,396
                                                                                ----------    ---------   ---------
Cash balance end of year                                                             $162       $2,347         $91
                                                                                ==========    =========   =========


Supplemental schedule of noncash investing and financing activities:
   Issue common stock and redeemable common stock
     to pay down current liabilities                                               $1,274       $1,040        $791
    Issue common stock as additional consideration
       for short-term borrowings                                                      661        1,266          -
    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>








                                      F-67
<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 13 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 8 and 10 of the consolidated financial
statements for additional information.


4.   Notes Payable and Long-Term Debt

See Notes 8 and 9 of the consolidated financial statements.


5.   Redeemable Common and Preferred Stock and Stock Options

See Notes 10, 11 and 12 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.   Related Party Transactions

See Notes 8 and 19 of the consolidated financial statements.











                                      F-68
<PAGE>

                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES
                 SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
    for each of the three fiscal years in the period ended December 26, 1996
                                 (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                 $    290    $      191                    $   (232)(D)     $     249
                                                        ========    ==========                    ========         =========

      Allowance for doubtful accounts                   $    250    $      365                    $   (103)(E)     $     512
                                                        ========    ==========                    ========         =========
  
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
                                                        ========      ========                    ========         =========
</TABLE>

 (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.











                                      F-69
<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                                       250,000*

         Accounting Fees                                   70,000*


         Blue Sky Fees and Expenses                         1,625


         Miscellaneous                                     19,690*
                                                          ------- 
         Total                                          $ 350,000*
                                                          =======


         -----------
         * 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 FEBRUARY 10, 1991 (As of October 17, 1997)



                                        Issuance     Number of     Exercise
Warrant Holder                            Date         Shares       Price
-----------------------------------    ----------     --------     -------
Alltech Associates                       07-01-98       10,000      $6.000
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                         03-09-93       11,000      $6.000
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      $6.000
Evelyn Bishop, Trustee                   11-17-91        4,457      $6.000
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                   06-13-96       10,911      $8.000
Evelyn Bishop, Trustee                   05-17-91        4,244      $6.000
Evelyn Bishop, Trustee                   05-29-91        6,367      $6.000
Alexander Verde                          02-10-91       39,907      $5.000
Alexander Verde                          08-09-92       76,480      $5.000
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      $5.000
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
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  



                                      II-2

<PAGE>
                                        Issuance     Number of     Exercise
Warrant Holder                            Date         Shares       Price
-----------------------------------    ----------     --------     -------
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
Austin Iodice                            08-05-91        12,500     $5.750
Research  Center  Of  Kabbalah           10-29-93        21,250     $6.000
Research  Center  Of  Kabbalah           12-31-93        65,000     $7.000
Research  Center  Of  Kabbalah           02-14-97       100,000     $5.625
Research  Center  Of  Kabbalah           04-14-97       100,000     $5.000
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        15,000     $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        15,000     $6.000
Charles Reeder                           04-15-96        20,000     $6.000
William G. Reynolds, Jr.                 04-15-96         1,250     $6.000
Nora Baker                               04-15-96         5,000     $6.000
Stephen N. Engberg                       04-15-96        10,000     $6.000
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


                                      II-3
<PAGE>


                                        Issuance     Number of     Exercise
Warrant Holder                            Date         Shares       Price
-----------------------------------    ----------     --------     -------
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
Howard Conant                            12-23-96        25,000     $5.875
Howard Conant                            01-15-97        10,000     $5.750
Howard Conant                            04-21-97       333,333     $5.000
Howard Conant                            06-11-97        40,000     $5.000
Emanuel Tarson                           09-12-96        12,500     $5.000
Emanuel Tarson                           12-23-96        12,500     $6.125
Ronald Tarson                            09-12-96        12,500     $5.000
Ronald Tarson                            12-23-96        12,500     $6.125
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
R & J Lucas Revocable Trust              01-15-97        10,000     $5.750
Ezra Hamway                              03-21-97         5,000     $4.625 
Levy S.D.                                03-21-97        10,000     $4.625 
Peer Pederson                            04-02-97        25,000     $5.000 
Ezra Hamway                              06-21-97         8,000     $5.000
Levy S.D.                                06-21-97        12,000     $5.000   
Robert Jones                             06-16-97         8,000     $4.750
Semamor Enterprises                      06-12-97        60,000     $5.000
Shephard C. Swift Trust                  06-16-97         4,000     $5.000     
Stephen Enberg                           06-17-97         4,000     $5.000
The Shipp Family Trust                   06-20-97         2,000     $5.000
Jerry Mickelson IRA                      06-20-97         3,000     $5.000
James A. Belushi Trust                   06-22-97         7,000     $5.000
Ronald Tarson                            05-24-97        25,000     $5.000
E.B. Tarson                              05-24-97        25,000     $5.000
Woodrow Chamberlain                      05-24-97        25,000     $5.000
Thomas Whitney                           05-24-97         5,000     $5.000
Henry M. Staley Trust                    05-24-97         5,000     $5.000
A.E. Staley Trust                        05-24-97        25,000     $5.000
Diane Wilson                             05-24-97         1,250     $5.000
The Neff Family Trust                    05-24-97        12,500     $5.000
William Seelbach                         05-24-97         2,500     $5.000
D. Michael Meyers                        05-24-97         5,000     $5.000
Douglas B. Nelson & Jessica M. Swift     05-23-97        12,500     $5.000
William Reynolds                         05-23-97         1,250     $5.000
Martha Seelbach                          05-23-97         2,500     $5.000   
Anita Stone Family Trust                 07-14-97        26,660     $4.500
John Bramsen                             07-14-97        13,330     $4.500
Woodrow & Barbara Chamberlain            07-14-97        13,330     $4.500
Ronald E. Tarson                         07-14-97        13,330     $4.500
Lenore Schnick Trust                     07-14-97         7,332     $4.500
Ken Buchanan                             07-14-97         5,332     $4.500
Charles Reeder                           07-14-97         5,332     $4.500
Paul Neff                                07-14-97         2,666     $4.500
Ravinia Investors                        07-14-97         2,666     $4.500
Henry Staley                             07-14-97         2,666     $4.500
Belmad L.P.                              07-16-97       106,667     $4.500






                                      II-4
<PAGE>

         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
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
Richard Dolan                    09-18-96         7,500       $6.000
Michael Laundrie                 01-17-97         9,773       $5.500
Edward A. Celano                 01-17-97        18,182       $5.500
Josef Strahammer                 01-17-97       115,543       $5.875
PRESTWOOD LIMITED                 10/97         357,270        $4.25    


         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 
Kwiatt, Silverman & Ruben, Ltd.            2/97        12,000         $5.00



                                      II-5
<PAGE>


         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.


                                             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
Barry Rymer                                  07-18-97       47,492     $4.375



                                      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, COMFORCE  Corporation  (formerly 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 October 17, 1997) OF CERTAIN
            DEBT SECURITIES ISSUED, AMENDED, CONSOLIDATED OR RESTATED
                             SINCE APRIL 20, 1990



Note Holder                             Date of Note (2)     Note Amount (3)
------------------------------          ----------------     --------------- 

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
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
Nora Baker                                  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



                                      II-8
<PAGE>
 

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
Howard Conant                               01/15/97               300,000
R & J Lucas Revocable Trust                 01/15/97               300,000
Ezra Hamway                                 03/21/97               100,000  
Ezra Hamway                                 06/21/97               200,000  
Levy S.D.                                   03/21/97               200,000  
S.D. Levy                                   06/21/97               300,000 
Howard Conant                               03/26/97             1,000,000  
Stephalex International, Inc.               03/26/97             1,000,000  
Robert Jones                                06/16/97               200,000  
Howard Conant                               04/21/97             2,000,000
Howard Conant                               06/10/97             1,000,000
Ronald E. Tarrson                           05/21/97               500,000
E. B. Tarrson                               05/21/97               500,000
Woodrow Chamberlain                         05/22/97               500,000
Thomas Whitney                              05/27/97               100,000
Henry M. Staley Trust                       05/28/97               100,000
A. E. Staley III Trust                      05/28/97               500,000
Diane Wilson                                05/30/97                25,000
The Neff Family Trust                       06/02/97               250,000
William Seelbach                            06/03/97                50,000
D. Michael Meyers                           06/04/97               100,000
Douglas B. Nelson &                                         
  Jessica M. Swift                          06/05/97               250,000
William Reynolds                            06/10/97                25,000
Martha Seelbach                             06/06/97                50,000
Thomas Philipsborn                          06/25/97                25,000
Semamor Enterprises                         06/11/97             1,500,000
Shepard C. Swift Trust                      06/16/97               100,000
Stephen N. Engberg                          06/16/97               100,000
The Shipp Family Trust                      06/20/97                50,000
Jerry Mickelson IRA                         06/20/97                75,000
James A. Belushi Trust                      06/23/97               175,000
Anita Stone Family Trust                    07/15/97             1,000,000
John Bramsen                                07/15/97               500,000
Woodrow & Barbara                          
  Chamberlain                               07/15/97               500,000
Ron Tarrson                                 07/15/97               500,000
Lenore Schmick Trust                        07/15/97               275,000
Ken Buchanan                                07/15/97               200,000
Charles Reeder                              07/15/97               200,000
Paul Neff                                   07/15/97               100,000
Ravinia Investors                           07/15/97               100,000
Henry Staley                                07/14/97               100,000
Belmad L.P.                                 07/16/97             4,000,000


(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.

                                      II-9
<PAGE>



(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
         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.

                        ** 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.

                                      II-11
<PAGE>


                         ** 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     THIRD  AMENDMENT  TO  AMENDED  AND  RESTATED
                                    CREDIT AGREEMENT, dated as of July 17, 1997,
                                    by  and  between  BAGCRAFT   CORPORATION  OF
                                    AMERICA,  as Borrower  and GENERAL  ELECTRIC
                                    CAPITAL CORPORATION, as Agent and as Lender.

                        ** 10.2     FOURTH AMENDMENT TO WARRANT dated as of July
                                    17,   1997,   by   and   between    BAGCRAFT
                                    CORPORATION OF AMERICA and GENERAL  ELECTRIC
                                    CAPITAL CORPORATION.

                        ** 10.3     FOURTH  AMENDMENT  TO AMENDED  AND  RESTATED
                                    CREDIT AGREEMENT, dated as of July 25, 1997,
                                    by  and  between  BAGCRAFT   CORPORATION  OF
                                    AMERICA,  as Borrower  and GENERAL  ELECTRIC
                                    CAPITAL CORPORATION, as Agent and as Lender.

                        ** 10.4     TERM  PROMISSORY NOTE , dated as of June 10,
                                    1997,  between ARTRA GROUP  Incorporated and
                                    Howard R. Conant.

                        ** 10.5     WARRANT TO  PURCHASE  COMMON  STOCK of ARTRA
                                    GROUP  Incorporated,  dated  June 10,  1997,
                                    issued to Howard R. Conant.


                        ** 10.6     SECOND AMENDMENT  TO  AMENDED  AND  RESTATED
                                    CREDIT  AGREEMENT, dated as of May 15, 1997,
                                    by  and  between  BAGCRAFT   CORPORATION  OF
                                    AMERICA,  as Borrower  and GENERAL  ELECTRIC
                                    CAPITAL CORPORATION, as Agent and as Lender.

                        ** 10.7     THIRD  AMENDMENT TO WARRANT dated as of  May
                                    15,  1997,  by    and    between    BAGCRAFT
                                    CORPORATION OF  AMERICA and GENERAL ELECTRIC
                                    CAPITAL CORPORATION.

                        ** 10.8     TERM PROMISSORY NOTE , dated as of April 21,
                                    1997,  between ARTRA GROUP  Incorporated and
                                    Howard R. Conant.

                        ** 10.9     AMENDED AND RESTATED STOCK PLEDGE AGREEMENT,
                                    dated as of April 21, 1997, between Fill-Mor
                                    Holding, Inc., a wholly-owned  subsidiary of
                                    ARTRA  GROUP   Incorporated  and  Howard  R.
                                    Conant.

                        ** 10.10    WARRANT TO  PURCHASE  COMMON  STOCK of ARTRA
                                    GROUP  Incorporated,  dated April 21,  1997,
                                    issued to Howard R. Conant.

                        ** 10.11    FIRST  AMENDMENT  TO  AMENDED  AND  RESTATED
                                    CREDIT  AGREEMENT,  dated as of May 5, 1997,
                                    by  and  between  BAGCRAFT   CORPORATION  OF
                                    AMERICA,  as Borrower  and GENERAL  ELECTRIC
                                    CAPITAL CORPORATION, as Agent and as Lender.

                        ** 10.12    SECOND  AMENDMENT TO WARRANT dated as of May
                                    5, 1997, by and between BAGCRAFT CORPORATION
                                    OF  AMERICA  and  GENERAL  ELECTRIC  CAPITAL
                                    CORPORATION.

 
                                      II-12
<PAGE>

                       ** 10.13    Term Promissory Note , dated as of March 26,
                                    1997,  between ARTRA GROUP  Incorporated and
                                    Howard R. Conant.

                        ** 10.14    Term Promissory  Note, dated as of March 26,
                                    1997,  between ARTRA GROUP  Incorporated and
                                    Stephalex International, Inc.

                        ** 10.15    Option  Agreement,  dated  as of  March  26,
                                    1997,    by   and   between    ARTRA   GROUP
                                    Incorporated and Howard R. Conant.

                        ** 10.16    Option  Agreement,  dated  as of  March  26,
                                    1997,    by   and   between    ARTRA   GROUP
                                    Incorporated  and  Stephalex  International,
                                    Inc.

                        ** 10.17    AMENDED AND RESTATED CREDIT AGREEMENT, Dated
                                    as  of  December  30,  1996,  by  and  among
                                    BAGCRAFT CORPORATION OF AMERICA, as Borrower
                                    and GENERAL ELECTRIC CAPITAL CORPORATION, as
                                    Agent and as Lender.

                        ** 10.18    AMENDED  AND  RESTATED  WARRANT  To Purchase
                                    Common  Stock  of  BAGCRAFT  CORPORATION  OF
                                    AMERICA (Warrant No. 2).

                        ** 10.19    SETTLEMENT AND RELEASE  AGREEMENT,  dated as
                                    of  December  19,  1996,  by and among ARTRA
                                    GROUP Incorporated,  Fill-Mor Holding,  Inc.
                                    and Peter R. Harvey,  COMFORCE  Corporation,
                                    James  L.   Paterek,   Michael   Ferrentino,
                                    Christopher  P. Franco and Kevin W.  Kiernan
                                    and Kwiatt, Silverman & Ruben, Ltd.

                        ** 10.20    LOCK-UP AGREEMENT,  dated December 19, 1996,
                                    re. sale of COMFORCE common stock.

                        ** 10.21    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.

                        ** 10.22    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.

                        ** 10.23    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.

                        ** 10.24    Registration Rights Agreement dated February
                                    20,   1996   by  and   among   ARTRA   Group
                                    Incorporated and Norton Herrick re: Purchase
                                    of a Secured Convertible Promissory Note.

                        ** 10.25    Form Of Promissory  Note re:  December 1995,
                                    Private  Placement of twelve  percent  (12%)
                                    convertible subordinated promissory notes.

                        ** 10.25    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.

                        ** 10.26    Form  Of  Promissory  Note  re:  July,  1996
                                    Private  Placement of twelve  percent  (12%)
                                    promissory notes due April 15, 1997.



                                      II-13
<PAGE>


                        ** 10.27    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.

                        ** 10.28    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").

                        ** 10.29    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").

 
                        ** 10.30    Amended and Restated  Promissory Note, dated
                                    February 26, 1996 made by BCA Holdings, Inc.
                                    in  favor  of  Arabella  S.A.

                        ** 10.31    Option to Purchase Shares of Common Stock of
                                    Bagcraft  Corporation of America sold by BCA
                                    Holdings, Inc. to Arabella S.A.

                        ** 10.32    Preferred   Stock   Agreement  made  by  and
                                    between  BCA  Holdings   Inc.  and  Bagcraft
                                    Corporation of America.

                        ** 10.33    Preferred Stock Exchange Agreement, dated as
                                    of January  31,  1996 by and  between  Ozite
                                    Corporation,  BCA Holdings Inc. and Bagcraft
                                    Corporation of America.

                        ** 10.34    Limited   Consent  and  Sixth  Amendment  to
                                    Credit  Agreement,  dated as of  February 1,
                                    1996 between Bagcraft Corporation of America
                                    and General  Electric  Capital  Corporation.

                        ** 10.35    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").

                        ** 10.36    Limited  Release,  dated  October 30,  1995,
                                    between NatWest Bank N. A. ("Releasor"), and
                                    ARTRA Group Incorporated and Peter R. Harvey
                                    ("Releasee").

                     


                                      II-14
<PAGE>


                        ** 10.37    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.

                        ** 10.38    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.
    
                        ** 10.39    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.

                        ** 10.40    Registration and Settlement  Agreement dated
                                    as of March 31,  1995 by and  between  ARTRA
                                    Group  Incorporated  and IBJ Schroder Bank &
                                    Trust   Company.

                        ** 10.41    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.

                        ** 10.42    Loan  Agreement,  dated as of  December  23,
                                    1994, by and among ARTRA Group  Incorporated
                                    and McGoodwin James & Co.

                        ** 10.43    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.

                        ** 10.44    Pledge and  Security  Agreement  between The
                                    Lori  Corporation  and IBJ  Schroder  Bank &
                                    Trust Company  dated as of August 18,  1994.
                                              
                        ** 10.45    Pledge  and   Security   Agreement   between
                                    Lawrence Jewelry Co. and IBJ Schroder Bank &
                                    Trust  Company  dated as of August 18, 1994.
                              
                        ** 10.46    Pledge  and   Security   Agreement   between
                                    Lawrence   Jewelry   Corporation   and   IBJ
                                    Schroder  Bank & Trust  Company  dated as of
                                    August  18,  1994.


                      

                                      II-15
<PAGE>

                        ** 10.47    Pledge and  Security  Agreement  between New
                                    Dimensions   Accessories,   Ltd.   and   IBJ
                                    Schroder  Bank & Trust  Company  dated as of
                                    August  18,  1994.

                        ** 10.48    Pledge  and   Security   Agreement   between
                                    Rosecraft,  Inc.  and  IBJ  Schroder  Bank &
                                    Trust Company  dated as of August 18,  1994.
 
                        ** 10.49    Pledge  and   Security   Agreement   between
                                    Fill-Mor Holding, Inc. and IBJ Schroder Bank
                                    & Trust Company dated as of August 18, 1994.

                        ** 10.50    Subordinated Promissory Note dated  December
                                    31, 1993 in the original principal amount of
                                    $3,000,000  from  Registrant to the Research
                                    Center of Kabbalah.

                            23.1    Consent of Kwiatt, Silverman & Ruben, Ltd.

                            23.2    Consent of Coopers & Lybrand  L.L.P.
                      

                         ** 11.1    Computation   of  earnings   per  share  and
                                    equivalent share of common stock for each of
                                    the three years in the period ended December
                                    26, 1996.

                         ** 11.2    Computation   of  earnings   per  share  and
                                    equivalent share of common stock for the six
                                    months ended June 26, 1997 and June 27, 1997
                                    

                         ** 21.1    Subsidiaries.
                                

                         ** 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.
                                   

                                      II-16
<PAGE>

                          ** 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.

                          ** 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


                                     II-17
<PAGE>


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;

                  (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 October 17, 1997.


                                       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                                   October 17, 1997




<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": 681869}]
{"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": "333-38101", "film-number": "97697158"}, "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 October 17, 1997

  
                                                    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(1)
-----------------------------------------------------------------------------------------------------------------------
Common  Stock, $.01 par value        357,270              $3.875                  $1,384,421          $420
=======================================================================================================================
(1) This  prospectus  is being filed as a combined  registration  statement
under rule 429 of the Securities Act of 1933. The registration  statement covers
5,192,471  shares,  of which 4,986,144 of the shares were previously  registered
under  registration  statements (File  #333-16965) filed with the SEC on May 29,
1997 and (File  #333-36615)  filed with the SEC on September 29, 1997. A warrant
to acquire  150,943  shares of the  Registrant's  common  stock  included in the
previous  registration  statements  expired  unexercised  on September 30, 1997.
Accordingly,  these  shares have been  removed  from the total  number of shares
included in this  registration  statement,  though the filling fee has been paid
with  respect to such  shares.  The filing fee paid with the prior  registration
statements was $7,710.  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 October 16, 1997, 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 October 17, 1997

  
                                   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.
 

                                5,192,471 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  (1,727,000  shares or  approximately  13% of the outstanding
stock as of October 16,  1997) 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 5,192,471 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 approximately $17,700,000.  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 October 16, 1997,  the last
sale price of Common  Stock,  as  reported  on the New York Stock  Exchange  was
$3.875 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 $350,000. 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 Citicorp  Atrium  Center,  500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material may
also be obtained  from the Public  Reference  Section of the  Commission  at 450
Fifth Street,  N.W.,  Washington,  D.C. 20549 at prescribed rates. Such material
may also be accessed  electronically  by means of the Commission's  home page on
the Internet at http://www.sec.gov.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, along with its wholly-owned  subsidiary,  Fill-Mor Holding, Inc.
("Fill-Mor"),  also owns a significant minority interest in COMFORCE Corporation
("COMFORCE"),  consisting  of  1,727,000  shares  or  approximately  13%  of the
outstanding  common stock of COMFORCE as of October 16, 1997.  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 October 16,  1997,  the last  reported  sale price for the
Common Stock of COMFORCE was $8.50 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 5,192,471
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.............. 5,192,471 shares*
Common Stock Outstanding as of October 16, 1997............... 8,290,182 shares
Common Stock Issuable Under Options as of October 16, 1997....   913,050 shares
Common Stock Issuable Under Warrants as of October 16, 1997... 2,558,983 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

                                      - 3 -
the warrants or options are being registered.  The Company 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 six month periods ended June 26, 1997 and June 27, 1996 and each
of the five fiscal years in the period ended December 26, 1996. The  information
for the years  ended  December  28,  1995 and  December  29,  1994  reflect  the
operations  of  Bagcraft's   wholly-owned   subsidiary,   Arcar  Graphics,  Inc.
("Arcar"),  in discontinued  operations.  The sale of Arcar (acquired  effective
April 9, 1994) was  completed on October 26, 1995.  Certain  selected  financial
data for each of the four fiscal  years in the period  ended  December  28, 1995
reflects  the   discontinuance  of  the  Company's  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 19, 1997, the Company owned 1,728,000  shares, or approximately 13% of
COMFORCE.   See  Note  4  to  the  Company's  condensed  consolidated  financial
statements  for the quarter ended June 26, 1997 for a further  discussion of the
Company's investment in COMFORCE.

  

                                      - 4 -
Six Months Ended
                                   ---------------------                      Fiscal Year Ended (E) 
                                   June 26,     June 27,  ----------------------------------------------------------- 
                                     1997         1996       1996         1995         1994         1993        1992         
                                    ------       ------     ------       ------       ------       ------      ------
                                                           (in thousands except per share data)
Net sales                         $ 60,274     $ 60,765  $ 120,699    $ 121,879    $ 111,837    $ 113,584    $ 121,084    
 Earnings (loss) from               
   continuing operations (A)         (3,842)       2,919      3,549      (16,943)     (13,529)      (8,327)      (4,118)   
 Earnings (loss) from
   discontinued operations (B)          --           --         --            10      (15,906)        (216)     (33,854)   
 Extraordinary credits (C)              --         9,424      9,424       14,030        8,965       22,057          --     
 Net earnings (loss)                 (3,842)      12,343     12,973       (2,903)     (20,470)      13,514      (37,972)   

 Earnings (loss) per share:
   Continuing operations               (.56)         .28        .28        (2.69)       (2.56)       (1.84)       (1.16)   
   Discontinued operations              --           --         --           --         (2.74)        (.04)       (7.74)   
   Extraordinary credits                --          1.23       1.23         2.06         1.57         4.49          --     
   Net earnings (loss)                 (.56)        1.51       1.51         (.63)       (3.73)        2.61        (8.90)   

 Total assets (D)                    72,604      104,261     77,379       77,949       93,429       92,774       98,731    
 Long-term debt                      34,528       35,428     34,207       34,113       19,673       29,264       13,802    
 Debt subsequently discharged           --           --         --           --         9,750          --           --     
 Liabilities subject
    to compromise                       --           --         --           --           --           --        41,500    
 Cash dividends                         --           --         --           --           --           --           --
(A)   The loss from  continuing operations  for the six months ended June 27,
         1997 includes a realized gain of $255,000 from dispositions of COMFORCE
         common stock.  Earnings from  continuing  operations for the six months
         ended  June 27,  1996  includes  a  realized  gain of  $4,495,000  from
         dispositions  of COMFORCE  common stock and a gain of $838,000  from an
         exchange  of  redeemable  preferred  stock  of the  Company's  Bagcraft
         subsidiary.  Earnings  from  continuing  operations  for the year ended
         December  26,  1996  include   realized   gains  of   $5,818,000   from
         dispositions  of COMFORCE  common stock and a gain of $838,000  from an
         exchange  of  redeemable  preferred  stock  of the  Company's  Bagcraft
         subsidiary.

  (B)    The loss from  discontinued  operations for the year ended December 28,
         1995  includes a charge to  operations  of  $6,430,000 to write-off the
         remaining  goodwill of COMFORCE's  jewelry business  effective June 29,
         1995,  and a provision of $1,000,000 for loss on disposal of COMFORCE's
         jewelry business.  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 COMFORCE'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.

                                      - 5 -
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 recent
years,  including  losses  from  continuing  operations  in each year during the
period  1990 - 1995.  Losses  from  continuing  operations  of  $16,943,000  and
$13,529,000 were experienced in 1995 and 1994,  respectively.  See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

         Indebtedness

         As of September 25, 1997,  the end of its most recent  fiscal  quarter,
the  Company  had   outstanding   short-term   indebtedness   of   approximately
$18,000,000.  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  25,  1997,   Bagcraft,   the  Company's  operating
subsidiary,  had total  borrowings  of  $51,788,000  consisting  of  $41,817,000
(before reduction for unamortized discount of $1,714,000)  outstanding under its
Credit  Agreement  and loans from the City of Baxter  Springs,  Kansas  totaling
$9,971,000.

         In December 1996,  Bagcraft's  Credit  Agreement was amended to provide
for a $20,000,000 term loan payable in varying  quarterly  installments  through
maturity  on  September  30,  2002 and a  revolving  credit  loan,  subject to a
borrowing base, with maximum  borrowings of $18,000,000.  Term loan installments
totaling  $2,000,000 are payable during the next twelve months.  As of September
25, 1997, the oustanding balance on the term loan was $18,500,000.  At September
25, 1997, the revolving  credit loan had  outstanding  borrowings of $10,817,000
due September 30, 2002.  Initial borrowings under Bagcraft's Credit Agreement in
December 1993 refinanced borrowings under a previous bank loan agreement.

         Effective May 15, 1997, the Credit Agreement was amended to provide for
a $5,000,000  term loan (Term Loan B) with  interest at the lender's  index rate
plus .75%. Term Loan B is payable on May 8, 1998, unless accelerated under terms
of the Credit  Agreement.  The  proceeds  of Term Loan B were  advanced to ARTRA
under terms of an intercompany note payable to Bagcraft on May 8, 1998.  Because
the  ARTRA/Bagcraft  note results from an intercompany  transaction,  it has not
been  included in ARTRA's  short-term  indebtedness.  ARTRA used the proceeds of
this loan to repay certain ARTRA debt obligations as discussed below.

         Effective  July 17, 1997,  the Credit  Agreement was amended to provide
for a $7,500,000  term loan (Term Loan C) with  interest at the  lender's  index
rate plus 1%. Term Loan C is payable on July 15, 2000, unless  accelerated under
terms of the Credit  Agreement.  The  proceeds  of Term Loan C were  advanced to
ARTRA under terms of an intercompany  note payable to Bagcraft on July 15, 2000.
Because the ARTRA/Bagcraft note results from an intercompany transaction, it has
not been included in ARTRA's short-term indebtedness. ARTRA used the proceeds of
this loan to repay certain ARTRA debt obligations and for working capital.

         Bagcraft has $3,137,000 payable during the next twelve months, on loans
from the City of Baxter Springs, Kansas, the aggregate principal amount of which
was  $9,971,000  as of September  19, 1997.  Proceeds  from the Baxter  Springs,
Kansas loans financed the construction of Bagcraft's  265,000 sq. ft. production
facility.

         In June 1997, ARTRA completed  private  placements of $4,975,000 of 12%
promissory  notes  due  in  December  1997.  As  additional   consideration  the
noteholders  received  warrants to purchase an aggregate of 228,750 ARTRA common
shares at a price of $5.00 per share.  The  warrants  expire in June  1999.  The
warrantholders  have the right to put these  warrants  back to ARTRA at any time
during a six month period  commencing  in December  1997,  at prices of $2.00 to
$2.40 per share.  The cost of this obligation  ($517,000 if all warrants are put
back to the Company) is being accrued in the Company's financial statements as a
charge to interest expense over the period June 1997 (the  commencement  date of
the private  placement)  through December 1997 (the maturity date of the notes).
The proceeds from the private  placement were used principally to pay down other
debt  obligations.  The  promissory  notes  are  collateralized  principally  as
follows:

                                      - 6 -
Promissory  notes with an aggregate  principal amount of $2,000,000 are
         collateralized  by a 25%  interest  in the common  stock of ARTRA's BCA
         subsidiary (the parent of Bagcraft).

         The  Company  and the  lender  are  currently  negotiating  the form of
         collateral  for certain  promissory  notes with an aggregate  principal
         amount of $2,975,000,  which is anticipated to be substantially  all of
         the   Company's   otherwise   unencumbered   COMFORCE   common   shares
         (approximately 1,000,000 shares).

         In July 1997, ARTRA completed  private  placements of $7,475,000 of 12%
promissory  notes  due  in  January  1998.  As  additional   consideration   the
noteholders  received  warrants to purchase an aggregate of 199,311 ARTRA common
shares at a price of $4.50 per share.  The  warrants  expire in July  1998.  The
warrantholders  have the right to put these  warrants  back to ARTRA at any time
during a six month commencing on the earlier of the date the principal amount of
the notes are paid or the  maturity  date of the notes,  at a price of $3.00 per
share. The cost of this obligation ($598,000 if all warrants are put back to the
Company)  will be accrued in the Company's  financial  statements as a charge to
interest  expense over the period July 1997 (the date of the private  placement)
through  January (the scheduled  maturity date of the notes).  In the event of a
default,  as  defined in the note  agreements,  the  promissory  notes will bear
interest at 37%. The promissory notes are collateralized principally as follows:

         A  $4,000,000  note is  collateralized  by 575,000  shares of  COMFORCE
         common stock owned by the Company's Fill-Mor subsidiary and a secondary
         interest in the common stock of ARTRA's BCA  subsidiary  (the parent of
         Bagcraft).

         Promissory  notes with an aggregate  principal amount of $3,475,000 are
         collateralized by 652.285 shares of ARTRA redeemable preferred stock (a
         17.4% interest),  1,784.02 shares of BCA Series A redeemable  preferred
         stock (a 48.5%  interest) and 6,488.8 shares of BCA Series B redeemable
         preferred stock (a 79.8% interest).

         The proceeds  from the July 1997  private  placement  were  advanced to
Peter R. Harvey and Mr. Harvey provided  additional  collateral for his advances
as  discussed  in  Note 13 to the  Company's  condensed  consolidated  financial
statements for the quarter ended June 26, 1997.

         In August,  1996,  ARTRA borrowed  $500,000 from Howard Conant,  then a
private  investor,  evidenced  by an  short-term  note,  due  December 23, 1996,
bearing  interest  at 10%.  The loan was  collateralized  by  125,000  shares of
COMFORCE common stock owned by the Company's Fill-Mor subsidiary.  As additional
compensation  for the loan, Mr. Conant received a warrant,  expiring in 2001, to
purchase 25,000 ARTRA common shares at a price of $5.00 per share.  The proceeds
of the loan were used for working  capital.  At the Company's  annual meeting of
shareholders,  held August 29,  1996,  Mr.  Conant was elected to the  Company's
board of directors.  In December,  1996,  the loan was extended  until April 23,
1997 and Mr. Conant received, as additional  compensation,  a warrant , expiring
in 2001, to purchase 25,000 ARTRA common shares at a price of $5.875 per share.

         In January, 1997, ARTRA borrowed an additional $300,000 from Mr. Conant
evidenced by an short-term note, due December 23, 1997,  bearing interest at 8%.
The loan was collateralized  by 100,000 shares of COMFORCE common stock owned by
the Company's Fill-Mor subsidiary.  As additional compensation for the loan, Mr.
Conant  received a warrant,  expiring in 2002,  to purchase  25,000 ARTRA common
shares at a price of $5.75 per share.

         In March 1997, ARTRA borrowed an additional  $1,000,000 from Mr. Conant
evidenced by a short-term  note, due May 26, 1997,  bearing interest at 12%. The
loan was  collateralized by 585,000 shares of COMFORCE common stock owned by the
Company's Fill-Mor subsidiary.  As additional compensation,  Mr. Conant received
an option to  purchase  25,000  shares of  COMFORCE  common  stock  owned by the
Company's  Fill-Mor  subsidiary at a price of $4.00 per share, with the right to
put the option  back to ARTRA on or before May 30, 1997 for a total put price of
$50,000.  In May 1997,  Mr.  Conant  exercised  his rights and put the  COMFORCE
option back to ARTRA for $50,000.  The proceeds from this loan were used in part
to repay an ARTRA/Fill-Mor $2,500,000 bank term loan.

         In April 1997, ARTRA borrowed $5,000,000 from Mr. Conant evidenced by a
note, due April 20, 1998,  bearing interest at 10%. As additional  compensation,
the lender received a warrant to purchase 333,333 ARTRA common shares at a price
of $5.00 per share. The  warrantholder  has the right to put this  warrant back

                                      - 7 -
to ARTRA at any time during the period April 21, 1998 to April 20,  2000,  for a
total purchase price of $1,000,000.  The cost of this obligation will be accrued
in the Company's  financial  statements as a charge to interest expense over the
period  April 21, 1997 (the date of the loan)  through  April 21, 1998 (the date
the warrantholder has the right to put the warrant back to ARTRA).  The proceeds
from  this  loan  were used to repay  Mr.  Conant's  outstanding  borrowings  of
$1,800,000 and to pay down other ARTRA debt obligations.

         In June 1997, ARTRA borrowed an additional  $1,000,000 from Mr. Conant,
due December 10, 1997, bearing interest at 12%. As additional compensation,  the
lender  received a warrant to purchase  40,000 ARTRA common shares at a price of
$5.00 per share.  The  warrantholder  has the right to put this  warrant back to
ARTRA at any time during the period  December 10, 1997 to June 10,  1998,  for a
total purchase price of $80,000.  The cost of this obligation will be accrued in
the  Company's  financial  statements  as a charge to interest  expense over the
period June 10, 1997 (the date of the loan) through  December 10, 1997 (the date
the warrantholder has the right to put the warrant back to ARTRA).  The proceeds
from this loan were used to pay down other ARTRA debt obligations. In July 1997,
borrowings from Mr. Conant were reduced to $3,000,000 with proceeds  advanced to
ARTRA from a Bagcraft  term loan as discussed  above.  As of September 19, 1997,
ARTRA  had  total   outstanding   borrowings  of  $3,000,000   from  Mr.  Conant
collateralized  by a 75% interest in the common stock of ARTRA's BCA  subsidiary
(the parent of Bagcraft).

         At December  26, 1996 (the end of ARTRA's  most  recent  fiscal  year),
ARTRA was the obligor under two demand notes originally issued to CIPKA S.A., an
unrelated Swiss company,  in the amount of approximately  $2,300,000,  including
accrued  interest.  The notes were issued in October,  1990 with  interest at 15
percent.  In January 1997,  ARTRA received  notice that its obligations to CIPKA
were sold,  effective  October 26,  1996,  to  PRESTWOOD  LIMITED,  an unrelated
company  registered in Tortola,  BVI. In July 1997,  ARTRA paid all  outstanding
interest on these demand notes and reduced the outstanding  borrowings under the
demand notes to approximately  $1,500,000. In October 1997, the lender agreed to
accept  357,720 ARTRA common  shares in payment of the  principal  amount due on
these notes.

         ARTRA also has outstanding  short-term  borrowings from other unrelated
parties aggregating approximately $1,100,000.  The remaining amounts come due at
various  times in 1997 and 1998.  The notes were issued at various  times during
1997 and the  interest  rates vary  between 10 and 12 percent.  The  proceeds of
these loans were used principally for working capital.

         ARTRA has suffered recurring losses from operations in recent years. 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. See "Management's  Discussion and Analysis
of Financial  Condition and Results of  Operations -- Status of Debt  Agreements
and Operating Plan."

         Potential Volatility in Market Price of COMFORCE Common Stock
 
         ARTRA,  along  with  its  wholly  owned  Fill-Mor  subsidiary,  owns  a
significant  minority  interest in COMFORCE,  consisting of 1,727,000  shares or
approximately 13% of the outstanding  common stock of COMFORCE as of October 16,
1997,  with an  aggregate  value as of that  date of  approximately  $14,680,000
(value at December 26, 1996 was  $22,564,000).  The value of COMFORCE  stock has
fluctuated  substantially  in recent periods.  The high per share for the twelve
month period ending September 30, 1997 was $18.375, and the per share low during
the same  period  was  $4.00.  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.

         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  registration
are no longer applicable to it.
  
                                      - 8 -
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 (two years as of April 29, 1997) 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.

         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.  

         The sale of 700,000  COMFORCE  common shares held by ARTRA and Fill-Mor
is restricted  because the shares are collateral  for various debt  obligations.
Additionally,  the Company and a lender are  currently  negotiating  the form of
collateral  for certain  promissory  notes issued in June 1997 with an aggregate
principal   amount  of   $2,975,000.   The   collateral  is  anticipated  to  be
substantially  all of it the Company's  otherwise  unencumbered  COMFORCE common
shares  (approximately  1,000,000  shares).  See  "Management's  Discussion  and
Analysis of Financial  Condition  and Results of  Operations  --  Investment  in
COMFORCE Corporation."

  

         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 25, 1997,  options were outstanding that, if exercised,
would  require  ARTRA to  repurchase  72,984  shares of its Common  Stock for an
aggregate of approximately $3,300,000. 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." See also
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations - Liquidity and Capital Resources."

           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.

                                      - 9 -
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
demanded  warrants as additional  consideration for agreeing to extend credit to
the  Company.  Warrants  to  purchase  approximately  2,708,676  shares  of  the
Company's  common  stock (at  exercise  prices  equal to the  market  price when
issued,  which has ranged  from $3.50 to $8.00 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.  See  "Management's  Discussion  and
Analysis of  Financial  Condition  and Results of  Operations  -- Status of Debt
Agreements and Operating Plan."

         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 25, 1997, ARTRA has outstanding  total amounts due from
Peter R. Harvey,  including accrued interest, of $17,315,000.  The advances bear
interest at the prime rate plus 2%, which was 10.5% at September 25, 1997.  This
receivable has been  classified as a reduction of common  shareholder's  equity.
See Note 13 to the Company's condensed consolidated financial statements for the
quarter  ended June 26, 1997 for a further  discussion  of the  receivable  from
Peter R. Harvey.

         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.

         In prior  years,  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 October 16, 1997, the closing market price of PureTec on the
NASDAQ  National  Market was $2.625 per  share.  As  collateral  for a July 1997
advance of $7,475,000,  Mr. Harvey provided ARTRA with additional collateral for
his advances consisting of 652.285 shares of ARTRA Series A redeemable preferred
stock (a 17.4% interest),  1,784.02 shares of BCA Series A redeemable  preferred
stock (a 48.5% interest) and 6,488.8 shares of BCA Series B redeemable preferred
stock (a 79.8% interest).  These ARTRA and BCA redeemable  preferred shares were
pledged by ARTRA as partial  collateral  for the July 1997 private  placement of
ARTRA  promissory  notes that funded the advance to Mr. Harvey.  As of September
25, 1997,  this  additional  collateral  had a carrying  value of the obligation
recorded in ARTRA's consolidated balance sheet of approximately $11,000,000. The
fair market value of this additional collateral is not known.

         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  collateralized  $2,150,000 of the
amount  owed by Mr.  Harvey.  Bank of  America  Illinois  had a senior  security
interest in the amount of $850,000. See "Transactions with Management And Others
-- Settlement  of the Bank of America  Illinois  Debt." In March 1997,  the bank
sold its interest in Mr.  Harvey's note and the related  collateral to a private
investor.  ARTRA  retained  its  $2,150,000  security  interest the real estate,
subordinated to the noteholder's $850,000 security interest in this real estate.

         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

                                     - 10 -
capital  deficiency  at December 26,  1996.  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
creditagreements,  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. See Note 1 to "Consolidated Financial Statements."

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

         As of October 16, 1997,  there were  8,290,182  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
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 "Description of the Company's
Securities." See also "Risk Factors - Limited Trading Activity."
  

         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 taken 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. See "Management -- Information Regarding Directors."

         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  30,  1997,  the daily  average
number of  shares of Common  Stock  traded on the New York  Stock  Exchange  was
approximately  30,000  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 marketing  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  25,  1997  ARTRA had  accrued  $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.  See "Business and Properties
-- Legal Proceedings."

         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.  See
"Description of the Company's Securities."

         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.  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
June 26, 1997. 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                           $    10,137
                                                               ===========

Redeemable preferred stock currently payable:
   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                      $     2,065
                                                               
   BCA Holdings preferred stock 
      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                             9,642
                                                               -----------
                                                               $    11,707   
                                                               ===========

Long-term debt:
   Bagcraft Credit Agreement,
     Term loan, interest at the lender's index
       rate plus .25%, matures 9/30/02                         $    17,000
     Revolving credit loan, interest at the 
       prime rate plus 1.5%, matures 9/30/02                        13,300
     Unamortized discount                                           (3,309)

   Bagcraft, City of Baxter Springs, 
     Kansas loan agreements, interest, 
       at varying rates to 6.6%, 
       due in varying amounts through 2025                           7,537
                                                               -----------
                                                               $    34,528
                                                               ===========

Redeemable common stock, issued 72,984  shares                 $     3,175
                                                               ===========

Noncurrent redeemable preferred stock:
   ARTRA redeemable preferred stock:
     Series  A,  $1,000  par  value,
     6%  cumulative  payment-in-kind, including
     accumulated dividends, net of unamortized
     discount of $1,101; redeemable March 1, 2000
     at $1,000 per share plus accrued dividends; 
     authorized 2,000,000 shares
     all series; issued 3,750 shares                           $     4,651

   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                   4,473 
                                                               -----------
                                                               $     9,124  
                                                               ===========

                                     - 14 -
Common stock, no par value; 
   authorized 20,000,000 shares; 
   issued 7,820,064 shares                                     $    5,920
Additional paid-in capital                                         41,155
Unrealized appreciation of investments                             13,539
Receivable from related party,
   including accrued interest                                      (6,806)
Accumulated deficit                                               (91,167)
                                                               -----------
                                                                  (37,359)
Less treasury stock (7,628 shares), at cost                            52 
                                                               -----------
Total shareholders' deficit                                    $  (37,411)
                                                               ===========

Total capitalization                                           $   31,260
                                                               ===========

                                     - 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 along
with ARTRA's wholly owned Fill-Mor subsidiary, consisting of 1,727,000 shares or
approximately 13% of the outstanding  common stock of COMFORCE as of October 16,
1997.  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 October 16, 1997, the last
reported  sale  price for the  Common  Stock of  COMFORCE  was $8.50 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  3  to  the  Company's  consolidated  financial
statements  for the year  ended  December  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.  The sale of Arcar resulted from
an  unsolicited  offer from an  unrelated  entity for an amount that  management
believed would exceed the long-term appreciation of Arcar's assets.
  

         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  Telecom  Inc.  ("COMFORCE  Telecom"),   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
COMFORCE Telecom 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 June 26, 1997 and December 26, 1996, $271,000 and $348,000,  respectively, of
such   pre-existing  Lori  liabilities  were  classified  in  ARTRA's  condensed
consolidated  balance as current  liabilities of  discontinued  operations.  The
Assumption Agreement also provided for ARTRA to exchange its interest in 100% of
Lori's  Series C cumulative  preferred  stock for 100,000 newly issued shares of
COMFORCE common stock.

 
                                     - 16 -
COMFORCE Telecom  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 Telecom was completed on
October 17, 1995.

         Effective July 4, 1995,  COMFORCE'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  Telecom  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 Telecom, if successfully concluded,
would have on the 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  ownership  interest in COMFORCE common
stock  was  reduced  to  approximately  14% and 25% at  December  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 6 to the  Company's  consolidated
financial  statements  for the  year  ended  December  26,  1996  for a  further
discussion of the accounting treatment of ARTRA's investment in COMFORCE.

         Effective  December  19,  1996,  ARTRA  and  COMFORCE  agreed to settle
various  differences in the interpretation of certain agreements relating to the
COMFORCE  Telecom acquisition, whereby, among other things:
     
 
         (a)  COMFORCE  delivered  to ARTRA  100,000  shares of COMFORCE  common
              stock  in  consideration  of  ARTRA's  guarantee  of  the COMFORCE
              Telecom  purchase  price to  the  seller  and  100,000  shares  of
              COMFORCE  common  stock  for  the  cancellation  of  the  Series C
              Preferred Stock.  ARTRA's financial statements have reflected  the
              issuance of these 200,000 COMFORCE common  shares to  ARTRA  since
              the fourth quarter of 1995.

         (b)  ARTRA delivered to COMFORCE  certificates evidencing its ownership
              of 100% of the Lori Series C Preferred Stock.

         (c)  COMFORCE  agreed to  include  in a  proposed  underwritten  public
              offering 380,000 shares of COMFORCE common stock held by ARTRA and
              its Fill-Mor  subsidiary.  

         (d)  ARTRA  agreed to a Lock-up  Agreement  which limits its ability to
              sell its remaining COMFORCE common shares for a period of 360 days
              after the  effective  date  of  COMFORCE's  proposed  underwritten
              public offering.

         (e)  ARTRA  agreed to deposit  125,000  shares of its  COMFORCE  common
              stock  into an  escrow  account  to  collateralize  its  remaining
              obligations under the Assumption Agreement.
  

         COMFORCE did not retain an  underwriter  for the proposed  underwritten
public  offering and,  accordingly,  effective April 30, 1997 ARTRA was released
from the provisions of the Lock-up Agreement.

                                    - 17 -
Results of Operations

         The Company,  through its wholly-owned  Bagcraft subsidiary,  currently
operates  in one  industry  segment  as a  manufacturer  of  packaging  products
principally  serving  the food  industry.  Bagcraft  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.

         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. Accordingly,  the following
discussion of results of  operations  is presented for the Company's  continuing
operations,   which  are  conducted  by  the  Company's   wholly-owned  Bagcraft
subsidiary.

Six Months Ended June 26, 1997 vs. Six Months Ended June 27, 1996

         The following table presents,  as a percentage of net sales,  operating
expenses and other income (expense)  included the Company's earnings (loss) from
continuing  operations  for the six month  periods  ended June 26,  1997 and 27,
1996.

          
                                                            Six Months Ended  
                                                           ------------------ 
                                                            June 26,  June 27,
                                                              1997    1996
                                                             ------   ------

     Net sales                                                100.0%   100.0%
                                                             ------   ------
     Costs and expenses:
       Cost of goods sold,  
         exclusive of depreciation and amortization            79.8%    80.4%
       Selling, general and administrative                     13.3%    13.1%
       Depreciation and amortization                            3.6%     3.2%
                                                             ------   ------ 
                                                               96.7%    96.7%
                                                             ------   ------
    Operating earnings                                          3.3%     3.3%
                                                             ------   ------
    Other income (expense):
       Interest expense                                        -6.9%    -5.6%
       Amortization of debt discount                           -2.2%     -.1%
       Realized gain on disposal of
         available-for-sale securities                           .4%     7.4%
       Other income (expense), net                               .3%     -.3%
                                                             ------   ------ 
                                                               -8.4%     1.4%
                                                             ------   ------
    Earnings (loss) before income taxes,
       minority interest and extraordinary credit              -5.1%     4.7%
    Provision for income taxes                                  -.1%     -.1%
    Minority interest                                          -1.2%      .3%
                                                             ------   ------    
    Earnings (loss) before extraordinary credit                -6.4%     4.9%
                                                             ======   ====== 

         Net sales of  $60,274,000  for the six months  ended June 26, 1997 were
$491,000, or .8%, lower than net sales for the six months ended June 27, 1996. A
decrease in 1997 food services sales combined with increased June 1996 shipments
due to a July 1996 planned  temporary  plant shutdown,  was partially  offset by
incremental  1997 sales  attributable to Bagcraft's  January 1997 acquisition of
the business assets of AB Specialty.  The 1997 decrease in food service sales is
attributable to customer deferrals of certain key promotions in 1997 and to 1996
sales to a former food service customer.

                                      - 18 -
The  Company's  cost of sales of  $48,113,000  for the six months ended
June 26, 1997  decreased  $743,000 as compared to the six months  ended June 27,
1996.  Cost of sales for the six  months  ended  June 26,  1997 was 79.8% of net
sales  compared to a cost of sales  percentage of 80.4% for the six months ended
June 27,  1996.  The decrease in cost of sales and cost of sales  percentage  is
primarily attributable to improved production efficiencies in 1997.

         Selling,  general and  administrative  expenses were $8,032,000 for the
six months  ended June 26,  1997 as compared  to  $7,972,000  for the six months
ended June 27, 1996. Selling,  general and administrative expenses were 13.3% of
net sales for the six months  ended June 26,  1997 as  compared  to 13.1% of net
sales for the six months  ended June 27,  1996.  The 1997  increase  in selling,
general and  administrative  expenses is primarily  attributable  to  Bagcraft's
January 1997  acquisition  of the business  assets of AB Specialty and increased
employee  compensation costs,  partially offset by costs accrued in June 1996 to
consolidate Bagcraft's distribution facilities.

         Depreciation and amortization expense was $2,152,000 for the six months
ended June 26, 1997 as compared to $1,959,000  for the six months ended June 27,
1996.  Depreciation and amortization  expense was 3.6 % of net sales for the six
months  ended June 26,  1997 as compared to 3.2% of net sales for the six months
ended June 27, 1996.  The 1997  increase in  depreciation  and  amortization  is
primarily  attributable to Bagcraft's  January 1997  acquisition of the business
assets of AB Specialty.

         The Company  had  operating  earnings in the six months  ended June 26,
1997 of  $1,977,000  as compared to operating  earnings of $1,978,000 in the six
months ended June 27, 1996. Slightly improved 1997 operating margins were offset
by  increased  selling,   general  and  administrative  expenses  and  increased
depreciation and amortization, as noted above.

         Interest  expense  for the six  months  ended June 26,  1997  increased
$739,000 as compared to the six months ended June 27, 1996. The 1997 increase is
principally  attributable  to an increased  level of borrowings at the Corporate
level and related loan fees incurred.

         Amortization  of debt discount was  $1,351,000 for the six months ended
June 26, 1997 as compared to $80,000 for the six months ended June 27, 1996. The
1997 increase is  attributable to the December 1996 amendment and restatement of
Bagcraft's Credit Agreement.

         No income tax benefit was  recognized in connection  with the Company's
1997  pre-tax  loss  due  to  the  Company's  tax  loss  carryforwards  and  the
uncertainty of future taxable income. The 1996 extraordinary credit represents a
net gain from discharge of  indebtedness.  No income tax expense is reflected in
the Company's financial  statements resulting from the 1996 extraordinary credit
due to the utilization of tax loss carryforwards.

                                      - 19 -
The following table presents,  as a percentage of net sales,  operating
expenses and other income  (expense)  included in the Company's  earnings (loss)
from continuing  operations for the three years in the period ended December 26,
1996.
Year Ended
                                                       ------------------------------------------ 
                                                       December 26,   December 28,   December 29,
                                                           1996           1995           1994
                                                       -----------    -----------    -----------
Net sales                                                  100.0%         100.0%         100.0%
                                                           -----          -----          -----

Costs and expenses:
   Cost of goods sold,
      exclusive of 
      depreciation and  amortization                        78.4%          84.1%          84.7%
   Selling, general and administrative                      13.0%          15.7%          15.0%
   Depreciation and amortization                             3.3%           3.6%           3.9%
   Write-down of idle machinery and equipment                --             1.2%           --
                                                           -----          -----          -----
                                                            94.7%         104.6%         103.6%
                                                           -----          -----          -----

Operating earnings (loss)                                   5.3%           -4.6%          -3.6%
                                                           -----          -----          -----

Other income (expense):
   Interest expense                                        -6.6%           -8.0%          -7.7%
   Realized gain on disposal of
      available-for-sale securities                         4.8%            --             --
   Other income (expense), net                             -0.1%           -0.1%           --
   Equity in loss of COMFORCE                               --             -0.4%           --
                                                           -----          -----          -----
                                                            -1.9%          -8.5%          -7.7%
                                                           -----          -----          -----

Earnings (loss) from continuing operations
   before income taxes and minority interest                 3.4%         -13.1%         -11.3%
Provision for income taxes                                  -0.1%           --             --
Minority interest                                           -0.4%          -0.7%          -0.8%
                                                           -----          -----          -----
Earnings (loss) from continuing operations                   2.9%         -13.8%         -12.1%
                                                          ======          =====         ======
Year Ended December 26, 1996 vs. Year Ended Decemer 28, 1995

         Continuing Operations

         Net sales from continuing operations of $120,699,000 for the year ended
December 26, 1996 were $1,180,000, or 1.0%, lower than net sales from continuing
operations  for the year ended  December  28, 1995.  The 1996 sales  decrease is
attributable to an overall volume decrease partially offset by increased selling
prices. The 1996 volume decrease is principally attributable to purchases of the
Company's  products by a major fast food  customer  relating to a  non-recurring
1995  promotion.  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 $94,613,000
for the year ended  December 26, 1996  decreased  $7,895,000  as compared to the
year ended December 28, 1995.  Cost of sales from  continuing  operations in the
year ended  December 26, 1996 was 78.4% of net sales compared to a cost of sales
percentage of 84.1% for the year ended  December 28, 1995.  The decrease in cost
of sales is primarily  attributable  to lower paper costs and the decreased 1996
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.

                                     - 20 -
Selling, general and administrative expenses from continuing operations
were  $15,638,000 in the year ended December 26, 1996 as compared to $19,131,000
in the year  ended  December  28,  1995.  Selling,  general  and  administrative
expenses were 13.0% of net sales in the year ended December 26, 1996 as compared
to 15.7% of net sales in the year ended  December 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
staffing services business.

         Depreciation  and amortization  expense from continuing  operations was
$3,927,000 in the year ended  December 26, 1996 as compared to $4,330,000 in the
year ended December 28, 1995. Depreciation and amortization expense was 3.3 % of
net sales in the year ended  December  26, 1996 as compared to 3.6% of net sales
in the year ended  December  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.

         In recent  years,  Bagcraft had  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 28, 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.

         The Company had operating  earnings in the year ended December 26, 1996
of  $6,521,000  as compared to operating  loss of  $5,593,000  in the year ended
December 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 year ended December
26, 1996  decreased  $1,777,000 as compared to the year ended December 28, 1995.
The 1996 decrease is principally  due to discharges of bank  indebtedness in the
fourth quarter of 1995 and the first quarter of 1996.

         During 1996 ARTRA sold 193,000  COMFORCE  common  shares in the market,
with the net proceeds of  approximately  $3,7000,000  used for working  capital.
During 1996 certain lenders  received 105,000 COMFORCE common shares held by the
Company as additional  consideration  for short-term  loans.  In October 1996, a
lender exercised the conversion  rights of a short-term loan and received 33,333
COMFORCE  common  shares  in  settlement  of  the  Company's   obligation.   The
disposition of these 331,333  COMFORCE  common shares resulted in realized gains
of $5,818,000  during the year ended December 26, 1996,  with cost determined by
average cost.

         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 in due to the
utilization of tax loss  carryforwards,  except for Federal  alternative minimum
tax  incurred  in 1996.  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.

         Discontinued Operations

         Earnings  from  discontinued  operations  of $10,000 for the year ended
December 28, 1995 consisted of a charge to operations of $6,430,000 to write-off
the remaining goodwill of COMFORCE's jewelry business, a provision of $1,000,000
for loss on disposal of  COMFORCE's  jewelry  business and  operating  losses of
COMFORCE's  jewelry  business,  offset  by a gain on sale  of  Bagcraft's  Arcar
subsidiary of $8,483,000 and operating earnings of Bagcraft's Arcar subsidiary.

                                     - 21 -
Year Ended December 28, 1995 vs. Year Ended December 29, 1994

     Continuing Operations

         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.

         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.

 

                                     - 22 -
Discontinued Operations

         Earnings  from  discontinued  operations  of $10,000 for the year ended
December 28, 1995 consisted of a charge to operations of $6,430,000 to write-off
the remaining goodwill of COMFORCE's jewelry business, a provision of $1,000,000
for loss on disposal of  COMFORCE's  jewelry  business and  operating  losses of
COMFORCE'  jewelry  business,  offset  by a gain  on sale  of  Bagcraft's  Arcar
subsidiary of $8,483,000 and operating earnings of Bagcraft's Arcar subsidiary.

         The loss from discontinued operations of $15,906,000 for the year ended
December 29, 1994 consisted principally of a charge to operations of $10,800,000
to  write-off  goodwill  of  COMFORCE's  former New  Dimensions  subsidiary  and
operating losses of COMFORCE's jewelry business.

  

Liquidity and Capital Resources

         Cash and Cash Equivalents and Working Capital

         Cash and cash equivalents increased $55,000 during the six months ended
June 26, 1997. Cash flows from financing  activities of $4,769,000 exceeded cash
flows  used by  operating  activities  of  $1,980,000  and  cash  flows  used by
investing  activities of $2,734,000.  Cash flows from financing  activities were
principally  attributable to a net increase in long-term borrowings.  Cash flows
used by operating  activities were principally  attributable to a net investment
in receivables and inventory at the Company's  Bagcraft  subsidiary.  Cash flows
from  investing  activities  principally  represent  funds  expended to complete
Bagcraft's  acquisition  of the  business  assets of AB  Specialty  and  capital
expenditures.

 
         Cash and cash equivalents  decreased  $2,176,000  during the year ended
December  26,  1996.  Cash  flows used by  operating  activities  of  $4,380,000
exceeded  cash flows from  investing  activities of $915,000 and cash flows from
financing activities of $1,289,000. Cash flows used by operating activities were
principally  attributable to funds used to pay down accounts payable and accrued
liabilities. Cash flows from investing activities principally represent proceeds
from  the  sale  of  COMFORCE   common  stock,   partially   offset  by  capital
expenditures. Cash flows from financing activities were principally attributable
to a net increase in long-term borrowings.

         The  Company's   consolidated   working  capital  deficiency  increased
$11,227,000  to  $14,619,000  during the six months  ended  June 26,  1997.  The
increase in working capital deficiency is principally attributable to unrealized
depreciation of available-for-sale securities (COMFORCE common stock).

         The  Company's   consolidated   working  capital  deficiency  decreased
$22,973,000 to $3,392,000  during the year ended December 26, 1996. The decrease
in   working   capital   deficiency   is   principally   attributable   to   the
reclassification of available-for-sale securities (COMFORCE common stock) from a
noncurrent to a current asset at December 26, 1996. The Company's operating plan
for fiscal year 1997 anticipates the sale of these marketable  securities,  with
proceeds to be used  principally to pay down Corporate debt obligations and fund
working capital requirements.

                                     - 23 -
Status of Debt Agreements and Operating Plan

         At December 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.  In  December  1996,  Bagcraft's  credit  agreement  was  extended  until
September 30, 2002.  See Notes 6 and 7 to the Company's  condensed  consolidated
financial statements for the quarter ended June 26, 1997 and discussion below.

        ARTRA Corporate

         As of June 26, 1997,  the Company's  corporate  entity had  outstanding
short-term indebtedness of approximately $15,233,000 as discussed below.

         Promissory Notes

         1997 Private Placements

         In June 1997, ARTRA completed  private  placements of $4,975,000 of 12%
promissory  notes  due  in  December  1997.  As  additional   consideration  the
noteholders  received  warrants to purchase an aggregate of 228,750 ARTRA common
shares at a price of $5.00 per share.  The  warrants  expire in June  1999.  The
warrantholders  have the right to put these  warrants  back to ARTRA at any time
during a six month period  commencing  in December  1997,  at prices of $2.00 to
$2.40 per share.  The cost of this obligation  ($517,000 if all warrants are put
back to the Company) is being accrued in the Company's financial statements as a
charge to interest expense over the period June 1997 (the  commencement  date of
the private  placement)  through December 1997 (the maturity date of the notes).
The proceeds from the private  placement were used principally to pay down other
debt  obligations.  The  promissory  notes  are  collateralized  principally  as
follows:

         Promissory  notes with an aggregate  principal amount of $2,000,000 are
         collateralized  by a 25%  interest  in the common  stock of ARTRA's BCA
         subsidiary (the parent of Bagcraft).

         The  Company  and the  lender  are  currently  negotiating  the form of
         collateral  for certain  promissory  notes with an aggregate  principal
         amount of $2,975,000,  which is anticipated to be substantially  all of
         the   Company's   otherwise   unencumbered   COMFORCE   common   shares
         (approximately 1,000,000 shares).

         In July 1997, ARTRA completed  private  placements of $7,475,000 of 12%
promissory  notes  due  in  January  1998.  As  additional   consideration   the
noteholders  received  warrants to purchase an aggregate of 199,310 ARTRA common
shares at a price of $4.50 per share.  The  warrants  expire in July  1998.  The
warrantholders  have the right to put these  warrants  back to ARTRA at any time
during a six month commencing on the earlier of the date the principal amount of
the notes are paid or the  maturity  date of the notes,  at a price of $3.00 per
share. The cost of this obligation ($598,000 if all warrants are put back to the
Company)  will be accrued in the Company's  financial  statements as a charge to
interest  expense over the period July 1997 (the date of the private  placement)
through  January (the scheduled  maturity date of the notes).  In the event of a
default,  as  defined in the note  agreements,  the  promissory  notes will bear
interest  at 37%.  These  promissory  notes are  collateralized  principally  as
follows:

         A  $4,000,000  note is  collateralized  by 575,000  shares of  COMFORCE
         common stock owned by the Company's Fill-Mor subsidiary and a secondary
         interest in the common stock of ARTRA's BCA  subsidiary  (the parent of
         Bagcraft).

         Promissory  notes with an aggregate  principal amount of $3,475,000 are
         collateralized by 652.285 shares of ARTRA redeemable preferred stock (a
         17.4% interest),  1,784.02 shares of BCA Series A redeemable  preferred
         stock (a 48.5%  interest) and 6,488.8 shares of BCA Series B redeemable
         preferred stock (a 79.8% interest).

         The proceeds  from the July 1997  private  placement  were  advanced to
Peter R. Harvey as discussed in Note 13 to the condensed  consolidated financial
statements for the quarterly period ended June 26, 1997.

                                    - 24 -
1996 Private Placement

         In April 1996, ARTRA commenced a private placement of $7,675,000 of 12%
promissory notes due April 15, 1997. As additional consideration the noteholders
received  warrants to purchase an aggregate of 418,750  ARTRA common shares at a
price of $6.00 per share. The warrants expire April 15, 1999. The warrantholders
have the right to put these warrants back to ARTRA at any time during the period
April 15, 1997 to October 15, 1998,  at a price of $2.00 per share.  The cost of
this  obligation  ($837,500  if all  warrants  are put back to the  Company) was
accrued in the Company's  financial  statements as a charge to interest  expense
over the period April 15, 1996 (the commencement date of the private  placement)
through  April 15, 1997 (the  maturity date of the notes as well as the date the
warrantholders  have the  right to put  their  warrants  back to  ARTRA).  These
promissory  notes were  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.  During  the second  quarter  of 1997,  the  Company  repaid  these
promissory notes with the proceeds of additional  short-term borrowings and with
funds received from the Company's  Bagcraft  subsidiary in accordance with a May
1997 amendment to its credit agreement.

         Amounts Due To Related Parties

         In August,  1996,  ARTRA borrowed  $500,000 from Howard Conant,  then a
private  investor,  evidenced  by an  short-term  note,  due  December 23, 1996,
bearing  interest  at 10%.  The loan was  collateralized  by  125,000  shares of
COMFORCE common stock owned by the Company's Fill-Mor subsidiary.  As additional
compensation  for the loan, Mr. Conant received a warrant,  expiring in 2001, to
purchase 25,000 ARTRA common shares at a price of $5.00 per share.  The proceeds
of the loan were used for working  capital.  At the Company's  annual meeting of
shareholders,  held August 29,  1996,  Mr.  Conant was elected to the  Company's
board of directors.  In December,  1996,  the loan was extended  until April 23,
1997 and Mr. Conant received, as additional  compensation,  a warrant , expiring
in 2001, to purchase 25,000 ARTRA common shares at a price of $5.875 per share.

         In January, 1997, ARTRA borrowed an additional $300,000 from Mr. Conant
evidenced by an short-term note, due December 23, 1997,  bearing interest at 8%.
The loan was collateralized  by 100,000 shares of COMFORCE common stock owned by
the Company's Fill-Mor subsidiary.  As additional compensation for the loan, Mr.
Conant  received a warrant,  expiring in 2002,  to purchase  25,000 ARTRA common
shares at a price of $5.75 per share.

         In March 1997, ARTRA borrowed an additional  $1,000,000 from Mr. Conant
evidenced by a short-term  note, due May 26, 1997,  bearing interest at 12%. The
loan was  collateralized by 585,000 shares of COMFORCE common stock owned by the
Company's Fill-Mor subsidiary.  As additional compensation,  Mr. Conant received
an option to  purchase  25,000  shares of  COMFORCE  common  stock  owned by the
Company's  Fill-Mor  subsidiary at a price of $4.00 per share, with the right to
put the option  back to ARTRA on or before May 30, 1997 for a total put price of
$50,000.  In May 1997,  Mr.  Conant  exercised  his rights and put the  COMFORCE
option back to ARTRA for $50,000.  The proceeds from this loan were used in part
to repay an ARTRA/Fill-Mor $2,500,000 bank term loan.

         In April 1997, ARTRA borrowed $5,000,000 from Mr. Conant evidenced by a
note, due April 20, 1998,  bearing interest at 10%. As additional  compensation,
the lender received a warrant to purchase 333,333 ARTRA common shares at a price
of $5.00 per share. The  warrantholder has the right to put this warrant back to
ARTRA at any time  during the period  April 21,  1998 to April 20,  2000,  for a
total purchase price of $1,000,000.  The cost of this obligation will be accrued
in the Company's  financial  statements as a charge to interest expense over the
period  April 21, 1997 (the date of the loan)  through  April 21, 1998 (the date
the warrantholder has the right to put the warrant back to ARTRA).  The proceeds
from  this  loan  were used to repay  Mr.  Conant's  outstanding  borrowings  of
$1,800,000 and to pay down other ARTRA debt obligations.

         In June 1997, ARTRA borrowed an additional  $1,000,000 from Mr. Conant,
due December 10, 1997, bearing interest at 12%. As additional compensation,  the
lender  received a warrant to purchase  40,000 ARTRA common shares at a price of
$5.00 per share.  The  warrantholder  has the right to put this  warrant back to
ARTRA at any time during the period  December 10, 1997 to June 10,  1998,  for a
total purchase price of $80,000.  The cost of this obligation will be accrued in
the  Company's  financial  statements  as a charge to interest  expense over the
period June 10, 1997 (the date of the loan) through  December 10, 1997 (the date
the warrantholder has the right to put the warrant back to ARTRA).  The proceeds
from this loan were used to pay down other ARTRA debt obligations. In July 1997,

                                       25
borrowings from Mr. Conant were reduced to $3,000,000 with proceeds  advanced to
ARTRA from a Bagcraft  term loan as discussed  above.  As of September 19, 1997,
ARTRA  had  total   outstanding   borrowings  of  $3,000,000   from  Mr.  Conant
collateralized  by  collaterallized  by a 75%  interest  in the common  stock of
ARTRA's BCA subsidiary (the parent of Bagcraft).

         Other

         At December  26, 1996 (the end of ARTRA's  most  recent  fiscal  year),
ARTRA was the obligor under two demand notes origininally  issued to CIPKA S.A.,
an unrelated Swiss company, in the amount of approximately $2,300,000, including
accrued  interest.  The notes were issued in October,  1990 with  interest at 15
percent.  In January 1997,  ARTRA received  notice that its obligations to CIPKA
were sold,  effective  October 26,  1996,  to  PRESTWOOD  LIMITED,  an unrelated
company  registered in Tortola,  BVI. In July 1997,  ARTRA paid all  outstanding
interest on these demand notes and reduced the outstanding  borrowings under the
demand notes to approximately  $1,500,000.  ARTRA is currently  negotiating with
the noteholder to extend or refinance this obligation.

         ARTRA also has outstanding  short-term  borrowings from other unrelated
parties aggregating approximately $1,100,000.  The remaining amounts come due at
various  times in 1997 and 1998.  The notes were issued at various  times during
1997 and the  interest  rates vary  between 10 and 12 percent.  The  proceeds of
these loans were used principally for working capital.

         ARTRA has  suffered  recurring  losses  from  operations  and has a net
capital  deficiency.  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.

         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.

         At December 26, 1996,  ARTRA had  outstanding  borrowings of $3,000,000
from The Research Center of Kabbalah ("RCK"), an unaffiliated  company currently
holding  approximately  7% of ARTRA's  outstanding  common stock. The loans were
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.  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.  Interest on the loans has been paid through
March,  1997. Payment on the loans was due March 31, 1994,  however,  the lender
did not demand  payment.  In  February  1997,  the lender  received a warrant to
purchase  an  additional  100,000  ARTRA  common  shares at $5.625  per share as
consideration for not demanding  payment of this obligation.  In April 1997, the
lender received a warrant to purchase an additional  100,000 ARTRA common shares
at  $5.00  per  share  as  consideration  for  not  demanding  payment  of  this
obligation. In June 1997 outstanding borrowings to the unaffiliated company were
reduced to $300,000 with the proceeds from other short-term borrowings.  In July
1997 ARTRA repaid all remaining obligations under these loans.

         In  March  1997,   ARTRA  borrowed   $1,000,000  from  an  unaffiliated
corporation  evidenced by a short-term note, due May 26, 1997,  bearing interest
at 12%. The loan was  collateralized  by 630,000 shares of COMFORCE common stock
owned by the Company's  Fill-Mor  subsidiary.  As additional  compensation,  the
lender  received an option to purchase  25,000  shares of COMFORCE  common stock
owned by the Company's  Fill-Mor  subsidiary at a price of $4.00 per share, with
the right to put the option  back to ARTRA on or before  May 30,  1997 for a put
price of $50,000. Under certain circumstances, ARTRA had the right to repurchase
the option for $50,000.  In May 1997,  ARTRA  repurchased the option for $50,000
and repaid this loan . The proceeds from this loan were used in part to repay an
ARTRA/Fill-Mor $2,500,000 bank term loan.

                                     - 26 -
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,  which
provided for interest  payable  monthly at the bank's  reference  rate (8.25% at
December 26, 1996) was guaranteed by ARTRA and was  collateralized  by 1,265,000
shares of  COMFORCE  common  stock.  Proceeds  of the loan were used for working
capital.  In March 1997, the loan was repaid with proceeds from other short-term
borrowings,  principally  the  two  $1,000,000  loans  from  Mr.  Conant  and an
unaffiliated corporation, as discussed above.
  
         In May,  1996,  ARTRA borrowed  $100,000 from Edward A. Celano,  then a
private investor, evidenced by an unsecured short-term note, due August 7, 1996,
and renewed to February 6, 1997,  bearing  interest at 10%.  The proceeds of the
loan  were  used  for  working  capital.  At the  Company's  annual  meeting  of
shareholders,  held August 29,  1996,  Mr.  Celano was elected to the  Company's
board of  directors.  Effective  January 17,  1997,  Mr.  Celano  exercised  his
conversion rights and received 18,182 shares of ARTRA common stock as payment of
the principal balance of his note.

         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 were collateralized  by 215,000  shares of COMFORCE  common stock
owned by the Company's Fill-Mor  subsidiary.  The proceeds of the loan were used
for working  capital.  In January,  1997, the loan was repaid with proceeds from
other short-term borrowings.

         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."

         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  was  collateralized  by a
mortgage on certain  real  estate  owned by Mr.  Harvey.  B of A's rights to the
remaining  $850,000 of the  indebtedness had priority over ARTRA's rights to the
$2.15 million.  In March 1997,  the bank sold its interest in Mr.  Harvey's note
and the related collateral to a private investor.  ARTRA retained its $2,150,000
security  interest the real estate,  subordinated to the  noteholder's  $850,000
security interest in this real estate.

         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."

                                     - 27 -
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.

        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%  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 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  13 to  the  Company's  condensed  consolidated
financial  statements  for the  quarter  ended  June 26,  1997,  ARTRA has total
amounts  due from  its  president,  Peter R.  Harvey,  of which  $8,677,000  and
$7,998,000,  including accrued interest,  remained  outstanding at June 26, 1997
and December 26, 1996, respectively.  The amounts due bear interest at the prime
rate plus 2% (10.50% at June 26,  1997 10.25% and at December  26,  1996).  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.

         In prior  years,  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 October 16, 1997, the closing market price of PureTec on the
NASDAQ  National  Market was $2.625 per  share.  As  collateral  for a July 1997
advance of $7,475,000,  Mr. Harvey provided ARTRA with additional collateral for
his advances consisting of 652.285 shares of ARTRA Series A redeemable preferred
stock (a 17.4% interest),  1,784.02 shares of BCA Series A redeemable  preferred
stock (a 48.5% interest) and 6,488.8 shares of BCA Series B redeemable preferred
stock (a 79.8% interest).  These ARTRA and BCA redeemable  preferred shares were
pledged by ARTRA as partial  collateral  for the July 1997 private  placement of
ARTRA  promissory  notes that funded the advance to Mr. Harvey.  As of September
25, 1997,  this  additional  collateral  had a carrying  value of the obligation
recorded in ARTRA's consolidated balance sheet of approximately $11,000,000. The
fair market value of this additional collateral is not known.

         In  addition,   in   connection   with  a  discharge  of  certain  bank
indebtedness  discussed above, 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  collateralized  $2,150,000 of the

                                     - 28 -
amount  owed by Mr.  Harvey.  Bank of  America  Illinois  had a senior  security
interest in the amount of $850,000. See "Transactions with Management And Others
-- Settlement  of the Bank of America  Illinois  Debt." In March 1997,  the bank
sold its interest in Mr.  Harvey's note and the related  collateral to a private
investor.  ARTRA  retained  its  $2,150,000  security  interest the real estate,
subordinated to the noteholder's $850,000 security interest in this real estate.

         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 25, 1997,  options were outstanding that, if exercised,
would  require  ARTRA to  repurchase  72,984  shares of its Common  Stock for an
aggregate of approximately $3,300,000. 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.

         As  discussed  in  Note  9  to  the  condensed  consolidated  financial
statements for the quarter ended June 26, 1997,  ARTRA,  Bagcraft and Bagcraft's
parent BCA have  various  redeemable  preferred  stock  issues with an aggregate
carrying  value of  $20,831,000  at June 26, 1997.  Redeemable  preferred  stock
issues with an aggregate  carrying value of $11,707,000 at June 26, 1997, mature
in 1997.  The Bagcraft  redeemable  preferred  stock,  with a carrying  value of
$2,065,000 at June 26, 1997, is payable in June 1997.  Bagcraft  anticipates  it
will fund this payment with funds available under its revolving credit loan. The
BCA Series B redeemable  preferred stock, with a carrying value of $9,642,000 at
June 26, 1997, is also payable in June 1997. ARTRA does not have available funds
to satisfy  this  obligation.  The  Company is  currently  negotiating  with the
redeemable preferred  shareholders to restructure or extend the maturity date of
this  obligation  beyond 1997.  In August and September  1997 ARTRA  repurchased
certain  ARTRA and BCA  redeemable  preferred  stock  with a  carrying  value of
approximately $800,000 for cash of approximately $430,000.

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

         Bagcraft

         Bagcraft entered into a Credit Agreement, dated as of December 17, 1993
(the "Credit  Agreement")  that initially  provided for a revolving  credit loan
with interest at the lender's  index rate plus 1.5% and two separate term loans.
The term loans were 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.

         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 11 to
the Company's consolidated financial statements).

         In  December  1996,  the Credit  Agreement  was  amended  and  restated
whereby,  among other  things,  the maturity  date of the Credit  Agreement  was
extended to September 30, 2002 and certain loan  covenants  were  amended.  Term
Loan A and Term Loan B, as  previously  defined  in the  Credit  Agreement  were
consolidated  into a new  $20,000,000  term loan with  interest at the  lender's
index rate plus .25% (8.5% at December 26, 1996).  Principal  payments under the
term loan were  modified to provide for annual  principal  payments  (payable in
quarterly  installments)  in the  amount of  $2,000,000  in 1997  through  1999;
$3,000,000 in 2000 and 2001;  and  $8,000,000 in 2002.  The amended and restated
Credit  Agreement  also provided for a $3,00,000  capital  expenditures  line of
credit with interest at the lender's index rate plus .25%.

         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 June 26, 1997 and December 26, 1996, approximately $3,800,000
and  $6,200,000,  respectively,  was available and unused by Bagcraft  under the
revolving  credit loan.  Borrowings  under the revolving credit loan are payable
upon maturity of the Credit  Agreement,  unless  accelerated  under terms of the
Credit  Agreement.  At June 26, 1997 and December 26, 1996, the interest rate on
the revolving credit loan was 8.5% and 8.25%, respectively.

                                     - 29 -
Borrowings under the Credit Agreement are  collateralized by the common
stock and 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 December 26, 1996 Bagcraft was in
compliance with the provisions of its Credit Agreement.

         Effective May 15, 1997, the Credit Agreement was amended to provide for
a $5,000,000  term loan (Term Loan B) with  interest at the lender's  index rate
plus .75%. Term Loan B is payable on May 8, 1998, unless accelerated under terms
of the Credit  Agreement.  The  proceeds  of Term Loan B were  advanced to ARTRA
under terms of an intercompany note payable to Bagcraft on May 8, 1998.  Because
the  ARTRA/Bagcraft  note results from an intercompany  transaction,  it has not
been  included in ARTRA's  short-term  indebtedness.  ARTRA used the proceeds of
this loan to repay certain ARTRA debt obligations

         Effective  July 17, 1997,  the Credit  Agreement was amended to provide
for a $7,500,000  term loan (Term Loan C) with  interest at the  lender's  index
rate plus 1%. Term Loan C is payable on July 15, 2000, unless  accelerated under
terms of the Credit  Agreement.  The  proceeds  of Term Loan C were  advanced to
ARTRA under terms of an intercompany  note payable to Bagcraft on July 15, 2000.
ARTRA used the proceeds of this loan to repay certain ARTRA debt obligations.

         As additional  compensation for borrowings under the Credit  Agreement,
in December 1993, the lender received a detachable warrant ("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
was required to repurchase the Warrant from the lender. The determination of the
repurchase  price of the Warrant was 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 January 1997, in accordance
with the December 1996 amendment to the Credit Agreement,  Bagcraft  repurchased
50% of the Warrant  (6.5% of the fully  diluted  common  equity of Bagcraft) for
$1,500,000. Bagcraft can repurchase the remaining 50% of the Warrant on or after
December 17, 1997 for an amount based upon the  Warrant's  pro rata share of the
highest of book  value,  appraised  value or market  value of  Bagcraft as noted
above.  In accordance  with the May 1997  amendment to the Credit  Agreement the
Warrant  was  amended.  In the event there is a change in  Bagcraft's  ownership
through May 30, 1998,  the lender is entitled to receive an amount equal to 6.5%
of the fully  diluted  common  equity of Bagcraft,  based upon the fair value of
Bagcraft at the date of a change of ownership,  less the  $1,500,000  the lender
received in January 1997 when Bagcraft repurchased 50% of the Warrant.

         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 June 26, 1997 and December 26, 1996, Bagcraft
         had outstanding borrowings of $5,600,000 under this loan agreement.

         A  $5,000,000   subordinated   promissory   note  payable  as  follows:
         $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 June 26, 1997
         and  December  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 June 26, 1997 and  December 26, 1996,
         Bagcraft  had   outstanding   borrowings   of  $224,000  and  $231,000,
         respectively, under this loan agreement.

                                     - 30 -
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
ircumstances,  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  anticipates that its 1997 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.
  
         As  discussed  in  Note  14 to  the  condensed  consolidated  financial
statements  for the  quarter  ended June 26,  1997,  effective  January 2, 1997,
Bagcraft  completed  the  purchase of the  business  assets,  subject to buyer's
assumption of certain liabilities, of AB Specialty Holding Company, Inc. ("AB").
The  consideration  consisted  of cash of  approximately  $2.4  million,  funded
through  borrowings under Bagcraft's  Credit Agreement,  of which  approximately
$1.2 million was paid as a deposit in December 1996.  The  acquisition of AB, is
expected to enhance Bagcraft's specialty bag business.
 
        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.  

         Investment In COMFORCE Corporation

         ARTRA,  along  with  its  wholly  owned  Fill-Mor  subsidiary,  owns  a
significant  minority  interest in COMFORCE,  consisting of 1,727,000  shares or
approximately 13% of the outstanding  common stock of COMFORCE as of October 16,
1997,  with an  aggregate  value as of that  date of  approximately  $14,680,000
(value at December 26, 1996 was  $22,564,000).  The value of COMFORCE  stock has
fluctuated  substantially  in recent periods.  The high per share for the twelve
month period ending  September 30, 1997 was $18.375 and the per share low during
the same  period  was  $4.00.  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  registration
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 (two years as of April 29, 1997) 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.
         
                                     - 31 -
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.  Effective  December 19, 1996, ARTRA
and  COMFORCE  entered into a Settlement  Agreement  pursuant to which  COMFORCE
agreed to include in its proposed underwritten public offering 380,000 shares of
COMFORCE common stock held by ARTRA and its Fill-Mor  susidiary and ARTRA agreed
to a Lock-up  agreement which limits its ability to sell its remaining  COMFORCE
common  shares for a period of 360 days after the  effective  date of COMFORCE's
proposed  underwritten  public offering.  COMFORCE did not retain an underwriter
for the proposed underwritten public offering and, accordingly,  effective April
30,  1997 ARTRA was  released  from the  provisions  of the  Lock-up  Agreement.
Currently, the sale of 700,000 COMFORCE common shares held by ARTRA and Fill-Mor
is restricted  because the shares are collateral  for various debt  obligations.
Additionally,  the Company and a lender are  currently  negotiating  the form of
collateral  for certain  promissory  notes issued in June 1997 with an aggregate
principal   amount  of   $2,950,000.   The   collateral  is  anticipated  to  be
substantially  all of it the Company's  otherwise  unencumbered  COMFORCE common
shares (approximately 1,000,000 shares).

         The Company's  operating plan for fiscal year 1997 anticipates the sale
of these marketable securities, with proceeds to be used principally to pay down
Corporate debt obligations and fund working capital requirements.

         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 consolidated
balance sheet at December 26, 1996 as other  receivables 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 19, 1997, no options to
acquire any of the 200,000 COMFORCE common shares had been exercised.

         In June  1997,  ARTRA  sold  5,000  COMFORCE  shares in the  market for
proceeds of  approximately  $33,000.  In March 1997,  a lender  received  25,000
COMFORCE  common  shares  held  by  ARTRA  as  additional  consideration  for  a
short-term  loan. The disposition of these 30,000 COMFORCE shares during the six
months ended June 26, 1997  resulted in realized  gains of  $255,000,  with cost
determined by average cost.

         As  additional  consideration  for a February  1996  short-term  loan 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.  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 238,000
COMFORCE  shares  during the quarter  ended June 27, 1996 resulted in additional
realized gains of $4,495,000, with cost determined by average cost.

         During the year ended  December 26, 1996,  ARTRA sold 193,000  COMFORCE
common shares in the market, with the net proceeds of approximately  $3,7000,000
used for working capital.  During 1996 certain lenders received 105,000 COMFORCE
common shares held by the Company as  additional  consideration  for  short-term
loans. In October 1996, a lender exercised the conversion rights of a short-term
loan and received 33,333 COMFORCE common shares in settlement of the Company's

  
                                     - 32 -
obligation.  The disposition of these 331,333 COMFORCE common shares resulted in
realized gains of $5,818,000  during the year ended December 26, 1996, with cost
determined by average cost.

         At October 16, 1997 ARTRA's remaining investment in COMFORCE (1,727,000
shares,  or approximately a 13% common stock ownership  interest) was classified
in  the   Company's   consolidated   balance   sheet  in   current   assets   as
"Available-for-sale securities."
 
         In conjunction with the COMFORCE Telecom  acquisition,  ARTRA agreed to
assume  substantially  all pre-existing  COMFORCE  liabilities  (i.e.,  COMFORCE
liabilities  existing  from  operations  prior to the  acquisition  of  COMFORCE
Telecom)  and  indemnify  COMFORCE  in the event any  future  liabilities  arise
concerning  pre-existing  environmental matters and business related litigation.
Accordingly, at June 26, 1997 and December 26, 1996, respectively,  $271,000 and
$348,000 of such  pre-existing  COMFORCE  liabilities were classified in ARTRA's
condensed  consolidated  balance sheet as current  liabilities  of  discontinued
operations.  See Note 4 to the condensed  consolidated  financial statements for
the  quarter  ended  June  26,  1997 and  Note 6 to the  consolidated  financial
statements  for the year ended  December  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  12 to the
Company's condensed consolidated financial statements for the quarter ended June
26,  1997.  At June 26,  1997 and  December  26,  1996,  the Company had accrued
$1,900,000  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 June 26, 1997, the Company and its  subsidiaries  had Federal income
tax loss  carryforwards of approximately  $36,000,000,  expiring  principally in
2002 - 2010,  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.

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

         During 1997, the Financial  Accounting Standards Board issued Statement
of Financial  Accounting  Standards ("SFAS") No. 128, "Earnings per Share", SFAS
No. 129,  "Disclosure of  Information  about Capital  Structure,"  SFAS No. 130,
"Reporting  Comprehensive Income Summary," and SFAS No. 131,  "Disclosures About
Segments of an Enterprise and Related Information".

         SFAS No. 128 establishes  standards for the computation,  presentation,
and disclosure  requirements  for earnings per share.  SFAS No. 129 consolidates
the existing  requirements  relating to the  disclosure  of certain  information
about an entity's  capital  structure.  SFAS No. 130  establishes  standards for
reporting  comprehensive  income to present a measure  of all  changes in equity
that result from  renegotiated  transactions  and other  economic  events of the
period  other  than  transactions  with  owners  in their  capacity  as  owners.
Comprehensive income is defined as the change in equity of a business enterprise
during a period  from  transactions  and other  events  and  circumstances  from
nonowner  sources  and  includes  net  income.  SFAS No. 131  specifies  revised
guidelines for determining an entity's operating segments and the type and level
of financial information to be disclosed. This standard requires that management
identify operating  segments based on the way that management  disaggregates the
entity for making internal operating decisions.

                                     - 33 -
SFAS No. 128 and SFAS No. 129 are effective  for the  Company's  fiscal
year ending  December 25, 1997.  SFAS No. 130 and SFAS No. 131 are effective for
the  Company's  fiscal  year  ending  December  31,  1998.  Management  has  not
determined what impact these standards, when adopted, will have on the Company's
financial statements.

                             BUSINESS AND PROPERTIES

General

         Through its wholly-owned  subsidiary,  Bagcraft  Corporation of America
("Bagcraft"), ARTRA 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  (then  known  as The  Lori  Corporation),  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 Telecom Inc. ("COMFORCE  Telecom"),  formerly Spectrum Global Services,
Inc.  d/b/a YIELD  Global.  COMFORCE  Telecom  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.  In the fourth quarter of 1995,
ARTRA's investment in COMFORCE was reduced to approximately 25% and, at December
26, 1996  ARTRA's  interest  in  COMFORCE  common  stock was further  reduced to
approximately  14%. See Notes 3 and 6 to the  Company's  consolidated  financial
statements for a further discussion of ARTRA's investment in COMFORCE.

         
         Packaging Products Business

         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 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 three billion bags and three 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  15  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 2,000  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 1996.

 
                                      - 34 -
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  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.

         During 1996,  Bagcraft's products were sold by four marketing divisions
as described below.  However, in 1997,  Bagcraft  restructured its marketing its
marketing  department  into  seven  segments:  Concessions,  Distributors,  Food
Service,  Microwave  Popcorn,  Supermarket  Deli/Bakery,  Retail  Packaging  and
International.

         Paper Division

         Bagcraft  believes it is the industry  leader in specialty  paper bags,
which represented  approximately 31% of Bagcraft's 1996 sales.  Bakeries account
for  approximately  63%  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  Walgreen's,  Albertson's,  Dunkin' Donuts and Boston Market and Publix.
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  46% of
Bagcraft's 1996 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.  When used to replace  rigid  packaging,  it  represents
significant source reduction to the solid waste system.  Additionally,  Bagcraft
was the first manufacturer to print 6-color sheets.

                                     - 35 -
Specialty Bag Division

         The Specialty Bag Division represented  approximately 17% of Bagcraft's
1996 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.  This division  provides  bags with  transparent  windows,  metal tin tie
attachments  and  convenient  self-opening  bottoms.  Customers for the division
include Bake-Line Products and Interstate Brands.

         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. 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.  Bagcraft is
the leading  supplier of popcorn bags to theater  chains such as General  Cinema
Corporation, Carmike and Mann Theaters.

         As  discussed  in  Note  14 to  the  condensed  consolidated  financial
statements  for the  quarter  ended June 26,  1997,  effective  January 2, 1997,
Bagcraft purchased the business assets, subject to buyer's assumption of certain
liabilities,  of AB Specialty Holding Company,  Inc. ("AB").  The acquisition of
AB, is expected to enhance Bagcraft's specialty bag business.

         Microwave Popcorn Division

         The Microwave Popcorn Division,  which represented  approximately 6% of
Bagcraft's  1996 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.

                                     - 36 -
Discontinued Business - Arcar

         As  discussed  in  Note  3  to  the  Company's  consolidated  financial
statements  for the year  ended  December  26,  1996,  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 26, 1996,  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 900 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, expiring in 1997
                                       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 (5)             Manufacturing, warehouse and office facility
                                       of approximately 265,000 sq. ft.                        Owned

    Hialeah, FL (2) (3)                Manufacturing, warehouse and office facility            Leased, expiring in 1998
                                       of approximately 25,000 sq. ft.

    Medley, FL (3) (4)                 Warehouse facility of approximately 20,000 sq. ft       Leased, expiring in 1999
                                     

    Forest Park, GA (5)                Warehouse and office facility                           Owned
                                       of approximately 35,000 sq. ft
- 37 -
(1)       This lease provides for a one-year renewal option.  Effective December
          1995, the building was purchased by a trust owned by John Harvey,  the
          Company's  Chairman of the board of  directors.  

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

(3)       This  lease  was  assumed  in  conjunction  with  Bagcraft's   January
          acquisition of AB Specialty Holding Company.

(4)       This lease provides for a two-year renewal option.

(5)       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 it was closed in
          June 1996.

Legal Proceedings
 

         The  Company  and  its  subsidiaries  are  the  defendants  in  various
business-related  litigation  and  environmental  matters.  At June 26, 1997 and
December  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 by 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.

                                      - 38 -
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 the Company's  Bagcraft  subsidiary  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, 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 to formally  extinguish the EPA claim. In September 1989,  Bagcraft was
served with a complaint filed by the State of Illinois against seventeen parties
for alleged  involvement  with the Cross Brothers  site.  The complaint  alleged
Bagcraft was responsible  for the costs of cleanup  incurred and to be incurred.
Although  Bagcraft  has denied  liability  for the site,  it has entered  into a
settlement agreement with the State, along with the other potential  responsible
parties,  to resolve all claims associated with the site. In July, 1997 Bagcraft
paid approximately $150,000 to formally extinguish the state claim.

         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 gas 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.  In April  1997,  the EPA  filed an
administrative complaint and has proposed a $250,000 civil penalty. Bagcraft has
filed a response to the complaint and is attempting to negotiate a settlement.

                                     - 39 -
Bagcraft has been notified that it may have responsibility with respect
to a clean-up  site on Basket Creek Road,  Georgia.  Bagcraft  presently  has no
indication of its liability, if any or whether it is a responsible party.

         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 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.

                                     - 40 -
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  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.  In February  1997,  the Second  Amended
Complaint was dismissed, with the right to replead. In April 1997, the plaintiff
appealed the dismissal of the Second Amended Compliant.

         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. A.G. Holding's motion for summary judgment was granted
on September 19, 1996.
 
         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. This liability was paid
in September 1996.
  

                                     - 41 -
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  25, 1997 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
25, 1997 and the past two fiscal years were as follows:

                            1997               1996                  1995 
                     ---------------    -----------------     -----------------
                      High     Low       High       Low        High       Low 
                     ------  -------    ------    -------     ------    ------- 

First quarter       6 - 3/8  4 - 1/2    6 - 3/4   4 - 5/8     5 - 3/4   3 - 1/2 

Second quarter      5 - 3/4  3 - 7/8    9 - 1/4   5 - 3/4     5 - 1/2   3 - 1/4 

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

Fourth quarter                          6 - 3/4   5           5 - 1/8   3 - 5/8 

 
         No dividends were paid in 1996 or 1995 nor are any anticipated in 1997.
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 1997 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.
  

                                     - 42 -
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  8,290,182  shares have been
issued and are  outstanding as of October 16, 1997, 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.  During 1990, 3,750 shares of a series designated "Series A Preferred
Stock" were issued,  of which  3,583.62  shares are  outstanding  as of the date
hereof. As of the date hereof,  there were approximately 2,500 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.

                                     - 43 -
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.

         During August and September 1997 to date, ARTRA has repurchased  166.38
shares of its Series A  redeemable  preferred  stock  with a  carrying  value of
approximately $210,000 for cash of approximately $120,000.

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

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.

                                     - 44 -
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).

                                     - 45 -
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.

         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 19, 1997, a private  corporation,  of which a major  shareholder
and  executive  officer is a director  of ARTRA,  held in the  aggregate  72,984
shares of the Common  Stock  subject to put  options  requiring  the  Company to
repurchase shares for approximately $3,300,000 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 October 16, 1997, investors held warrants to purchase 2,558,983 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 and 1996
Stock Option Plans to purchase 913,050 shares in the aggregate of Common Stock.

  

                                     - 46 -
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                   65          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  13%  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              62           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    13%    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               45          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              58          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              73          Retired  Chairman  of  the   Board  of
                                          Interstate  Steel  Co.,  1970 to 1990,
                                          and a consultant to Interstate through
                                          1992.

                                     - 47 -
Maynard K. Louis              67          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             61          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 13%
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            65         Chairman of the Board and Chief Executive
                                  Officer of ARTRA

Peter R. Harvey        62         President and Chief Operating Officer of ARTRA

John G. Hamm           58         Executive Vice President of ARTRA

Robert S. Gruber       64         Vice President - Corporate Relations of ARTRA

James D. Doering       60         Vice President, Treasurer and Chief  Financial
                                  Officer of ARTRA

John Conroy            53         Vice President  - Corporate  Administration of
                                  ARTRA

Lawrence D. Levin      45         Controller of ARTRA

Edwin G. Rymek         67         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

                                     - 48
 -
July 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 26, 1996, December 28, 1995 and
December 29, 1994, 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  26,  1996 and  whose  compensation  exceeded
$100,000 in 1996.
  

                                     - 49 -
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,         1996     $137,811      $  -0-      $ -0-     141,000          $5,456 (4)
      Chairman and Chief      1995      126,200         -0-        -0-         -0-           2,520 (5)
      Executive Officer       1994      126,200         -0-        -0-         -0-           2,520 (5)
  

      James D. Doering,       1996      133,600         -0-        -0-      57,500           6,000 (4)
     Vice President and       1995       49,900       83,500       -0-         -0-           3,470 (5)
   Chief Financial Officer    1994      111,133       22,267       -0-         -0-           3,000 (5)
          
                                       
        John G. Hamm,         1996      133,600         -0-        -0-     101,250           6,000 (4)
          Executive           1995       49,900       83,500       -0-         -0-           3,470 (5)
        Vice President        1994      111,133       22,267       -0-         -0-           3,000 (5)
           
                                     
      Robert S. Gruber,       1996      110,400         -0-         -0-     97,750           6,000 (4)
        Vice President        1995       92,000       69,000        -0-        -0-           2,868 (5)
     Corporate Relations      1994          -0-       18,400        -0-        -0-           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 1996 (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 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  1996 Stock  Option  Plan at an  exercise  price of $5.25 per
         share, being the closing price of the Company's common stock on the New
         York Stock  Exchange  on the date of grant  (October  4,  1996).  These
         options expire October 4, 2006.

(4)      These amounts  include the Company's  contributions  to the 401(k) plan
         during  1996 and  1995  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   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. Effective August 1, 1995, the Company terminated the
         ESOP and  subsequently  distributed  the related  Employee  accounts to
         participants.
- 50 -
The following  table sets forth  information  concerning  the aggregate
number and potential realizable values of options granted to the Chief Executive
Officer and the other  executive  officers of the Company  listed in the Summary
Compensation  Table during the fiscal year ended December 26, 1996. The Board of
Directors  authorized  the issuance of options on October 5, 1996 at a per share
exercise price of $5.25 (being the closing price on October 4, 1996).

                       OPTION GRANTS IN FISCAL YEAR 1996
Potential Realizable
                                                                                                      Value at Assumed
                                                                                                       Annual Rates of
                                                                                                      Appreciation for
                                            Individual Grants                                          Option Term (1)
                       -----------------------------------------------------------------         ------------------------- 
                       Number of     % of Total Options
                        Options         Granted to          Exercise Price    Expiration
       Name             Granted      Employees in 1996      ($ per share)        Date                 5%            10%
-------------------    --------      -----------------      -------------     ----------         ----------     ----------
John Harvey             141,000           26.5%                 $ 5.25          10-04-06         $  466,710     $1,184,400

James D. Doering         57,500           10.8%                 $ 5.25          10-04-06         $  190,325     $  784,875

John G. Hamm            101,250           19.0%                 $ 5.25          10-04-06         $  335,138     $  850,500

Robert S. Gruber         97,750           18.3%                 $ 5.25          10-04-06         $  323,553     $  821,100
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 26, 1996 which were granted to such officers in  consideration of their
services as officers or directors  of the Company.  No other options held by the
Chief Executive Officer or any other executive officers of the Company listed in
the Summary Compensation Table were exercised in 1996.

                     AGGREGATED OPTION EXERCISES IN 1996 AND
                      OPTION VALUES AS OF DECEMBER 26, 1996
Number of           Value of Unexercised
                                                                    Unexercised             In-the-Money
                                                                Options at 12-26-96      Options at 12-26-96
                           Shares Acquired          Value           Exercisable/            Exercisable/
      Name                   on Exercise          Realized        Unexercisable(1)         Unexercisable(2)
------------------         ---------------        ---------     -------------------       ------------------
John Harvey                       0                $    0             221,000/                $321,000/None
                                                                           0

James D. Doering               8,500                18,000            111,000/                 180,000/None
                                                                           0

John G. Hamm                      0                     0             140,450/                 184,000/None
                                                                           0

Robert S. Gruber                  0                     0             118,750/                 136,000/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 $5.25 per share. The market price of Common Stock as
         of the close of  trading  on  December  26,  1996 on the New York Stock
         Exchange was $6.125 per share.
- 51 -
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
1996. 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.
  

                                     - 52 -
PRINCIPAL SHAREHOLDERS

         As of October 16,  1997,  there were  8,290,412  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 16, 1997 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 16,  1997,  3,750  shares of Series A Preferred  Stock of
ARTRA,  par value $1,000 per share,  had been issued,  of which 3,583.62  shares
were  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.

                                               Number           
                                             of Shares
                                           Beneficially
Name of Beneficial Owner                       Owned            Percent
------------------------                       -----            -------

Research Center of Kabbalah(1)                 647,250            7.5%
PRESTWOOD LIMITED (2)                          357,270            4.3%
Peter R. Harvey(3)     Common                  440,243            5.3%
                       Preferred                 2,175           60.7%
John Harvey(4)                                 423,796            6.1%
Gerard M. Kenny (5)                            240,048            2.9%
Maynard K. Louis(6)                            121,000            1.4%
Howard R. Connant(7)                           592,333            6.8%
Edward A. Celano                                18,182              *
Robert L. Johnson                                2,873              *
John G. Hamm(8)                                142,232            1.7%
Robert S. Gruber(9)                            141,104            1.7%
James D. Doering(10)                           124,311            1.5%
All directors and executive officers
  as a group (12 persons)                    2,572,816           26.2%

*        Less than 1% of the outstanding shares.

(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 361,000 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,  65,000 shares of Common Stock issuable
     issuable  under a warrant  which  expires  December 31, 1998 at an exercise
     price of $7.00 per share,  100,000  shares of Common Stock issuable under a
     warrant which expires  February 14, 2002 at an exercise price of $5.625 per
     share and 100,000  shares of Common Stock  issuable  under a warrant  which
     expires April 13, 2002 at an exercise price of $5.00 per share.

(2)  PRESTWOOD LIMITED,  a British Virgin Islands Company,  at Tortola,  B.V.I.,
     holds 357,270 shares of common stock directly.
         
(3)  Mr. Peter R. Harvey's  business address is 500 Central Avenue,  Northfield,
     Illinois  60093.  The shares  beneficially  owned by Mr. Harvey  consist of
     375,790  shares held directly by him (of which 373,615 are Common Stock and
     2,175 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.

                                     - 53 -
(4)  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.

(5)  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 $83.45 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 $21.19 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."
 
(6)  Mr.  Louis is the holder of warrants to  purchase  121,000  shares of ARTRA
     common stock at prices of $4.50 to $8.00 per share which warrants expire on
     various dates commencing in 1997 and ending June 13, 2001.

(7)  Mr. Conant holds 150,000 ARTRA common shares  directly,  Mrs.  Conant holds
     9,000 ARTRA common shares and Mr. Conant holds  warrants to acquire 433,000
     shares of ARTRA  common  stock at prices of $5.00 to $5.875 per share which
     warrants expire on various dates in 2001 and 2002.  
  
(8)  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,
     1,639  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.

(9)  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.

(10) The shares of Common Stock  beneficially  owned by Mr.  Doering  consist of
     10,500 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,
     22,500 shares  issuable under an option which expires  December 19, 2000 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.  

                                     - 54 -
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 Telecom, Inc. ("COMFORCE
Telecom"),  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  COMFORCE  Telecom  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 June 26,  1997 and  December  26,  1996,
$271,000 and $348,000, respectively, of such  pre-existing Lori liabilities were
classified in ARTRA's condensed  consolidated  balance as current liabilities of
discontinued operations.

         Effective July 4, 1995,  COMFORCE'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 COMFORCE Telecom 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 COMFORCE  Telecom,  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 ownership interest in
COMFORCE common stockwas  reduced to  approximately  14% and 25% at December 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 6 to the  Company's
consolidated  financial  statements  for the year ended  December 26, 1996 for a
further  discussion  of  the  accounting  treatment  of  ARTRA's  investment  in
COMFORCE.
 
         Effective  December  19,  1996,  ARTRA  and  COMFORCE  agreed to settle
various  differences in the interpretation of certain agreements relating to the
COMFORCE  Telecom acquisition, whereby, among other things:
     
         (a)  COMFORCE  delivered  to ARTRA  100,000  shares of COMFORCE  common
              stock  in  consideration  of  ARTRA's  guarantee  of the  COMFORCE
              Telecom  purchase  price  to the  seller  and  100,000  shares  of
              COMFORCE  common  stock  for  the  cancellation  of the  Series  C
              Preferred Stock.  ARTRA's financial  statements have reflected the
              issuance of these  200,000  COMFORCE  common shares to ARTRA since
              the fourth quarter of 1995.

         (b)  ARTRA delivered to COMFORCE  certificates evidencing its ownership
              of 100% of the Lori Series C Preferred Stock.
 

                                     - 55 -
(c)  COMFORCE  agreed to  include  in a  proposed  underwritten  public
              offering 380,000 shares of COMFORCE common stock held by ARTRA and
              its Fill-Mor  subsidiary.  

         (d)  ARTRA  agreed to a Lock-up  Agreement  which limits its ability to
              sell its remaining COMFORCE common shares for a period of 360 days
              after  the  effective  date of  COMFORCE's  proposed  underwritten
              public offering.

         (e)  ARTRA  agreed to deposit  125,000  shares of its  COMFORCE  common
              stock  into an  escrow  account  to  collateralize  its  remaining
              obligations under the Assumption Agreement.

         COMFORCE did not retain an  underwriter  for the proposed  underwritten
public offering referred to in paragraph (c) and,  accordingly,  effective April
30,   1997   ARTRA   was   released   from  the   provisions   of  the   Lock-up
Agreement.
        
         During 1995,  ARTRA  received  $399,000 of advances from  COMFORCE.  In
1996,  COMFORCE advanced ARTRA an additional  $54,000.  During 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 COMFORCE  Telecom 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
March  1997,  the bank sold its  interest in Mr.  Harvey's  note and the related
collateral  to a  private  investor.  ARTRA  retained  its  $2,150,000  security
interest the real estate,  subordinated to the  noteholder's  $850,000  security
interest in this real estate.

                                     - 56 -
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 June 26, 1997 was $8,677,000.  ARTRA has accrued  interest in
the sum of  $1,871,000  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
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." In March 1997, the bank sold its interest in Mr.  Harvey's note
and the related collateral to a private investor.  ARTRA retained its $2,150,000
security  interest the real estate,  subordinated to the  noteholder's  $850,000
security interest in this real estate.

         In July 1997,  ARTRA  advanced  an  additional  $7,475,000  to Peter R.
Harvey.  Mr. Harvey provided ARTRA with  additional  collateral for his advances
consisting  of 652.285  shares of ARTRA Series A redeemable  preferred  stock (a
17.4% interest),  1,784.02 shares of BCA Series A redeemable  preferred stock (a
48.5% interest) and 6,488.8 shares of BCA Series B redeemable preferred stock (a
79.8% interest). These ARTRA and BCA redeemable preferred shares were pledged by
ARTRA  as  partial  collateral  for the July  1997  private  placement  of ARTRA
promissory  notes that funded the advance to Mr.  Harvey.  As of  September  25,
1997,  this  additional  collateral  had a carrying  value of the  obligation in
ARTRA's consolidated balance sheet of approximately $11,000,000. The fair market
value of this additional  collateral is not known. The advances were funded with
the proceeds from the July 1997 private placement of ARTRA notes.

         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).
        

                                     - 57 -
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.

         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 ($21.188 at December 26, 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.
        
                                     - 58 -
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  Series  A  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 June 26, 1997,  dividends in the amount
of $798,000 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
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  was  collateralized  by a
mortgage on certain  real  estate  owned by Mr.  Harvey.  B of A's rights to the
remaining  $850,000 of the  indebtedness had priority over ARTRA's rights to the
$2.15 million.  In March 1997,  the bank sold its interest in Mr.  Harvey's note
and the related collateral to a private investor.  ARTRA retained its $2,150,000
security  interest the real estate,  subordinated to the  noteholder's  $850,000
security interest in this real estate.

         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.

                                     - 59 -
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.

         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  7% of  ARTRA's  outstanding  Common  Stock  (including  the stock
issuable  upon the exercise of  warrants) as of December 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 these loans 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.  Interest on the loans has been paid
through March, 1997. Payment on the loans was due March 31, 1994,  however,  the
lender did not demand  payment.  In February 1997, the lender received a warrant
to purchase an  additional  100,000  ARTRA common  shares at $5.625 per share as
consideration for not demanding  payment of this obligation.  In April 1997, the
lender received a warrant to purchase an additional  100,000 ARTRA common shares
at  $5.00  per  share  as  consideration  for  not  demanding  payment  of  this
obligation. In June 1997 outstanding borrowings to the unaffiliated company were
reduced to $300,000 with the proceeds from other short-term borrowings.  In July
1997 ARTRA repaid all remaining obligations under these loans.

         In May,  1996,  ARTRA borrowed  $100,000 from Edward A. Celano,  then a
private investor, evidenced by an unsecured short-term note, due August 7, 1996,
and renewed to February 6, 1997,  bearing  interest at 10%.  The proceeds of the
loan  were  used  for  working  capital.  At the  Company's  annual  meeting  of
shareholders,  held August 29,  1996,  Mr.  Celano was elected to the  Company's
board of  directors.  Effective  January 17,  1997,  Mr.  Celano  exercised  his
conversion rights and received 18,182 shares of ARTRA common stock as payment of
the principal balance of his note.

  

                                     - 60 -
In August,  1996,  ARTRA borrowed  $500,000 from Howard Conant,  then a
private  investor,  evidenced  by an  short-term  note,  due  December 23, 1996,
bearing  interest  at 10%.  The loan was  collateralized  by  125,000  shares of
COMFORCE common stock owned by the Company's Fill-Mor subsidiary.  As additional
compensation  for the loan, Mr. Conant received a warrant,  expiring in 2001, to
purchase 25,000 ARTRA common shares at a price of $5.00 per share.  The proceeds
of the loan were used for working  capital.  At the Company's  annual meeting of
shareholders,  held August 29,  1996,  Mr.  Conant was elected to the  Company's
board of directors.  In December,  1996,  the loan was extended  until April 23,
1997 and Mr. Conant received, as additional  compensation,  a warrant , expiring
in 2001, to purchase 25,000 ARTRA common shares at a price of $5.875 per share.

         In January, 1997, ARTRA borrowed an additional $300,000 from Mr. Conant
evidenced by an short-term note, due December 23, 1997,  bearing interest at 8%.
The loan was collateralized  by 100,000 shares of COMFORCE common stock owned by
the Company's Fill-Mor subsidiary.  As additional compensation for the loan, Mr.
Conant  received a warrant,  expiring in 2002,  to purchase  25,000 ARTRA common
shares at a price of $5.75 per share.

         In March 1997, ARTRA borrowed an additional  $1,000,000 from Mr. Conant
evidenced by a short-term  note, due May 26, 1997,  bearing interest at 12%. The
loan was  collateralized by 585,000 shares of COMFORCE common stock owned by the
Company's Fill-Mor subsidiary.  As additional compensation,  Mr. Conant received
an option to  purchase  25,000  shares of  COMFORCE  common  stock  owned by the
Company's  Fill-Mor  subsidiary at a price of $4.00 per share, with the right to
put the option  back to ARTRA on or before May 30, 1997 for a total put price of
$50,000.  In May 1997,  Mr.  Conant  exercised  his rights and put the  COMFORCE
option back to ARTRA for $50,000.  The proceeds from this loan were used in part
to repay an ARTRA/Fill-Mor $2,500,000 bank term loan.

         In April 1997, ARTRA borrowed $5,000,000 from Mr. Conant evidenced by a
note, due April 20, 1998,  bearing interest at 10%. As additional  compensation,
the lender received a warrant to purchase 333,333 ARTRA common shares at a price
of $5.00 per share. The  warrantholder has the right to put this warrant back to
ARTRA at any time  during the period  April 21,  1998 to April 20,  2000,  for a
total purchase price of $1,000,000.  The cost of this obligation will be accrued
in the Company's  financial  statements as a charge to interest expense over the
period  April 21, 1997 (the date of the loan)  through  April 21, 1998 (the date
the warrantholder has the right to put the warrant back to ARTRA).  The proceeds
from  this  loan  were used to repay  Mr.  Conant's  outstanding  borrowings  of
$1,800,000 and to pay down other ARTRA debt obligations.

         In June 1997, ARTRA borrowed an additional  $1,000,000 from Mr. Conant,
due December 10, 1997, bearing interest at 12%. As additional compensation,  the
lender  received a warrant to purchase  40,000 ARTRA common shares at a price of
$5.00 per share.  The  warrantholder  has the right to put this  warrant back to
ARTRA at any time during the period  December 10, 1997 to June 10,  1998,  for a
total purchase price of $80,000.  The cost of this obligation will be accrued in
the  Company's  financial  statements  as a charge to interest  expense over the
period June 10, 1997 (the date of the loan) through  December 10, 1997 (the date
the warrantholder has the right to put the warrant back to ARTRA).  The proceeds
from this loan were used to pay down other ARTRA debt obligations. In July 1997,
borrowings from Mr. Conant were reduced to $3,000,000 with proceeds  advanced to
ARTRA from a Bagcraft  term loan as discussed  above.  As of September 19, 1997,
ARTRA  had  total   outstanding   borrowings  of  $3,000,000   from  Mr.  Conant
collateralized  by  collaterallized  by a 75%  interest  in the common  stock of
ARTRA's BCA subsidiary (the parent of Bagcraft).

                              SELLING SHAREHOLDERS

         The following table sets forth certain  information,  as of October 16,
1997,  when  8,290,182  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.

                                     - 61 -
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
Alltech Associates (42)                                    10,000            *            10,000 
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 Trust (4)                                  5,000            *             5,000
                       (47)                                 7,000            *             7,000   
Morris Belzberg (4)                                        25,000            *            25,000
William Belzberg (4)                                       25,000            *            25,000
K. Reed Berkey (4)                                          2,500            *             2,500
Nora Baker (4)                                              5,000            *             5,000
Belmad L.P. (48)                                          106,667            *           106,667      
Julius Berman (24)                                          6,250            *             6,250
Evelyn Bishop, Trustee (5)                                168,051          2.0%          168,051
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
             (48)                                          13,330            *            13,330      
Fred Broling (22)                                          14,234            *            14,234
Ken Buchanan (48)                                           5,332            *             5,332
Robert A. Calabrese (27)                                   15,000            *            15,000
Thomas J. Carroll (34)                                     28,461            *            28,461
Edward A Celano (12)                                       18,182            *            18,182
Woodrow Chamberlain (4)                                    10,000            *            10,000
                    (47)                                   25,000            *            25,000 
Woodrow & Barbara Chamberlain (48)                         13,330            *            13,330 
Cipka S.A. (6)                                            192,790          2.3%          192,790
Clinton Industries (7)                                     75,001            *            75,001
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)                                     578,333          6.8%         433,333
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
                   (47)                                     4,000            *            4,000                         
Kelly Erickson (15)                                         7,500            *            7,500
Paul Farmer IRA (4)                                         2,500            *            2,500
Leonard Feldman (4)                                        15,000            *           15,000
Barry M. Ferrigno & B. Allan P/S Plan (15)                  7,500            *            7,500
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          1.7%             2,874
Robert Haney (38)                                           1,000            *              1,000
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
Ezra Hamway (46)                                           13,000            *             13,000
John Harvey (9)                                           523,796          6.1%            82,206
Peter R. Harvey (21)                                      442,418          5.3%            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)                                         30,373            *             30,373
Dane Johnson, IRA (15)                                      3,750            *              3,750
Carol M. Jacobsohn (11)                                     2,750            *              2,750
Robert Johnson (22)                                         2,873            *              2,873
Robert Jones (31)                                          16,321            *             16,321
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)                                     22,687            *             22,687
Kwiatt, Silverman & Ruben, Ltd. (45)                       12,000            *             12,000
Kwiatt, Silverman & Ruben, Ltd. 
  Profit Sharing Plan (38)                                 15,000            *             15,000
Michael Laundrie  (44)                                      9,773            *              9,773
R. D. Levy (22)                                             5,364            *              5,364
Steven M. Levy (29)                                        17,877            *             17,877
Levy S.D. (46)                                             22,000            *             22,000     
Robert Lofblad (22)                                        16,154            *             16,154
Frank N. Magid (4)                                          2,500            *              2,500
Maynard K. Louis (13)                                     121,000          1.4%           121,000
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
                 (47)                                       5,000            *              5,000   
John E. Mc Connnaughy (15)                                 75,000            *             75,000
James McHugh (4)                                            5,000            *              5,000
James B. McGill (4)                                         5,000            *              5,000
Johanna B. McGill (4)                                       5,000            *              5,00
- 64 -
Before the Offering
                                                 -------------------------------------------------
                                                     Number of        Percent of       Shares
                                                       Shares        Total Shares      Offered
      Name of Beneficial Owner                      Beneficially      Outstanding       Hereby
                                                    Owned (1)(2)          (1)
--------------------------------------------------------------------------------------------------
R & J  Lucas Revocable Trust (43)                          10,000            *            10,000
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
                    (47)                                    3,000            *             3,000
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
The Neff Family Trust (47)                                 12,500            *            12,500 
Paul Neff (48)                                              2,666            *             2,666
Douglas B. Nelson & Jessica M. Swift (47)                  12,500            *            12,500 
Peer Pedersen (46)                                         25,000            *            25,000                     
Jerry Pillard (22)                                            385            *               385
Pollack Family L.L.C. (15)                                  3,750            *             3,750
Janet M. Portelly (15)                                      6,000            *             6,000
PRESTWOOD LIMITED (8)                                     357,720          4.3%          357,720
Ravinia Investors LLC (4)                                   2,500            *             2,500
                      (48)                                  2,666            *             2,666       
Charles Reeder (4)                                         20,000            *            20,000
               (48)                                         5,332            *             5,332
Research Center of Kabbalah (14)                          647,250          7.5%          412,250
William G. Reynolds, Jr. (4)                                1,250            *             1,250
                         (47)                               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 (38)                                       20,687            *            20,687
Barry Rymer (35)                                          160,973          1.9%          160,973
- 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 Trust  (4)                               15,000            *            15,000
                         (48)                               7,332            *             7,332       
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)                                      2,500            *             2,500
                   (47)                                     2,500            *             2,500     
William Seelbach (4)                                        5,000            *             5,000
                 (47)                                       2,500            *             2,500
Marshall Rodin  (41)                                       18,184            *            18,184
Semamor Enterprises (47)                                   60,000            *            60,000 
Sherwood Securities Corp. (15)                             15,000            *            15,000
Sigma Pairs (24)                                           87,500          1.1%           87,500
The Shipp Family Trust (47)                                 2,000            *             2,000         
Michael Silverman (38)                                     16,687            *            16,687
Lloyd Singer (22)                                           4,724            *             4,724
Alfred Slatin (22)                                          3,276            *             3,276
Paul Smeets (4)                                            10,000            *            10,000
A.E. Staley Trust (47)                                      5,000            *             5,000
Eva Staley Residential Trust (4)                            5,000            *             5,000
Henry M. Staley Trust u/a/d 11/13/73 (4)                    7,500            *             7,500
                                     (47)                   5,000            *             5,000
Henry Staley (48)                                           2,666            *             2,666
Staley Family Agency Account (4)                           20,000            *            20,000
Avery J. Stone Trust (4)                                   20,000            *            20,000
Anita Stone Family Trust (48)                              26,660            *            26,660    
Josef Strahammer (16)                                     136,355          1.6%          136,355
Shepard C. Swift Trust (4)                                 10,000            *            10,000
                       (47)                                 4,000            *             4,000    
Dieter E.A. Tannenberg (39)                                30,000            *            30,000
Michael Targoff (24)                                      125,000          1.5%          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)                                       50,000           *             50,000
                (47)                                       25,000           *             25,000      
Ronald Tarrson (37)                                        40,000           *             40,000
               (47)                                        25,000           *             25,000 
               (48)                                        13,330           *             13,330 
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)                                      301,599         3.5%           301,599
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
               (47)                                         5,000           *              5,000  
Roger D. and Gail L. Williams (15)                          7,500           *              7,500
Diane Wilson (4)                                            1,250           *              1,250
             (47)                                           1,250           *              1,250
D. R. Zaccone (19)                                        174,000         2.1%           174,000
Marc L. Werner (25)                                        90,000         1.1%            90,000
Manufacturers Indemnity and Insurance                                                           
  Co. of America (26)                                       5,000           *              5,000
                                                        ---------        ----          ---------
         TOTAL                                          6,552,842        55.7%         5,192,471     
                                                        =========        ====          =========
-------------------------------------
                 *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 8, 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%
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 56,394
shares issuable to the trustee upon the exercise of the following warrants:

 Number of Shares         Exercise Price Per Share    Expiration Date of Warrant
          4,244                     6.000                      05-17-98
          6,367                     6.000                      05-29-98
          6,685                     6.000                      11-29-98
          4,457                     6.000                      11-17-98
          1,560                     5.375                      05-16-98
          7,023                     5.000                      05-28-98
          7,383                     4.750                      11-28-97
          7,764                     3.750                      05-28-98
         10,911                     8.000                      06-13-01

         (6) Consists of 192,790 shares of Common Stock owned of record by Cipka
S.A.
  
         (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 357,720 shares of record owned by PRESTWOOD  LIMITED, a
British Virgin Islands  Company,  issued in payment of the principal amount of a
short-term loan.

         (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
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:

                                     - 68 -
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 27,500 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
     12,500                  5.625              08-05-98
  

         (11) Consists of 2,750 shares of Common Stock issuable to Ms. Jacobsohn
upon the  exercise of a warrant  which  expires  December 2, 1997 at an exercise
price of $5.00 per share.

         (12) Consists of 18,182 shares of  Common Stock  owned of record by Mr.
Celano, a director of the Company.

         (13) Consists of 121,000  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              04-01-98
      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
      11,000                    6.000              03-09-98
 

         Mr. Louis is a director of the Company.

                                     - 69 -
(14)  Consists  of 361,000  shares of Common  Stock  owned of record by
Research  Center of Kabbalah and 21,250 shares of Common Stock  issuable under a
warrant which expires  October 29, 1998 at an exercise price of $6.00 per share,
65,000 shares of Common Stock  issuable  issuable  under a warrant which expires
December  31, 1998 at an exercise  price of $7.00 per share,  100,000  shares of
Common Stock  issuable  under a warrant  which  expires  February 14, 2002 at an
exercise  price of $5.625 per share and 100,000  shares of Common Stock issuable
under a warrant which  expires April 13, 2002 at an exercise  price of $5.00 per
share.

         (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 136,355  shares of Common Stock owned of record by Mr.
Strahammer.  These shares consist of 20,812 issued to Mr.  Strahammer in lieu of
interest on certain  borrowings and 115,543  shares issued to Mr.  Strahammer in
payment of a $678,000 demand note.

         (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 65,284  shares of Common Stock owned of record by Mr.
Verde and 236,315 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                  5.000                 08-09-97
      37,258                  3.750                 02-09-98
      36,651                  4.125                 08-09-98
      35,555                  5.000                 02-09-99
      10,464                  5.000                 08-09-99
      39,907                  5.000                 02-09-98
  

         (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

                                      -70-
(20) Consists of 140,000  shares of Common Stock owned of record by Mr.
Conant,  5,000 shares  held by Mrs.  Conant and 433,333  shares of Common  Stock
issuable to Mr. Conant upon the exercise of the following warrants:

    Number of            Exercise Price          Expiration Date
      Shares                per Share              of Warrant

     333,333                  5.000                 04-20-00
      25,000                  5.000                 08-26-01
      25,000                  5.875                 12-22-01
      10,000                  5.750                 01-15-02
      40,000                  5.000                 04-02-00

         (21) The  shares  of  Common  Stock  beneficially  owned by Mr.  Harvey
consist of 375,790  shares  held  directly  by him (of which  373,615 are Common
Stock and 2,175 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.

         (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 15,000  shares of  Common  Stock  owned of record by
Mr.Calabrese.

         (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 17,877  shares of  Common Stock owned of record by Mr.
Levy.
  

                                     - 71 -
(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, 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 and 8,000 shares of Common Stock issuable to Mr. Jones upon the exercise of
a warrant at an exercise  price of $4.75 per share,  which warrant  expires June
15, 1999.

         (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 owned of record by Mr.
Schuster.

         (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.Tarrson upon the
exercise of a warrant at an  exercise  price of $5.00 per share,  which  warrant
expires  September  12,  2001 and  12,500  shares of Common  Stock  issuable  to
Mr.Tarrson  upon the  exercise of a warrant at an  exercise  price of $6.125 per
share,  which  warrant  expires  December 22, 2001.  The warrants were 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%
Promissory Notes.

          (37) Consists of:

               (a) 12,500 shares of Common Stock issuable to Mr.Tarrson upon the
exercise of a warrant at an  exercise  price of $5.00 per share,  which  warrant
expires  September  12,  2001 and  12,500  shares of Common  Stock  issuable  to
Mr.Tarrson  upon the  exercise of a warrant at an  exercise  price of $6.125 per
share,  which  warrant  expires  December 22, 2001 . The warrants were 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%
Promissory Notes.

         (38)  Consists of shares of Common Stock  originally  issued to Kwiatt,
Silverman  & Ruben,  Ltd. in payment of  professional  fees and shares of Common
Stock  issued  to Ozite as  consideration  for the  March  1990  acquisition  of
Bagcraft. See note (22) to this listing of Selling Shareholders.
  
         (39)  Consists of 30,000  shares of Common Stock owned of record by Mr.
Tannenberg.

                                     - 72 -
(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.
 
         (42)  Consists  of 10,000  shares of Common  Stock  issuable to Alltech
Associates  upon the  exercise  of a warrant at an  exercise  price of $6.00 per
share, which warrant expires July 1, 1998.

         (43)  Consists of 10,000  shares of Common Stock  issuable to R&J Lucas
upon the  exercise of a warrant at an exercise  price of $5.75 per share,  which
warrant expires January 15, 2002.

         (44)  Consists of 9,773 shares of record owned by Mr. Laundrie.

         (45)  Consists of shares of Common Stock  issued to Kwiatt, Silverman &
Ruben,  Ltd. in payment of  professional  fees.

         (46)  Consists of shares of Common Stock  issuable upon the exercise of
warrants.  These warrants were issued as  consideration  for short-term loans or
services provided for the benefit of the Company.

         (47) Consists of shares of Common Stock issuable upon the exercise of a
warrant at an exercise price of $5.00 per share and expiring May 23, 1999. These
warrants  were  issued  under  the  Company's  1997  Private  Placement  of  12%
Promissory Notes.

         (48) Consists of shares of Common Stock issuable upon the exercise of a
warrant at an  exercise  price of $4.50 per share and  expiring  July 14,  1998.
These  warrants  were issued under the Company's  1997 Private  Placement of 12%
Promissory Notes.

                                     - 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 $350,000 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 26, 1996 and  December  28,  1995,  and the related
consolidated  statements of operations,  shareholders' equity (deficit) and cash
flows for each of the three years in the period ended December 26, 1996 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.  through  certain
members of the firm and its  Profit  Sharing  Plan own  88,061  shares of Common
Stock of the Company this represents approximately one (1%) percent of the total
shares outstanding.

  

                                TABLE OF CONTENTS

                                                          

                  Heading                     Page

Additional Information                           2

Prospectus Summary                               3

Risk Factors                                     6

Capitalization                                  14

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

Business and Properties                         34

Legal Proceedings                               38

Market Price of the Company's                   42
Common Stock

Description of the Company's                    43
Securities

Management                                      47

Executive Compensation                          49     ARTRA GROUP Incorporated

Principal Shareholders                          53

Transactions with Management and                55           PROSPECTUS
Others

 

Selling Shareholders                            61        October 17, 1997

  

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
     June 26, 1997 (Unaudited)                                             F-2

 Condensed Consolidated Statements of Operations
     Six Months Ended June 26, 1997 
     and June 27, 1996 (Unaudited)                                         F-4

 Condensed Consolidated Statement of Changes
     in Shareholders' Equity (Deficit)
     Six Months Ended June 26, 1997 (Unaudited)                            F-5

 Condensed Consolidated Statements of Cash Flows
     Six Months Ended June 26, 1997 
     and June 27, 1996  (Unaudited)                                        F-6

 Notes to Condensed Consolidated Financial Statements                      F-7
 

 Report of Independent Accountants                                         F-25

 Consolidated Balance Sheets as of December 26, 1996
     and December 28, 1995                                                 F-26

 Consolidated Statements of Operations
     for each of the three fiscal years
     in the period ended December 26, 1996                                 F-28

 Consolidated Statements of Changes in 
     Shareholders' Equity (Deficit)
     for each of the three fiscal years
     in the period ended December 26, 1996                                 F-29

 Consolidated Statements of Cash Flows
     for each of the three fiscal years 
     in the period ended December 26, 1996                                 F-31

 Notes to Consolidated Financial Statements                                F-33

  Financial Statement Schedules:

        I.      Condensed Financial Information  of Registrant             F-65

       II.      Valuation and Qualifying Accounts                          F-69

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.

                                      F-1
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEET 
                            (Unaudited in thousands)

                                                       

          ASSETS
Current assets:
   Cash and equivalents                                      $226  
   Receivables, less allowance for 
        doubtful accounts of $205                          10,589  
   Inventories                                             18,241  
   Available-for-sale securities                           10,438  
   Other                                                    2,777  
                                                      -----------  
               Total current assets                        42,271  
                                                      -----------  

Property, plant and equipment                              48,305  
Less accumulated depreciation and amortization             22,469  
                                                      -----------  
                                                           25,836  
                                                      -----------  

Other assets:
   Excess of cost over net assets acquired,
      
      net of accumulated amortization of $2,235             2,702  
   Other                                                    1,795  
                                                      -----------  
                                                            4,497  
                                                      -----------  
                                                          $72,604  
                                                      ===========  

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

                                        F-2
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                            (Unaudited in thousands)

                                                        
          LIABILITIES
Current liabilities:
   Notes payable, including amounts       
      due to related parties of $6,300                    $15,233   
   Current maturities of long-term debt                    10,137   
   Accounts payable                                         7,983   
   Accrued expenses                                        11,354   
   Income taxes                                               205   
   Bagcraft detachable put warrant                             -    
   Redeemable preferred stock                              11,707   
   Liabilities of discontinued operations                     271   
                                                      -----------   
               Total current liabilities                   56,890   
                                                      -----------   

Long-term debt                                             34,528   
Bagcraft detachable put warrant                             4,358   
Other noncurrent liabilities                                1,940   
Commitments and contingencies

Redeemable common stock,
   issued 72,984 shares                                     3,175   

Redeemable preferred stock                                  9,124   

          SHAREHOLDERS' EQUITY (DEFICIT)
Common stock, no par value; 
   authorized 20,000,000 shares;     
   issued 7,820,064 shares                                  5,920   
Additional paid-in capital                                 41,155   
Unrealized appreciation of investments                     13,539   
Receivable from related party, 
   including accrued interest                              (6,806)  
Accumulated deficit                                       (91,167)  
                                                      -----------   
                                                          (37,359)  
Less treasury stock, 7,628 shares, at cost                     52   
                                                      -----------   
                                                          (37,411)  
                                                      -----------   
                                                          $72,604   
                                                      ===========   

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

                                       F-3
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                 (Unaudited in thousands, except per share data)

                                                      
                                                          Six Months Ended
                                                      -----------------------  
                                                        June 26,     June 27,  
                                                          1997         1996  
                                                      ----------   ----------

Net sales                                               $60,274      $60,765
                                                      ----------   ----------

Costs and expenses:
   Cost of goods sold, exclusive of 
      depreciation and amortization                      48,113       48,856
   Selling, general and administrative                    8,032        7,972
   Depreciation and amortization                          2,152        1,959
                                                      ----------   ----------
                                                         58,297       58,787
                                                      ----------   ----------

Operating earnings                                        1,977        1,978
                                                      ----------   ----------

Other income (expense):
   Interest expense                                      (4,143)      (3,404)
   Amortization of debt discount                         (1,351)         (80)
   Realized gain on disposal of 
      available-for-sale securities                         255        4,495
   Other income (expense), net                              178         (210)
                                                      ----------   ----------
                                                         (5,061)         801
                                                      ----------   ----------

Earnings (loss) before income taxes,
    minority interest and extraordinary credit           (3,084)       2,779
Provision for income taxes                                  (41)         (50)
Minority interest                                          (717)         190
                                                      ----------   ----------
Earnings (loss) before extraordinary credit              (3,842)       2,919
Extraordinary credit, net discharge of indebtedness         -           9,424
                                                      ----------   ----------
Net earnings (loss)                                      (3,842)      12,343
Dividends applicable to redeemable preferred stock         (336)        (306)
Reduction of retained earnings applicable
    to redeemable common stock                             (196)        (205)
                                                      ----------   ----------
Earnings (loss) applicable to common shares             ($4,374)     $11,832
                                                      ==========   ==========

Earnings (loss) per share:
   Earnings (loss) before extraordinary credit           ($0.56)       $0.28
   Extraordinary credit                                     -           1.23
                                                      ----------   ----------
   Net earnings (loss)                                   ($0.56)       $1.51
                                                      ==========   ==========

Weighted average number of shares of common stock and
   common stock equivalents outstanding                   7,859        7,834
                                                      ==========   ==========

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

                                       F-4
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
  CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
                   (Unaudited 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 26, 1996         7,624,766  $5,793   $40,211     $25,719     ($6,468)    ($86,793)  7,628    ($52)    ($21,590)
 Net earnings                                -       -         -           -           -       (3,842)      -       -       (3,842)
 Common stock issued 
  to pay liabilities                    39,955      30       184           -           -            -       -       -          214
 Increase in receivable 
  from related party, 
  including accrued interest                 -       -         -           -        (338)           -       -       -         (338)
 Decrease in unrealized 
  appreciation of investments                -       -         -     (12,180)          -            -       -       -      (12,180)
 Exercise of stock options
   and warrants                         39,800      30       148           -           -            -       -       -          178
 Redeemable common stock
  obligation paid by the issuance 
  of additional common shares          115,543      67       612           -           -            -       -       -          679
 Redeemable common 
  stock accretion                            -       -         -           -           -         (196)      -       -         (196)
 Redeemable preferred 
  stock dividends                            -       -         -           -           -         (336)      -       -         (336)
                                    ---------- -------   -------   ---------    --------     --------  ------   -----   ----------
Balance at June 26, 1997             7,820,064  $5,920   $41,155     $13,539     ($6,806)    ($91,167)  7,628    ($52)    ($37,411)
                                    ========== =======   =======   =========    ========     ========  ======   =====   ==========
The  accompanying  notes  are an  integral  part of the  condensed  consolidated
financial statements.

                                        F-5
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (Unaudited in thousands)

                                                            Six Months Ended
                                                          ---------------------
                                                           June 26,     June 27,
                                                             1997         1996
                                                          --------     -------- 

Net cash flows used by operating activities               ($ 1,980)    ($ 1,971)
                                                          --------     -------- 

Cash flows from investing activities:
   Additions to property, plant and equipment               (1,636)      (1,275)
   Acquisition of AB Specialty, net of deposit              (1,131)        --
   Proceeds from sale of COMFORCE common stock                  33        3,717
   Proceeds from collection of Welch notes                    --            342
   Decrease in unexpended plant construction funds            --            552
   Other                                                      --             89
                                                          --------     -------- 
Net cash flows from (used by) investing activities          (2,734)       3,425
                                                          --------     -------- 

Cash flows from financing activities:
   Net decrease in short-term debt                          (3,245)      (4,060)
   Proceeds from long-term borrowings                       70,915       67,753
   Reduction of long-term debt                             (61,612)     (66,676)
   Redemption of detachable put warrants                    (1,600)        --
   Exercise stock options and warrants                         178          169
   Other                                                       133         --
                                                          --------     -------- 
Net cash flows from (used by) financing activities           4,769       (2,814)
                                                          --------     -------- 

Increase (decrease) in cash and cash equivalents                55       (1,360)
Cash and equivalents, beginning of period                      171        2,347
                                                          --------     -------- 
Cash and equivalents, end of period                       $    226     $    987
                                                          ========     ========

Supplemental cash flow information: 
  Cash paid during the period for:
    Interest                                                $3,407     $  2,579
    Income taxes paid, net                                     175            8

Supplemental schedule of noncash investing
  and financing activities:
    BCA Holdings redeemable preferred stock 
      issued in exchange for Bagcraft 
      redeemable preferred stock                              --          8,135
    Issue common stock to pay down liabilities                 214          848
    Issue common stock to pay redeemable 
      common stock put obligation                              679         --

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

                                       F-6
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.       BASIS OF PRESENTATION

ARTRA GROUP  Incorporated  ("ARTRA" or the "Company"),  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.

The Company's  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 June 26,  1997,  and the  results of  operations  and
changes in cash flows for the six month periods ended June 26, 1997 and June 27,
1996. 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 credit
arrangements  and to fund its debt service and liquidity  requirements  in 1997.
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 6, Notes  Payable,
and Note 7,  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   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 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.  Accordingly,
the Company's  annual report on Form 10-K for the fiscal year ended December 26,
1996, as filed with the  Securities and Exchange  Commission,  should be read in
conjunction  with  the  accompanying  consolidated  financial  statements.   The
condensed  consolidated  balance  sheet as of December 26, 1996 was derived from
the audited consolidated  financial statements 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.       CONCENTRATION OF RISK

The accounts  receivable of the Company's  Bagcraft  subsidiary at June 26, 1997
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 June 26, 1997, Bagcraft had 10 customers with accounts
receivable  balances that  aggregated  approximately  39% of the Company's total
trade accounts receivable.  In fiscal year 1996 no single customer accounted for
10% or more of Bagcraft's sales.

                                       F-7
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

3.       INVENTORIES

Inventories at June 26, 1997 (in  thousands) consist of:

                                                   

          Raw materials and supplies               $ 6,298     
          Work in process                              318     
          Finished goods                            11,625     
                                                   -------     
                                                   $18,241     
                                                   =======     

4.            INVESTMENT IN COMFORCE CORPORATION

At June  26,  1997  ARTRA's  investment  in  COMFORCE  Corporation  ("COMFORCE",
formerly the Lori Corporation, "Lori"), 1,739,703 shares held by the Company and
its Fill-Mor Holding, Inc. ("Fill-Mor")  subsidiary,  represented  approximately
13% of COMFORCE's  outstanding  common shares. The investment in COMFORCE common
stock is accounted  for under the  provisions  of SFAS No. 115  "Accounting  for
Certain Investments in Debt and Equity Securities." Under this statement ARTRA's
investment in COMFORCE is classified  as available  for sale  securities  and is
stated at fair value.  The Company's  operating plan for the remainder of fiscal
year 1997 anticipates the sale of these marketable securities,  with proceeds to
be used  principally  to pay down Corporate  debt  obligations  and fund working
capital requirements.  Accordingly,  ARTRA's investment in COMFORCE common stock
is  classified  in the  Company's  condensed  consolidated  balance as a current
asset. At June 26, 1997 the gross unrealized gain relating to ARTRA's investment
in COMFORCE,  reflected as a separate  component of  shareholders'  equity,  was
$13,539,000.

At June 26, 1997,  700,00  shares of COMFORCE  common stock owned by the Company
and its Fill-Mor  subsidiary  have been pledged as  collateral  for various debt
obligations.  Additionally,  the Company and a lender are currently  negotiating
the form of collateral for certain  promissory notes issued in June 1997 with an
aggregate  principal  amount of $2,950,000.  The collateral is anticipated to be
substantially  all of it the Company's  otherwise  unencumbered  COMFORCE common
shares (approximately 1,000,000 shares).

In  conjunction  with  COMFORCE's  1995  acquisition  of  its  COMFORCE  Telecom
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 June 26, 1997 and
December 26, 1996,  $271,000 and $348,000,  respectively,  of such  pre-existing
Lori  liabilities  were  classified in ARTRA's  consolidated  balance as current
liabilities of discontinued  operations.  ARTRA has deposited  125,000 shares of
its COMFORCE common stock into an escrow account to collateralize  its remaining
obligations under the Assumption Agreement.

Effective  December  19,  1996,  ARTRA and  COMFORCE  agreed  to settle  various
differences in the interpretation of certain agreements relating to the COMFORCE
Telecom  acquisition  pursuant to which COMFORCE agreed to include in a proposed
underwritten  public  offering  380,000 shares of COMFORCE  common stock held by
ARTRA and its Fill-Mor  subsidiary and ARTRA agreed to a Lock-up agreement which
limits its ability to sell its remaining  COMFORCE common shares for a period of
360 days after the effective  date of COMFORCE's  proposed  underwritten  public
offering.  COMFORCE did not retain an underwriter for the proposed  underwritten
public  offering and,  accordingly,  effective April 30, 1997 ARTRA was released
from the provisions of the Lock-up Agreement.

                                       F-8
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

In June 1997,  ARTRA sold 5,000  COMFORCE  shares in the market for  proceeds of
approximately $33,000. The disposition of these 5,000 COMFORCE shares during the
quarter ended June 26, 1997  resulted in a realized  gain of $42,000,  with cost
determined by average cost.

In March 1997, a lender  received 25,000 COMFORCE common shares held by ARTRA as
additional  consideration for a short-term loan. The disposition of these 25,000
COMFORCE  common  shares  resulted  in a realized  gain of  $213,000,  with cost
determined by average cost.

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 June 26,  1997 and  December  26,  1996 as other
receivables  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 resulted 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
June 26, 1997, 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 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  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.

5.       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

                                       F-9
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

with the issuance of BCA (the parent of Bagcraft)  preferred  stock (see Note 9)
along  with  proceeds   received  from  a  short-term  loan  agreement  with  an
unaffiliated  company that was subsequently  repaid in April 1996. 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).

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
                                                                  ========

6.       NOTES PAYABLE

Notes payable at June 26, 1997 (in thousands) consist of:
                                                          

          ARTRA 12% promissory notes - 
               1997 private placement                     $ 4,950

          ARTRA 12% promissory notes - 
               1996 private placement                              
                                                                   
          Amounts due to related parties, 
               interest principally at 10%                  6,300  

          ARTRA bank notes payable, 
          interest at the lender's index rate                --    
          
          Other, interest from 10% to 20%                   3,983  
                                                          -------  
                                                          $15,233  
                                                          =======  

                                      F-10
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

         Promissory Notes

         1997 Private Placements

         In June 1997, ARTRA completed  private  placements of $4,950,000 of 12%
promissory  notes  due  in  December  1997.  As  additional   consideration  the
noteholders  received  warrants to purchase an aggregate of 227,500 ARTRA common
shares at a price of $5.00 per share.  The  warrants  expire in June  1999.  The
warrantholders  have the right to put these  warrants  back to ARTRA at any time
during a six month period  commencing  in December  1997,  at prices of $2.00 to
$2.40 per share.  The cost of this obligation  ($514,000 if all warrants are put
back to the Company) is being accrued in the Company's financial statements as a
charge to interest expense over the period June 1997 (the  commencement  date of
the private  placement)  through December 1997 (the maturity date of the notes).
The proceeds from the private  placement were used principally to pay down other
debt  obligations.  The  promissory  notes  are  collateralized  principally  as
follows:

         Promissory  notes with an aggregate  principal amount of $2,000,000 are
         collateralized  by a 25%  interest  in the common  stock of ARTRA's BCA
         subsidiary (the parent of Bagcraft).

         The  Company  and the  lender  are  currently  negotiating  the form of
         collateral  for certain  promissory  notes with an aggregate  principal
         amount of $2,950,000,  which is anticipated to be substantially  all of
         the   Company's   otherwise   unencumbered   COMFORCE   common   shares
         (approximately 1,000,000 shares).

         In July 1997, ARTRA completed  private  placements of $7,475,000 of 12%
promissory  notes  due  in  January  1998.  As  additional   consideration   the
noteholders  received  warrants to purchase an aggregate of 199,311 ARTRA common
shares at a price of $4.50 per share.  The  warrants  expire in July  1998.  The
warrantholders  have the right to put these  warrants  back to ARTRA at any time
during a six month commencing on the earlier of the date the principal amount of
the notes are paid or the  maturity  date of the notes,  at a price of $3.00 per
share. The cost of this obligation ($598,000 if all warrants are put back to the
Company)  will be accrued in the Company's  financial  statements as a charge to
interest  expense over the period July 1997 (the date of the private  placement)
through  January (the scheduled  maturity date of the notes).  In the event of a
default,  as  defined in the note  agreements,  the  promissory  notes will bear
interest at 37%. The promissory notes are collateralized principally as follows:

         A  $4,000,000  note is  collateralized  by 575,000  shares of  COMFORCE
         common stock owned by the Company's Fill-Mor subsidiary and a secondary
         interest in the common stock of ARTRA's BCA  subsidiary  (the parent of
         Bagcraft).

         Promissory  notes with an aggregate  principal amount of $3,475,000 are
         collateralized by 652.285 shares of ARTRA Series A redeemable preferred
         stock (a 17.4% interest), 1,784.02  shares of  BCA Series A  redeemable
         preferred stock (a 48.5%  interest) and  6,488.8 shares of BCA Series B
         redeemable preferred stock (a 79.8% interest).

The proceeds  from the July 1997  private  placement  were  advanced to Peter R.
Harvey as discussed in Note 13.

         1996 Private Placement

         In April 1996, ARTRA commenced a private placement of $7,675,000 of 12%
promissory notes due April 15, 1997. As additional consideration the noteholders
received  warrants to purchase an aggregate of 418,750  ARTRA common shares at a
price of $6.00 per share. The warrants expire April 15, 1999. The warrantholders
have the right to put these warrants back to ARTRA at any time during the period
April 15, 1997 to October 15, 1998,  at a price of $2.00 per share.  The cost of
this  obligation  ($837,500  if all  warrants  are put back to the  Company) was
accrued in the Company's financial

                                      F-11
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

         statements  as a charge to interest  expense  over the period April 15,
1996 (the  commencement  date of the private  placement)  through April 15, 1997
(the maturity date of the notes as well as the date the warrantholders  have the
right  to put  their  warrants  back to  ARTRA).  These  promissory  notes  were
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.  During the second
quarter of 1997, the Company repaid these  promissory notes with the proceeds of
additional  short-term  borrowings  and with funds  received  from the Company's
Bagcraft  subsidiary  in  accordance  with a May 1997  amendment  to its  credit
agreement (see Note 7).

         Amounts Due To Related Parties

At December 26, 1996,  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.  The
proceeds of this loan were used to pay down various ARTRA  short-term  loans and
other debt  obligations.  In December  1995 the  unaffiliated  company  received
126,222 shares of ARTRA common in payment of past due interest  through  October
31, 1995.  Interest on the loans has been paid through March,  1997.  Payment on
the loans was due March 31, 1994, however, the lender did not demand payment. In
February 1997, the lender  received a warrant to purchase an additional  100,000
ARTRA  common  shares at $5.625  per share as  consideration  for not  demanding
payment of this  obligation.  In April  1997,  the lender  received a warrant to
purchase  an  additional  100,000  ARTRA  common  shares  at $5.00  per share as
consideration  for not  demanding  payment  of  this  obligation.  In June  1997
outstanding borrowings to the unaffiliated company were reduced to $300,000 with
the proceeds  from other  short-term  borrowings.  In July 1997 ARTRA repaid all
remaining obligations under these loans.

At December 26, 1996, ARTRA  outstanding  borrowings of $500,000 from an outside
director of the Company  evidenced by a short-term note bearing interest at 10%.
The loan was  collateralized by 125,000 shares of COMFORCE common stock owned by
the Company's Fill-Mor subsidiary. As additional compensation for the loan and a
December 1996 extension, the director received five year warrants to purchase an
aggregate of 50,000 ARTRA common shares at a prices ranging from $5.00 to $5.875
per share. The proceeds of the loan were used for working capital.

In  January  1997,  ARTRA  borrowed  an  additional  $300,000  from this  lender
evidenced by an short-term note, due December 23, 1997,  bearing interest at 8%.
The loan was  collateralized by 100,000 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 2002,  to purchase  25,000 ARTRA common
shares at a price of $5.75 per share.

In March  1997,  ARTRA  borrowed  an  additional  $1,000,000  from  this  lender
evidenced by a short-term  note, due May 26, 1997,  bearing interest at 12%. The
loan was  collateralized by 585,000 shares of COMFORCE common stock owned by the
Company's Fill-Mor subsidiary.  As additional compensation,  the lender received
an option to purchase  25,000  shares of  COMFORCE  common  stock,  owned by the
Company's Fill-Mor subsidiary,  at a price of $4.00 per share. The proceeds from
this loan were used in part to repay  the  ARTRA/Fill-Mor  $2,500,000  bank term
loan described below.

In April 1997, ARTRA borrowed  $5,000,000 from the above director evidenced by a
note, due April 20, 1998,  bearing interest at 10%. As additional  compensation,
the lender received a warrant to purchase 333,333 ARTRA common shares at a price
of $5.00 per share. The  warrantholder has the right to put this warrant back to
ARTRA at any time  during the period  April 21,  1998 to April 20,  2000,  for a
total purchase price of $1,000,000.  The cost of this obligation will be accrued
in the Company's  financial  statements as a charge to interest expense over the
period  April 21, 1997 (the date of the loan)  through  April 21, 1998 (the date
the warrantholder has the right to put the warrant back to ARTRA).  The proceeds
from this loan were used to repay  $1,800,000  of  borrowings  from this  lender
outstanding at March 27, 1997 and pay down other ARTRA debt obligations.

                                      F-12
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

In June 1997,  ARTRA borrowed an additional  $1,000,000  from the above director
evidenced  by a note,  due  December  10,  1997,  bearing  interest  at 12%.  As
additional compensation,  the lender received a warrant to purchase 40,000 ARTRA
common shares at a price of $5.00 per share. The  warrantholder has the right to
put this warrant  back to ARTRA at any time during the period  December 10, 1997
to June  10,  1998,  for a total  purchase  price of  $80,000.  The cost of this
obligation will be accrued in the Company's financial  statements as a charge to
interest  expense  over the period June 10, 1997 (the date of the loan)  through
December 10, 1997 (the date the  warrantholder  has the right to put the warrant
back to ARTRA).  The  proceeds  from this loan were used to pay down other ARTRA
debt obligations. As of June 26, 1997, ARTRA had total outstanding borrowings of
$6,000,000  from this director  collaterallized  by a 75% interest in the common
stock of  ARTRA's  BCA  subsidiary  (the  parent  of  Bagcraft).  In July  1997,
borrowings from this lender were reduced to $3,000,000 with proceeds advanced to
ARTRA from a Bagcraft term loan as discussed in Note 7.

In May 1996, ARTRA borrowed  $100,000 from a private  investor,  evidenced by an
unsecured  short-term note, due August 7, 1996, and renewed to February 6, 1997,
bearing interest at 10%. The proceeds of the loan were used for working capital.
At the Company's annual meeting of shareholders,  held August 29, 1996,  private
investor was elected to the Company's board of directors.  Effective January 17,
1997,  private  investor  exercised his  conversion  rights and received  18,182
shares of ARTRA common stock as payment of the principal balance of his note.

         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,  which  provided  for
interest  payable monthly at the bank's  reference rate, was guaranteed by ARTRA
and was collateralized by 1,265,000 shares of COMFORCE common stock. Proceeds of
the loan were used for working capital.  In March 1997, the loan was repaid with
proceeds from other short-term borrowings.

         Other

At June 26, 1997 and December 26, 1996,  ARTRA was the obligor  under two demand
notes issued to an unaffiliated company, in the amount of $2,266,000,  including
accrued  interest.  The notes were issued in October,  1990 with  interest at 15
percent.  ARTRA is  currently  negotiating  with the  noteholder  to  extend  or
refinance this obligation.

At June 26, 1997,  ARTRA also had outstanding  short-term  borrowings from other
unrelated parties  aggregating  $1,717,000.  The notes,  issued at various times
during the period June 1994 to June 1997, with interest rates varying between 8%
and 15% mature at various times in 1997 and 1998.

In March  1997,  ARTRA  borrowed  $1,000,000  from an  unaffiliated  corporation
evidenced by a short-term  note, due May 26, 1997,  bearing interest at 12%. The
loan was  collateralized by 630,000 shares of COMFORCE common stock owned by the
Company's Fill-Mor subsidiary.  As additional compensation,  the lender received
an option to  purchase  25,000  shares of  COMFORCE  common  stock  owned by the
Company's  Fill-Mor  subsidiary at a price of $4.00 per share, with the right to
put the  option  back to  ARTRA on or  before  May 30,  1997 for a put  price of
$50,000.  Under certain  circumstances,  ARTRA has the right to  repurchase  the
option for $50,000.  In May 1997,  ARTRA  repurchased the option for $50,000 and
repaid  this  loan.  The  proceeds  from this loan were used in part to repay an
ARTRA/Fill-Mor $2,500,000 bank term loan.

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 were  collateralized  by 215,000 shares of COMFORCE common stock owned
by the  Company's  Fill-Mor  subsidiary.  The proceeds of the loan were used for
working  capital.  In January 1997, the loan was repaid with proceeds from other
short-term borrowings.

                                      F-13
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

7.       LONG-TERM DEBT

         Long-term debt at June 26, 1997 (in thousands) consists of:
                                                             
                                                          
                                                          
          Bagcraft:
            Credit Agreement:
                Term Loan A, interest at the
                  lender's index rate plus .25%           $ 19,000   

                Term Loan B, interest at the 
                  lender's index rate plus .75%              5,000   

                Revolving credit loan,  
                  interest at the lender's index rate       13,300   

                Unamortized discount                        (3,309)  

            City of Baxter Springs, 
                Kansas loan agreements, 
                interest at varying rates                   10,674   
                                                          --------   
                                                            44,665   
          
                Current scheduled maturities               (10,137)  
                                                          --------   
                                                          $ 34,528   
                                                          ========   

Bagcraft  entered  into a credit  agreement,  dated as of December 17, 1993 (the
"Credit  Agreement")  that initially  provided for a revolving  credit loan with
interest at the lender's  index rate plus 1.5% and two separate term loans.  The
term loans were 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.  The Credit Agreement, as amended, had been extended
to mature on September 30, 1997.

In December 1996, the Credit Agreement was amended and restated  whereby,  among
other  things,  the  maturity  date of the  Credit  Agreement  was  extended  to
September 30, 2002 and certain loan covenants were amended. Term Loan A and Term
Loan B, as previously  defined in the Credit Agreement were  consolidated into a
new  $20,000,000  term loan with  interest at the lender's  index rate plus .25%
(8.75% at June 26, 1997).  Principal  payments under the term loan were modified
to provide for annual principal payments (payable in quarterly  installments) in
the amount of $2,000,000 in 1997 through 1999;  $3,000,000 in 2000 and 2001; and
$8,000,000  in 2002.  The  amended and  restated  Credit  Agreement  reduced the
interest  on the  revolving  credit  loan to the  lender's  index  rate and also
provided for a $3,000,000  capital  expenditures line of credit with interest at
the lender's index rate plus .25%.

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 June 26, 1997, approximately $3,800,000 was available and unused
by Bagcraft  under the  revolving  credit loan.  Borrowings  under the revolving
credit  loan  are  payable  upon  maturity  of  the  Credit  Agreement,   unless
accelerated under terms of the Credit Agreement. At June 26, 1997 , the interest
rate on the revolving credit loan was 8.5%.

                                      F-14
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Borrowings under the Credit Agreement are collateralized by the common stock and
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 limit future 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 June 26, 1997  Bagcraft was in
compliance with the provisions of its Credit Agreement.

Effective  May 5,  1997,  the Credit  Agreement  was  amended  to provide  for a
$5,000,000 term loan (Term Loan B) with interest at the lender's index rate plus
 .75%. Term Loan B is payable on May 8, 1998,  unless  accelerated under terms of
the Credit  Agreement.  The proceeds of Term Loan B were advanced to ARTRA under
terms of an intercompany note payable to Bagcraft on May 8, 1998. ARTRA used the
proceeds of this loan to repay certain ARTRA debt obligations.

Effective  July 17,  1997,  the Credit  Agreement  was  amended to provide for a
$7,500,000 term loan (Term Loan C) with interest at the lender's index rate plus
1%. Term Loan C is payable on July 15, 2000,  unless  accelerated under terms of
the Credit  Agreement.  The proceeds of Term Loan C were advanced to ARTRA under
terms of an intercompany  note payable to Bagcraft on July 15, 2000.  ARTRA used
the  proceeds  of this loan to repay  certain  ARTRA  debt  obligations  and for
working capital.

As  additional  compensation  for  borrowings  under the  Credit  Agreement,  in
December 1993, the lender received a detachable warrant ("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 January 1997, in accordance
with the December 1996 amendment to the Credit Agreement,  Bagcraft  repurchased
50% of the Warrant  (6.5% of the fully  diluted  common  equity of Bagcraft) for
$1,500,000. Bagcraft can repurchase the remaining 50% of the Warrant on or after
December 17, 1997 for an amount based upon the  Warrant's  pro rata share of the
highest of book  value,  appraised  value or market  value of  Bagcraft as noted
above.  In accordance  with the May 5, 1997 and July 17, 1997  amendments to the
Credit  Agreement  the  Warrant was  amended.  In the event there is a change in
Bagcraft's ownership through July 15, 2000, the lender is entitled to receive an
amount equal to 6.5% of the fully diluted common equity of Bagcraft,  based upon
the fair  value of  Bagcraft  at the date of a  change  of  ownership,  less the
$1,500,000 the lender received in January 1997 when Bagcraft  repurchased 50% of
the Warrant.

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 June 26,  1997,  Bagcraft  had  outstanding
         borrowings of $5,600,000 under this loan agreement.

         A  $5,000,000   subordinated   promissory   note  payable  as  follows:
         $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 June 26, 1997,
         Bagcraft  had  outstanding  borrowings  of  $4,850,000  under this loan
         agreement.

                                      F-15
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
       NOTES TO CONDENSED 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 June 26, 1997, Bagcraft had outstanding
         borrowings of $224,000 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.

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.

8.       REDEEMABLE COMMON STOCK

In recent  years 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 at a premium  over the initial  sales  price.
The  increment  in the option price over the initial  sales price of  redeemable
common stock is reflected in the Company's  financial  statements by a charge to
retained earnings. At June 26, 1997 options were outstanding that, if exercised,
would  require  ARTRA to  repurchase  72,984  shares of its common  stock for an
aggregate amount of $3,175,000.

During 1987,  ARTRA entered into an agreement with a private  corporation  under
which it sold its common shares along with a put option that  required  ARTRA to
repurchase  these shares at the option of the holder.  A major  shareholder  and
executive  officer of the  private  corporation  is an ARTRA  director.  The put
option  agreement has been extended from time to time, most recently in November
1992. The private corporation  received the right to sell to ARTRA 23,004 shares
of ARTRA  common  stock at an initial put price of $56.76 pre share.  The option
price  increases  by 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. At
June 26, 1997, the option price was $89.52 per share.

As additional  consideration  for its guaranty of $2,500,000 of ARTRA bank notes
during the period March 1989 through March 1994, the private  corporation  noted
above received 49,980 ARTRA common shares. On March 31, 1994, ARTRA entered into
a series  of  agreements  with  its bank  lender  and  with  the  above  private
corporation.  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
ARTRA note payable and an option to put back to ARTRA its 49,980 shares of ARTRA
common stock at a price of $15.00 per share. The option price increases by $2.25
per share annually ($22.31 per share at June 26, 1997). During the first quarter
of 1996 the ARTRA  bank notes were  discharged  (see Note 5) and the  $2,500,000
note payable to the private corporation and related accrued interest was paid in
full principally with proceeds from additional short-term borrowings.

In January  1997,  the Company  settled an  obligation  that would have required
ARTRA to repurchase  25,750  common  shares for a total of $679,000.  The option
holder  retained the 25,750 ARTRA common shares subject to the option  agreement
and  received an  additional  89,793 ARTRA common  shares in  settlement  of all
obligations due under the option  agreement.  Accordingly,  the 25,750 shares of
ARTRA common stock subject to the option  agreement were removed from redeemable
common stock and reclassified to shareholders' equity.

                                      F-16
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

9.       REDEEMABLE PREFERRED STOCK

         Redeemable preferred stock at June 26, 1997 (in thousands) consists of:

      Currently payable:
        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                                   $  2,065    

        BCA Holdings preferred stock, Series B,
          $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                       9,642    
                                                                 -------    
                                                                $ 11,707    
                                                                 =======    

      Noncurrent:
        ARTRA redeemable preferred stock,
          Series A, $1,000 par value,
          6% cumulative payment-in-kind,
          including accumulated dividends,
          net of unamortized discount
          of $1,101 in 1997; redeemable March 1, 2000          
          at $1,000 per share plus accrued dividends;
          authorized 2,000,000 shares all series;
          issued 3,750 shares                                   $  4,651  
 
        BCA Holdings preferred stock, Series A,
          $1.00 par value, 6% cumulative,
          including accumulated dividends;
          redeemable in 1997 with a liquidation
          preference of $1,000 per share;
          10,000 shares authorized; issued 3,675 shares            4,473  
                                                                 -------  
                                                                $  9,124  
                                                                 =======  
 

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 $2,002,000 were accrued at June
26, 1997.

                                      F-17
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

         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 Series A preferred stock
having a liquidation value of $3,000,000. Accumulated dividends of $798,000 were
accrued at June 26, 1997.

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  $1,200,000  were
accrued at June 26, 1997.

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
consolidated statement of operations as minority interest.

The BCA Series B  preferred  stock is  redeemable  on June 1, 1997.  Accumulated
dividends of $1,507,000 were accrued at June 26, 1997.

In conjunction with the preferred stock exchange  agreement,  Bagcraft's  lender
consented to an advance of $4,135,000 under Bagcraft's  revolving credit loan 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
Note 5.

10.      INCOME TAXES

No income tax benefit was  recognized  in  connection  with the  Company's  1997
pre-tax loss due to the Company's tax loss  carryforwards and the uncertainty of
future taxable income. The 1996 extraordinary  credit represents a net gain from
discharge of  indebtedness.  No income tax expense is reflected in the Company's
financial  statements  resulting from the 1996  extraordinary  credit due to the
utilization of tax loss carryforwards.

At June 26, 1997, the Company and its  subsidiaries  had Federal income tax loss
carryforwards of approximately $36,000,000, expiring principally in 2002 - 2010,
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

                                      F-18
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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.

11.      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.

12.      LITIGATION

The Company and its subsidiaries are the defendants in various  business-related
litigation and environmental  matters. At June 26, 1997, the Company had accrued
current liabilities of $1,900,000 for potential 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  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 by 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 and junior debentures 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.

                                      F-19
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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.

In January,  1985 the United  States  Environmental  Protection  Agency  ("EPA")
notified the Company's Bagcraft subsidiary 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,  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 to
formally extinguish the EPA claim. In September 1989, Bagcraft was served with a
complaint filed by the State of Illinois against  seventeen  parties for alleged
involvement  with the Cross Brothers site.  The complaint  alleged  Bagcraft was
responsible  for the costs of  cleanup  incurred  and to be  incurred.  Although
Bagcraft  has denied  liability  for the site,  it has entered into a settlement
agreement with the State, along with the other potential responsible parties, to
resolve  all  claims  associated  with the site.  In July,  1997  Bagcraft  paid
approximately $150,000 to formally extinguish the state claim.

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'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.

                                      F-20
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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.  In April  1997,  the EPA  filed an
administrative complaint and has proposed a $250,000 civil penalty. Bagcraft has
filed a response to the complaint and is attempting to negotiate a settlement.

Bagcraft reported a release  associated with solvent tanks located in a vault at
its Chicago  manufacturing  facility.  After seeking  approval from the Illinois
Environmental  Protection Agency ("IEPA"),  Bagcraft  installed and is currently
operating  a soil vapor gas  extraction  system  designed  to  achieve  remedial
objectives which the IEPA has determined to be appropriate to the site. Bagcraft
has since received a No Further Recommendation Letter from the IEPA.

Bagcraft has been  notified  that it may have  responsibility  with respect to a
clean-up  site  on  Basket  Creek  Road,  Georgia.  Bagcraft  presently  has  no
indication of its liability, if any or whether it is a responsible party.

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 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

                                      F-21
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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.

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 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.

13.      RELATED PARTY TRANSACTIONS

At June 26, 1997, 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         $   8,677    

     Less interest for the period January 1,
       1993 to date, accrued and fully reserved            (1,871)   
                                                        ---------    
           Net advances                                 $   6,806    
                                                        =========    

                                      F-22
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

ARTRA has total  advances  due from its  president,  Peter R.  Harvey,  of which
$8,677,000,  including accrued interest,  remained outstanding at June 26, 1997.
The advances  bear  interest at the prime rate plus 2% (10.5% at June 26, 1997).
This  receivable  from Peter R. Harvey has been  classified  as a  reduction  of
common shareholders' equity.

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%. In April 1995  advances  from
ARTRA's Fill-Mor  subsidiary to Peter R. Harvey totaling  $1,540,000  (including
$398,000 of accrued interest) 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 six months  ended June 26, 1997 and June 27,
1996 totaled $341,000 and $205,000, 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.

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 1996 discharge of
bank  indebtedness (see Note 5), 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
March  1997,  the bank sold its  interest in Mr.  Harvey's  note and the related
collateral  to a  private  investor.  ARTRA  retained  its  $2,150,000  security
interest the real estate,  subordinated to the  noteholder's  $850,000  security
interest in this real estate.

In July 1997,  ARTRA advanced an additional  $7,475,000 to Peter R. Harvey.  Mr.
Harvey provided ARTRA with additional  collateral for his advances consisting of
652.285 shares of ARTRA redeemable preferred stock (a 17.4% interest),  1,784.02
shares of BCA Series A redeemable preferred stock (a 48.5% interest) and 6,488.8
shares of BCA Series B redeemable preferred stock (a 79.8% interest). As of June
26, 1997, this additional  collateral had a carrying value in ARTRA's  condensed
consolidated  balance  sheet of  approximately  $10,700,000.  The advances  were
funded with the proceeds from the July 1997 private  placement of ARTRA notes as
discussed in Note 6.

                                      F-23
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

In conjunction  with COMFORCE's  October 1995  acquisition of COMFORCE  Telecom,
ARTRA agreed to assume  substantially all pre-existing  COMFORCE liabilities and
indemnify  COMFORCE  in  the  event  any  future  liabilities  arise  concerning
pre-existing environmental matters and business related litigation. Accordingly,
at June 26, 1997 and December 26, 1996,  respectively,  $271,000 and $348,000 of
such  pre-existing  Lori  liabilities  were  classified in ARTRA's  consolidated
balance sheet at as current liabilities of discontinued operations.

For a discussion of certain other related party debt obligations see Note 6.

14.      OTHER INFORMATION

Effective January 2, 1997,  Bagcraft  purchased the business assets,  subject to
buyer's assumption of certain liabilities, of AB Specialty Holding Company, Inc.
("AB") for consideration  consisting of cash of approximately $2.4 million.  The
purchased assets  consisted  principally of plant and equipment of approximately
$1.3 million and inventory of approximately $1.1 million. The acquisition of AB,
funded through borrowings under Bagcraft's Credit Agreement,  has been accounted
for by the purchase  method and,  accordingly,  the assets and liabilities of AB
were included in the Company's  financial  statements  at their  estimated  fair
market value at the date of acquisition. The results of operations of AB are not
considered  material to the Company's  consolidated  financial  statements.  The
acquisition of AB is expected to enhance Bagcraft's  specialty bag business.  At
December 26, 1996, other  noncurrent  assets included a deposit of approximately
$1.2 million related to the acquisition of AB.

                                      F-24
REPORT OF INDEPENDENT ACCOUNTANTS

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

We  have  audited  the  consolidated  financial  statements  and  the  financial
statement  schedules of ARTRA GROUP  Incorporated  and Subsidiaries as listed in
the  index  on page  F-1 of this  Form  10-K.  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 26, 1996 and December 28,
1995, and the consolidated  results of their operations and their cash flows for
each of the  three  fiscal  years  in the  period  ended  December  26,  1996 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 1997.  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
April 2, 1997

                                      F-25
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                 (In thousands, except share and per share data)
December 26,     December 28,
                                                                      1996             1995
                                                                  ------------     ------------

                                      ASSETS
Current assets:
   Cash and equivalents                                                  $171           $2,347
   Restricted cash and equivalents                                         -               552
   Receivables, less allowance for doubtful accounts
      and markdowns of $512 in 1996 and $250 in 1995                    8,267           10,897
   Inventories                                                         14,967           16,634
   Available-for-sale securities                                       22,564            1,427
   Other                                                                  931              324
                                                                  ------------     ------------
               Total current assets                                    46,900           32,181
                                                                  ------------     ------------

Property, plant and equipment
    Land                                                                  417              930
    Buildings                                                          11,672           11,679
    Machinery and equipment                                            32,346           30,547
    Construction in in progress                                           979            1,117
                                                                  ------------     ------------
                                                                       45,414           44,273
Less accumulated depreciation and amortization                         20,480           17,335
                                                                  ------------     ------------
                                                                       24,934           26,938
                                                                  ------------     ------------

Other assets:
   Available-for-sale securities                                           -            15,519
   Excess of cost over net assets acquired,
      net of accumulated amortization of 
      $2,083 in 1996 and $1,778 in 1995                                 2,995            3,258
   Other                                                                2,550               53
                                                                  ------------     ------------
                                                                       28,109           18,830
                                                                  ------------     ------------
                                                                      $77,379          $77,949
                                                                  ============     ============
The accompanying notes are an integral part of the consolidated financial statements.
F-26
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                 (In thousands, except share and per share data)
December 26,     December 28,
                                                                      1996             1995
                                                                  ------------     ------------

                                    LIABILITIES
Current liabilities:
   Notes payable, including amounts  
      due to related parties of 
      $3,600 in 1996 and $5,675 in 1995                               $18,631          $25,300
   Current maturities of long-term debt                                 2,712            3,512
   Accounts payable, including amounts due
       to a related party of $399 in 1995                               5,129           10,925
   Accrued expenses                                                    10,394           14,106
   Income taxes                                                           478              203
   Bagcraft detachable put warrant                                      1,500               -
   Redeemable preferred stock                                          11,100               -
   Liabilities of discontinued operations                                 348            4,500
                                                                  ------------     ------------
               Total current liabilities                               50,292           58,546
                                                                  ------------     ------------

Long-term debt                                                         34,207           34,113
Other noncurrent liabilities                                            2,135              650
Commitments and contingencies

Redeemable common stock,
   issued 98,734 shares in 1996
   and 283,965 shares in 1995                                           3,657            4,774

Redeemable preferred stock                                              8,678           18,631

                          SHAREHOLDERS' EQUITY (DEFICIT)
Common stock, no par value;
   authorized 20,000,000 shares in 1996
   and 7,500,000 shares in 1995;
   issued 7,624,766 shares in 1996  
   and 7,102,979 shares in 1995                                         5,793            5,540
Additional paid-in capital                                             40,211           38,526
Unrealized appreciation of investments                                 25,719           21,047
Receivable from related party, 
   including accrued interest                                          (6,468)          (4,318)
Accumulated deficit                                                   (86,793)         (98,755)
                                                                  ------------     ------------
                                                                      (21,538)         (37,960)
Less treasury stock (7,628 shares in 1996 
   and 57,038 shares in 1995), at cost                                     52              805
                                                                  ------------     ------------
                                                                      (21,590)         (38,765)
                                                                  ------------     ------------
                                                                      $77,379          $77,949
                                                                  ============     ============
The accompanying notes are an integral part of the consolidated financial statements.
F-27
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (In thousands, except per share data)
Fiscal Year
                                                             ----------------------------------- 
                                                                1996        1995         1994
                                                             ---------   ----------   ----------
Net sales                                                    $120,699     $121,879     $111,837
                                                             ---------   ----------   ----------

Costs and expenses:
   Cost of goods sold, 
      exclusive of depreciation and amortization               94,613      102,508       94,766
   Selling, general and administrative                         15,638       19,131       16,760
   Depreciation and amortization                                3,927        4,330        4,337
   Write-down of idle machinery and equipment                      -         1,503           -
                                                             ---------   ----------   ----------
                                                              114,178      127,472      115,863
                                                             ---------   ----------   ----------

Operating earnings (loss)                                       6,521       (5,593)      (4,026)
                                                             ---------   ----------   ----------

Other income (expense):
   Interest expense                                            (8,005)      (9,782)      (8,618)
   Realized gain on disposal of 
      available-for-sale securities                             5,818           -            -
   Other income (expense), net                                   (107)         (88)          13
   Equity in loss of COMFORCE                                      -          (533)          -
                                                             ---------   ----------   ----------
                                                               (2,294)     (10,403)      (8,605)
                                                             ---------   ----------   ----------

Earnings (loss) from continuing operations
   before income taxes and minority interest                    4,227      (15,996)     (12,631)
Provision for income taxes                                       (152)         (51)          (9)
Minority interest                                                (526)        (896)        (889)
                                                             ---------   ----------   ----------
Earnings (loss) from continuing operations                      3,549      (16,943)     (13,529)
Earnings (loss) from discontinued operations                       -            10      (15,906)
                                                             ---------   ----------   ----------
Earnings (loss) before extraordinary credit                     3,549      (16,933)     (29,435)
Extraordinary credit, net discharge of indebtedness             9,424       14,030        8,965
                                                             ---------   ----------   ----------
Net earnings (loss)                                            12,973       (2,903)     (20,470)
Dividends applicable to 
   redeemable preferred stock                                    (621)        (565)        (516)
Reduction of retained earnings 
   applicable to redeemable common stock                         (390)        (767)        (309)
                                                             ---------   ----------   ----------
Earnings (loss) applicable to common shares                   $11,962      ($4,235)    ($21,295)
                                                             =========   ==========   ==========

Earnings (loss) per share:
   Continuing operations                                        $0.28       ($2.69)      ($2.56)
   Discontinued operations                                         -            -         (2.74)
                                                             ---------   ----------   ----------
   Loss before extraordinary credit                              0.28        (2.69)       (5.30)
   Extraordinary credit                                          1.23         2.06         1.57
                                                             ---------   ----------   ----------
               Net earnings (loss)                              $1.51       ($0.63)      ($3.73)
                                                             =========   ==========   ==========

Weighted average number of shares of common stock 
   and common stock equivalents outstanding                     7,939        6,776        5,702
                                                             =========   ==========   ==========
The accompanying notes are an integral part of the consolidated financial statements.
F-28
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 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)

                                      F-29
Net earnings                            -        -          -            -           -       12,973       -        -        12,973
 Common stock issued 
    to pay liabilities              125,012       94        362           -           -           -  (120,554)     818        1,274
 Common stock issued 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           -        -          -            -       (2,150)         -        -        -        (2,150)
 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          -        -          -         4,672          -           -        -        -         4,672
 Exercise of stock options
    and warrants                     61,000       46        213           -           -           -   (16,900)     109          368
 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                      -        -          -            -           -        (390)       -        -          (390)
 Redeemable preferred 
    stock dividends                      -        -          -            -           -        (621)       -        -          (621)
                                  ---------- -------  ---------- ------------  ---------- ----------- -------- -------- ------------
Balance at December 26, 1996      7,624,766   $5,793    $40,211      $25,719     ($6,468)   ($86,793)   7,628     ($52)    ($21,590)
                                  ========== =======  ========== ============  ========== =========== ======== ======== ============
The accompanying notes are an integral part of the consolidated financial statements.
F-30
ARTRA GROUP INCORPORATED
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (In thousands of dollars)
Fiscal Year
                                                                                --------------------------------------
                                                                                  1996           1995           1994
                                                                                --------       --------       --------
Cash flows from operating activities:
   Net earnings (loss)                                                          $ 12,973       ($ 2,903)      ($20,470)
                                                                                --------       --------       --------
      Adjustments to reconcile net earnings (loss)
             to cash flows from operating activities:
         Extraordinary gain from net discharge of indebtedness                    (9,424)       (14,030)        (8,965)
         Gain on disposal of discontinued operations                                --           (8,183)          --
         Depreciation of property, plant and equipment                             3,622          4,120          4,252
         Amortization of excess of cost over net assets acquired                     305            837          1,693
         Impairment of goodwill                                                     --            6,430         10,800
         Amortization of other assets                                                548            689            963
         Inventory valuation reserve                                                 191            290           --
         Gain on sale of property, plant and equipment                                78           --              (59)
         Write-down of idle equipment and machinery                                 --            1,503           --
         Gain on sale of COMFORCE common stock                                    (5,818)          --             --
         Equity in loss of COMFORCE                                                 --              533           --
         Minority interest                                                           526            896            889
         Contribution to ARTRA  ESOP                                                --               42             77
         Other, principally common stock issued as compensation                      220          1,300            485
     Changes in assets and liabilities, net of effects of
        businesses acquired and discontinued:
          (Increase) decrease in receivables                                       2,630           (184)        (1,923)
          (Increase) decrease in inventories                                       1,476            453           (727)
          (Increase) decrease in other current and noncurrent assets                (169)         1,421          1,068
          Increase (decrease) in payables and accrued expenses                    (5,980)           611          4,675
          Increase (decrease) in other current and noncurrent liabilities         (4,497)           450           (763)
          Decrease  in receivable from related party,
               including accrued interest                                         (1,061)          (218)          (257)
                                                                                --------       --------       --------
Net cash flows used by operating activities                                       (4,380)        (5,943)        (8,262)
                                                                                --------       --------       --------

Cash flows from investing activities:
   Proceeds from sale of COMFORCE common stock                                     3,717           --             --
   Proceeds from sale of property, plant and equipment                               132           --            2,251
   Additions to property, plant and equipment                                     (2,645)        (2,820)       (11,881)
   Proceeds from collection of Welch notes                                           342          3,000           --
   Decrease in restricted cash                                                       552            772           --
   AB Specialty acquisition deposit                                               (1,183)          --             --
   Acquisition of Arcar                                                             --             --           (2,264)
   Proceeds from sale of Arcar                                                      --           20,318           --
   Retail fixtures                                                                  --             (631)          (665)
   Other                                                                            --             --              101
                                                                                --------       --------       --------
Net cash flows from (used by) investing activities                                   915         20,639        (12,458)
                                                                                --------       --------       --------
The accompanying notes are an integral part of the consolidated financial statements.
F-31
ARTRA GROUP INCORPORATED
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (In thousands of dollars)
Fiscal Year
                                                                                 -----------------------------------------
                                                                                   1996            1995            1994
                                                                                 --------        --------        --------
Cash flows from financing activities:
   Net increase in short-term debt                                                    286           5,488           1,920
   Proceeds from long-term borrowings                                             141,896         136,756         116,775
   Reduction of long-term debt                                                   (140,850)       (156,641)       (100,131)
   Proceeds from private placements of ARTRA common stock                            --              --             3,230
   Proceeds from exercise of stock options and warrants                               369              48              30
   Exercise of redeemable common stock put options                                   (510)           --               (50)
   Other                                                                               98             (70)            (44)
                                                                                 --------        --------        --------
Net cash flows from (used by) financing activities                                  1,289         (14,419)         21,730
                                                                                 --------        --------        --------

Increase (decrease) in cash and cash equivalents                                   (2,176)            277           1,010
Cash and equivalents, beginning of year                                             2,347           2,070           1,060
                                                                                 --------        --------        --------
Cash and equivalents, end of year                                               $     171       $   2,347       $   2,070
                                                                                 ========        ========        ========

Supplemental cash flow information:
 Cash paid during the year for:
  Interest                                                                      $   5,320       $   5,847       $   8,811
  Income taxes paid (refunded), net                                                   157             (22)             59

Supplemental schedule of noncash investing and financing activities:
    Issue common stock and redeemable common stock
       to pay down current liabilities                                          $   1,274       $   1,040       $     791
    Issue common stock as additional consideration
       for short-term borrowings                                                      661           1,266            --
    BCA Holdings redeemable preferred stock issued in exchange for
       Bagcraft redeemable preferred stock                                          8,135            --              --
    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
    Notes issued to sellers as consideration for Arcar acquisition                   --              --             8,000
The accompanying notes are an integral part of the consolidated financial statements.
F-32
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.

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,  and to fund its
debt service and liquidity requirements in 1997. 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 8, Notes Payable,  and Note 9, 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 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 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 as discussed in Note
3.

As  discussed  in Note 3, on October  17,  1995,  COMFORCE  acquired  all of the
capital stock of COMFORCE Telecom Inc. ("COMFORCE  Telecom"),  formerly Spectrum
Global   Services,   Inc.  d/b/a  YIELD  Global.   COMFORCE   Telecom   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 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 COMFORCE Telecom acquisition, ARTRA's 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
during the fourth  quarter of 1995.  At December 28,  1995,  the  investment  in
COMFORCE was recognized as a marketable  security  available for sale and stated
at fair value.  At December 26,  1996,  ARTRA's  ownership  interest in COMFORCE
common  stock  was  reduced  to  approximately  14%.  See  Note 6 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.

                                      F-33
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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
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 7, 8 and 11 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.

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.

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.

                                      F-34
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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.

Effective for the fiscal year ending  December 26, 1996 the Company adopted SFAS
No. 121,  "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of ". The  pronouncement  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.  The adoption of SFAS No. 121
did not have a material impact on the Company's financial statements.

G.   Revenue Recognition

Sales to customers are recorded at the time of shipment.

H.   Income Taxes

Income taxes are accounted  for as  prescribed in SFAS 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.

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.

                                      F-35
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

J.   Stock-Based Compensation

Effective for the fiscal year ending  December 26, 1996 the Company adopted SFAS
No.  123,   "Accounting  for  Stock-Based   Compensation".   The   pronouncement
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. The Company did not adopt the new fair
value accounting,  but instead chose to comply with the disclosure  requirements
of SFAS No.  123.  Accordingly,  the  adoption  of SFAS  No.  123 did not have a
material impact on the Company's financial statements.

K.   Recently Issued Accounting Pronouncements

         Earnings Per Share

In February 1997, the Financial  Accounting  Standards Board issued Statement of
Financial  Accounting  Standards No. 128,  Earnings Per Share ("SFAS 128"). SFAS
128 specifies the  computation,  presentation,  and disclosure  requirements for
earnings per share. This new accounting principle is effective for the Company's
fiscal year ending  December 25, 1997.  The Company  believes that adoption will
not have a material impact on its financial statements.

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.

         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 the jewelry business.

Effective  October 17,  1995,  COMFORCE  acquired  all of the  capital  stock of
COMFORCE Telecom Inc. ("COMFORCE Telecom"), 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

                                      F-36
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

COMFORCE for  guaranteeing the payment of the $6.4 million purchase price to the
seller.  Additionally,  in conjunction  with the COMFORCE  Telecom  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 December 26, 1996 and December
28, 1995,  $348,000 and  $4,500,000,  respectively,  of such  pre-existing  Lori
liabilities  were  classified  in  ARTRA's   consolidated   balance  as  current
liabilities  of  discontinued   operations.   These  Lori  liabilities   consist
principally  of notes and  accounts  payable  incurred  by  Lori's  discontinued
jewelry operations. The Assumption Agreement also provided for ARTRA to exchange
its interest in 100% of Lori's Series C cumulative  preferred  stock for 100,000
newly issued shares of COMFORCE common stock.

COMFORCE Telecom 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  Telecom was funded  principally  by
private placements of approximately 1,950,000 shares of COMFORCE common stock at
$3.00 per share (total  proceeds of  approximately  $5,800,000)  plus  five-year
detachable warrants to purchase  approximately 970,000 shares of COMFORCE common
stock at $3.375 per share.

Effective July 4, 1995, COMFORCE'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 Telecom 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 in the third 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 Telecom, 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 ownership interest in COMFORCE common stock was reduced to
approximately  14%  and  25%  at  December  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 6 for a further  discussion  of the  accounting
treatment of ARTRA's investment in COMFORCE.

Effective  December  19,  1996,  ARTRA and  COMFORCE  agreed  to settle  various
differences in the interpretation of certain agreements relating to the COMFORCE
Telecom acquisition, whereby, among other things:

           (a)    COMFORCE  delivered to ARTRA 100,000 shares of COMFORCE common
                  stock in  consideration  of ARTRA's  guarantee of the COMFORCE
                  Telecom  purchase  price to the seller and  100,000  shares of
                  COMFORCE  common  stock for the  cancellation  of the Series C
                  Preferred Stock.  ARTRA's financial  statements have reflected
                  the issuance of these 200,000  COMFORCE common shares to ARTRA
                  since the fourth quarter of 1995.

           (b)    ARTRA  delivered  to  COMFORCE  certificates   evidencing  its
                  ownership of 100% of the Lori Series C Preferred Stock.

           (c)    COMFORCE agreed to include in a proposed  underwritten  public
                  offering 380,000 shares of COMFORCE common stock held by ARTRA
                  and  its  Fill-Mor  subsidiary.  Sales  proceeds  will be used
                  principally  to  discharge  certain  ARTRA and  Fill-Mor  debt
                  obligations.

                                      F-37
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

           (d)    ARTRA agreed to a Lock-up  Agreement  which limits its ability
                  to sell its remaining  COMFORCE  common shares for a period of
                  360 days  after  the  effective  date of  COMFORCE's  proposed
                  underwritten public offering.

           (e)    ARTRA agreed to deposit  125,000 shares of its COMFORCE common
                  stock into an escrow  account to  collateralize  its remaining
                  obligations under the Assumption Agreement.

The proposed underwritten public offering referred to in paragraph (c) above has
not  occurred as of the date of this Form 10-K.  If COMFORCE  does not retain an
underwriter  by April 30, 1997,  ARTRA will released from the  provisions of the
Lock-up Agreement.

         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 COMFORCE and
its  majority-owned  subsidiaries  effective  October  1995.  The  1995 and 1994
operating results (in thousands) of Bagcraft's discontinued Arcar subsidiary and
COMFORCE's   discontinued   jewelry   business  and  net  gain  on  disposal  of
discontinued operations consist of:

                                                1995        1994
                                              --------    --------
                                                                               
     Net sales                                $ 16,932    $ 40,278
                                              ========    ========

     Loss from operations 
       before income taxes                    $ (8,156)   $(15,832)

     
     Provision for income taxes                    (17)        (74)
                                              --------    --------
     Loss from operations                       (8,173)    (15,906)
                                              --------    --------       

     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)
                                              ========    ========
 

                                      F-38
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

4.       CONCENTRATION OF RISK

The accounts  receivable  of the Company's  Bagcraft  subsidiary at December 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  December 26 1996,  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 1996 sales.

5.       INVENTORIES

Inventories (in thousands) consist of:
         
                                           December 26,    December 28,
                                               1996            1995
                                             -------         -------
                                                             
         Raw materials and supplies          $ 5,582         $ 5,645
         Work in process                         287              40
         Finished goods                        9,098          10,949
                                             -------         -------
                                             $14,967         $16,634
                                             =======         =======

6.            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  3,  due to the  issuances  of  COMFORCE  common  shares  in
conjunction with the acquisition of COMFORCE Telecom, ARTRA's 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  requirements  of APB Opinion
No. 18 "The Equity Method of Accounting for  Investments in Common Stock" during
the fourth quarter of 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  common stock was 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 was classified as available for
sale and was stated at fair value. At December 28, 1995,  COMFORCE common shares
with a fair value of $1,427,000,  disposed of in the first quarter of 1996, were
classified  in the Company's  consolidated  balance sheet as a current asset and
the  remaining  COMFORCE  common  shares with a fair value of  $15,519,000  were
classified in the Company's  consolidated  balance sheet as a noncurrent  asset.
The adoption of SFAS No. 115 resulted in an increase to shareholders'  equity in
the fourth quarter of 1995 of $21,047,000.

                                      F-39
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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 consolidated
balance sheet at December 26, 1996 as other  receivables 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
resulted 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 December 26, 1996, no options to
acquire any of the 200,000 COMFORCE common shares had been exercised.

During 1996 ARTRA sold 193,000  COMFORCE  common shares in the market,  with the
net proceeds of approximately  $3,7000,000 used for working capital. During 1996
certain lenders  received  105,000 COMFORCE common shares held by the Company as
additional  consideration  for  short-term  loans.  In  October  1996,  a lender
exercised  the  conversion  rights  of a  short-term  loan and  received  33,333
COMFORCE  common  shares  in  settlement  of  the  Company's   obligation.   The
disposition of these 331,333  COMFORCE  common shares resulted in realized gains
of $5,818,000  during the year ended December 26, 1996,  with cost determined by
average cost.

At December 26, 1996 ARTRA's remaining investment in COMFORCE (1,744,703 shares,
currently  a  common  stock  ownership   interest  of  approximately  14%)  were
classified  in the  Company's  consolidated  balance sheet as a current asset as
"Available-for-sale  securities." At December 26, 1996 the gross unrealized gain
relating to ARTRA's investment in COMFORCE, reflected as a separate component of
shareholders' equity, was $25,719,000.

As  discussed  in Note 8, at December  26,  1996,  1,715,000  shares of COMFORCE
common stock owned by the Company and its Fill-Mor  subsidiary have been pledged
as collateral  for various  short-term  borrowings and 54,703 shares of COMFORCE
common  stock  owned  by  the  Company  and  its  Fill-Mor   subsidiary   remain
unencumbered.

7.       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 8
and 11 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).

                                      F-40
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO 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
                                                                  ======== 

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.

         COMFORCE Debt Restructuring

Per terms of a debt settlement  agreement,  borrowings due a bank under the loan
agreements  of COMFORCE and its  discontinued  jewelry  operations  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  of  December  23,  1994.  Upon  the
satisfaction of certain conditions of the debt settlement agreement in 1995, the
balance of this indebtedness was discharged.

The Company  recognized an extraordinary gain of $8,965,000 ($1.57 per share) in
December 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
                                                                 =========

                                      F-41
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

On March 31,  1995,  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  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
                                                                 =========

8.       NOTES PAYABLE

Notes payable (in thousands) consist of:
                                                 December 26,  December 28,
                                                      1996         1995
                                                    -------      -------

     ARTRA bank notes payable, 
       at various interest rates                    $ 2,500      $12,063

     ARTRA 12% promissory notes                       7,675         --
                                                            
     ARTRA 12% convertible subordinated 
       promissory notes                                --          2,500
                                                       
     Amounts due to related parties, 
       interest principally at 10%                    3,600        5,675

     Other, interest from 10% to 20%
                                                      4,856        5,062
                                                    -------      -------
                                                    $18,631      $25,300
                                                    =======      =======

         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,  which  provided  for
interest  payable  monthly at the bank's  reference  rate (8.25% at December 26,
1996) was  guaranteed  by ARTRA and was  collateralized  by 1,265,000  shares of
COMFORCE common stock.  Proceeds of the loan were used for working  capital.  In
March 1997, the loan was repaid with proceeds from other  short-term  borrowings
as discussed below.

                                      F-42
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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 a  lawsuit  in
connection  with the  acquisition  and subsequent  reorganization  of Envirodyne
Industries,  Inc. as  discussed  in Note 18.  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 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 11)  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 19), 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.

         Promissory Notes

         In April 1996, ARTRA commenced a private placement of $7,675,000 of 12%
promissory notes due April 15, 1997. As additional consideration the noteholders
received  warrants to purchase an aggregate of 418,750  ARTRA common shares at a
price of $6.00 per share. The warrants expire April 15, 1999. The warrantholders
have the right to put these warrants back to ARTRA at any time during the period
April 15, 1997 to October 15, 1998,  at a price of $2.00 per share.  The cost of
this obligation  ($837,500 if all warrants are put back to the Company) is being
accrued in the Company's  financial  statements as a charge to interest  expense
over the period April 15, 1996 (the commencement date of the private  placement)
through  April 15, 1997 (the  maturity date of the notes as well as the date the
warrantholders  have the  right to put  their  warrants  back to  ARTRA).  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 promissory notes discussed above.

                                      F-43
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

         Amounts Due To Related Parties

At December 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.  The  proceeds  of this  loan were  used to pay down  various  ARTRA
short-term loans and other debt  obligations.  In December 1995 the unaffiliated
company  received 126,222 shares of ARTRA common in payment of past due interest
through  October 31, 1995. In 1996 and 1997 the  unaffiliated  company  received
cash  payments  of  approximately  $390,000  representing  interest  due through
December, 1996. Payment on the loans was due March 31, 1994, however, the lender
has not demanded  payment.  In February 1997,  the lender  received a warrant to
purchase  an  additional  100,000  ARTRA  common  shares at $5.625  per share as
consideration for not demanding payment of this obligation.

         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
private investor received a warrant,  expiring in 2001, to purchase 25,000 ARTRA
common shares at a price of $5.00 per share.  The proceeds of the loan were used
for working  capital.  At the Company's  annual  meeting of  shareholders,  held
August 29,  1996,  the private  investor was elected to the  Company's  board of
directors.  In December 1996, the loan was extended until April 23, 1997 and the
lender received,  as additional  compensation,  a warrant , expiring in 2001, to
purchase  25,000 ARTRA common shares at a price of $5.875 per share. In January,
1997,  ARTRA  borrowed an additional  $300,000 from this lender  evidenced by an
short-term  note,  due December 23,  1997,  bearing  interest at 8%. The loan is
collateralized by 100,000 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 2002, to purchase 25,000 ARTRA common shares at
a price of $5.75  per  share.  In  March  1997,  ARTRA  borrowed  an  additional
$1,000,000  from this lender  evidenced by a short-term  note, due May 26, 1997,
bearing  interest  at 12%.  The loan is  collateralized  by  585,000  shares  of
COMFORCE common stock owned by the Company's Fill-Mor subsidiary.  As additional
compensation,  the  lender  received  an option  to  purchase  25,000  shares of
COMFORCE common stock, owned by the Company's Fill-Mor subsidiary, at a price of
$4.00 per share, with the right to put the option back to ARTRA on or before May
30, 1997 for a total put price of $50,000.  If the note is not paid at maturity,
the option  price is reduced to $2.00 per share and,  for every 30 days the note
is outstanding past June 26, 1997, the lender will receive an option to purchase
an additional  5,000 COMFORCE  common shares at a price of $2.00 per share.  The
proceeds from this loan were used in part to repay the ARTRA/Fill-Mor $2,500,000
bank  term  loan  described  above.  As of  March  31,  1997,  ARTRA  had  total
outstanding  borrowings of $1,800,000 from this lender collateralized by 810,000
shares of COMFORCE common stock.

In May, 1996, ARTRA borrowed $100,000 from a private  investor,  evidenced by an
unsecured  short-term note, due August 7, 1996, and renewed to February 6, 1997,
bearing interest at 10%. The proceeds of the loan were used for working capital.
At the Company's annual meeting of shareholders,  held August 29, 1996,  private
investor was elected to the Company's board of directors.  Effective January 17,
1997,  private  investor  exercised his  conversion  rights and received  18,182
shares of ARTRA common stock as payment of the principal balance of his note.

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 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.

                                      F-44
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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
($21.188 per share at December 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

At December 26, 1996,  ARTRA was the obligor under two demand notes issued to an
unaffiliated  company, in the amount of $2,322,000,  including accrued interest.
The notes were issued in  October,  1990 with  interest at 15 percent.  ARTRA is
currently   negotiating   with  the  noteholder  to  extend  or  refinance  this
obligation.

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 were  collateralized  by 215,000 shares of COMFORCE common stock owned
by the  Company's  Fill-Mor  subsidiary.  The proceeds of the loan were used for
working  capital.  In January 1997, the loan was repaid with proceeds from other
short-term borrowings.

At December 26, 1996,  ARTRA also has  outstanding  short-term  borrowings  from
other unrelated parties aggregating  approximately $1,900,000, of which $150,000
is past due. The remaining  amounts come due at various times in 1997. The notes
were issued at various times during the period May 1991 to December  1996,  with
interest rates varying between 8 % 15%.

In March  1997,  ARTRA  borrowed  $1,000,000  from an  unaffiliated  corporation
evidenced by an short-term note, due May 26, 1997,  bearing interest at 12%. The
loan is  collateralized  by 630,000 shares of COMFORCE common stock owned by the
Company's Fill-Mor subsidiary.  As additional compensation,  the lender received
an option to  purchase  25,000  shares of  COMFORCE  common  stock  owned by the
Company's  Fill-Mor  subsidiary at a price of $4.00 per share, with the right to
put the  option  back to  ARTRA on or  before  May 30,  1997 for a put  price of
$50,000.  Under certain  circumstances,  ARTRA has the right to  repurchase  the
option for  $50,000.  If the note is not paid at  maturity,  the option price is
reduced to $2.00 per share and, for every 30 days the note is  outstanding  past
June 26, 1997, the lender will receive an option to purchase an additional 5,000
COMFORCE  common  shares at a price of $2.00 per share.  The proceeds  from this
loan  were used in part to repay the  ARTRA/Fill-Mor  $2,500,000  bank term loan
described above.

The weighted average interest rate on all short-term  borrowings at December 26,
1996 and December 28, 1995 was 11.3% and 9.8%, respectively.

In  conjunction  with the  February  1996  discharge  of bank debt,  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

                                      F-45
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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  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 conjunction with the COMFORCE debt settlement  agreement discussed in Note 7,
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 COMFORCE common stock. 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.

9.   LONG-TERM DEBT

     Long-term debt (in thousands) consists of:
December 26,  December 28,
                                                                                  1996         1995
                                                                                --------    --------
Bagcraft Credit Agreement:
         Term loan, interest at the lender's index rate plus .25%               $ 20,000

         Term loan A, interest at the lender's index rate plus 1.75%                --      $ 12,000
 
         Term loan B, interest at the lender's index rate plus 3%                   --         4,600

         Revolving credit loan, interest at the lender's index rate
           in 1996 and the lender's index rate plus 1.5% in 1995                   7,990       9,231

         Unamortized discount                                                     (1,752)       --

     Bagcraft:
         City of Baxter Springs, Kansas loan agreements,
             interest at varying rates                                            10,681      11,794
                                                                                --------    -------- 
                                                                                  36,919      37,625
     Current scheduled maturities                                                 (2,712)     (3,512)
                                                                                --------    -------- 
                                                                                                     
                                                                                $ 34,207    $ 34,113
                                                                                ========    ========
F-46
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Bagcraft  entered  into a Credit  Agreement,  dated as of December 17, 1993 (the
"Credit  Agreement")  that initially  provided for a revolving  credit loan with
interest at the lender's  index rate plus 1.5% and two separate term loans.  The
term loans were 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.

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 11).

In December 1996, the Credit Agreement was amended and restated  whereby,  among
other  things,  the  maturity  date of the  Credit  Agreement  was  extended  to
September 30, 2002 and certain loan covenants were amended. Term Loan A and Term
Loan B, as previously  defined in the Credit Agreement were  consolidated into a
new  $20,000,000  term loan with  interest at the lender's  index rate plus .25%
(8.5% at  December  26,  1996).  Principal  payments  under  the term  loan were
modified  to  provide  for  annual  principal  payments  (payable  in  quarterly
installments)  in the amount of $2,000,000  in 1997 through 1999;  $3,000,000 in
2000 and 2001; and $8,000,000 in 2002. The amended and restated Credit Agreement
also provided for a $3,00,000 capital  expenditures line of credit with interest
at the lender's index rate plus .25%.

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  December  26,  1996  and  December  28,  1995,  approximately
$6,200,000 and  $6,600,000,  respectively,  was available and unused by Bagcraft
under the revolving credit loan.  Borrowings under the revolving credit loan are
payable upon maturity of the Credit Agreement, unless accelerated under terms of
the Credit  Agreement.  At December 26, 1996, the interest rate on the revolving
credit loan was 8.25%.

As  additional  compensation  for  borrowings  under the  Credit  Agreement,  in
December 1993, the lender received a detachable warrant ("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
was required to repurchase the Warrant from the lender. The determination of the
repurchase  price of the Warrant was 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 January 1997, in accordance
with the December 1996 amendment to the Credit Agreement,  Bagcraft  repurchased
50% of the Warrant  (6.5% of the fully  diluted  common  equity of Bagcraft) for
$1,500,000. Bagcraft can repurchase the remaining 50% of the Warrant on or after
December 17, 1997 for an amount based upon the  Warrant's  pro rata share of the
highest of book  value,  appraised  value or market  value of  Bagcraft as noted
above.

Borrowings under the Credit Agreement are collateralized by the common stock and
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 limit future 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 December 26, 1996 Bagcraft was in
compliance with the provisions of its Credit Agreement.

                                      F-47
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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  26, 1996 and  December  28, 1995,
         Bagcraft had  outstanding  borrowings  of  $5,600,000  and  $6,300,000,
         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 26, 1996 and December  28, 1995,  Bagcraft had  outstanding
         borrowings of $4,850,000 and $5,000,000,  respectively, 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 December  26, 1996 and  December  28,
         1995,  Bagcraft had  outstanding  borrowings  of $231,000 and $494,000,
         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, $552,000 of borrowings from the above loan agreements was reflected in the
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 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 December  26, 1996 the  aggregate  amount of yearly  maturities  of long-term
debt,  exclusive of debt discharged,  is: 1997,  $2,712,000;  1998,  $5,137,000;
1999, $5,137,000; 2000, $3,712,000; 2001, $3,712,000; thereafter, $16,509,000.

10.      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 December 26, 1996 and December 28, 1995  options were  outstanding  that,  if
exercised,  would require ARTRA to repurchase  98,734 and 283,965  shares of its
common stock for an aggregate amount of $3,657,000 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

                                      F-48
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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  and options that would
have required the Company to repurchase  19,118 shares of ARTRA common stock for
an aggregate of expired unexercised.  Accordingly, these 185,231 shares of ARTRA
common stock were  removed from  redeemable  common  stock and  reclassified  to
shareholders' equity.

11.   REDEEMABLE PREFERRED STOCK

      Redeemable preferred stock in (thousands) consists of:
December 26,    December 28,
                                                                   1996            1995
                                                                 -------         -------
Currently payable:
        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 in 1996                           $  2,007

        BCA Holdings preferred stock, Series B, 
          $1.00 par value, 6% cumulative, 
          including accumulated dividends;                       
          redeemable in 1997 with a liquidation 
          preference of $1,000 per share;
          8,135 shares authorized and issued                       9,093
                                                                 -------
                                                                $ 11,100

      Noncurrent:
        ARTRA redeemable preferred stock,
          Series A, $1,000 par value,
          6% cumulative payment-in-kind, 
          including accumulated dividends,
          net of unamortized discount 
          of $1,271 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                                   $   4,315       $  3,694
                
        Bagcraft redeemable preferred stock 
          payable to a related party, 
          cumulative $.01 par value, 13.5%; 
          including accumulated dividends; 
          redeemable in 1997 with a liquidation                    10,794
          preference equal to $100 per share;                 
          issued 50,000 shares in 1995                               --

        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            4,363           4,143
                                                                 -------         -------                
                                                                
     
                                                                $  8,678        $ 18,631
                                                                 =======         =======
F-49
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

         ARTRA

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 $1,836,000 and $1,519,000 were
accrued at December 26, 1996 and December 28, 1995, respectively.

         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 $688,000 were accrued at December 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  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 $1,142,000 were outstanding at December 26, 1996.

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
consolidated statement of operations as minority interest.

The BCA Series B  preferred  stock is  redeemable  on June 1, 1997.  Accumulated
dividends of $958,000 were accrued at December 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
7 and 8.

                                      F-50
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

12.      STOCK OPTIONS AND WARRANTS

         Stock Option Plans

In August,  1996, ARTRA's  shareholders  approved a stock option plan (the "1996
Plan") for certain officers, key employees and others who render services to the
Company or its  subsidiaries.  The 1996 Plan  reserves  2,000,000  shares of the
Company's common stock for the granting of options on or before August 29, 2006.
Options  granted under the Plan shall be in the form of incentive  stock options
("ISOs"),  as defined  under the Internal  Revenue Code of 1986, as amended (the
"Code")  or  non-statutory  options  which do not  qualify  under  such the Code
("NSOs"),  or both,  at the  discretion  of the Company.  The purchase  price of
options  granted under the 1996 Plan shall be not less than fair market value at
the date of grant for ISOs,  not less than 110% of fair market value on the date
of grant for an ISO granted to a shareholder  possessing  10% more of the voting
stock of the Company and the fair market value per share on the date of grant in
the case of NSOs. Effective October 4, 1996, the Company issued certain officers
and key  employees of ARTRA options to purchase  532,750  shares of ARTRA common
stock at $5.25 per share, the fair market value on the date of grant.
The options vested immediately and expire ten years from the date of grant.

In  August,  1996,  ARTRA's  shareholders  also  approved  a 1996  Disinterested
Directors  Stock  Option Plan (the "1996  Director  Plan") for  directors of the
Company who are not  employees  or officers.  The 1996  Director  Plan  reserves
200,000  shares of the  Company's  common  stock for the  granting of NSOs on or
before  August 29, 2006 at a price  equal to fair market  value per share on the
date of grant.  No options were granted  under the Director Plan during the year
ended December 26, 1996.

In July,  1985,  ARTRA's  shareholders  approved a stock  option plan (the "1985
Plan")  for  certain   officers  and  key  employees  of  the  Company  and  its
subsidiaries.  The 1985  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 granted under the 1985 Plan
was not less  than the  market  value at the date of grant for ISOs 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.

Effective for the fiscal year ending  December 26, 1996, the Company has adopted
the  disclosure-only  provisions of SFAS No. 123,  "Accounting  for  Stock-Based
Compensation". In 1996 all stock options were granted at an exercise price equal
to fair  market  value at the date of grant and,  accordingly,  no  compensation
expense has been recognized in connection with the Company's stock option plans.
Had compensation  cost for the Company's stock option plan been determined based
on the fair  value on the date of grant for awards in 1996  consistent  with the
provisions  of SFAS  No.  123,  the  Company's  earnings  applicable  to  common
shares would have been reduced to the pro forma amounts indicated below:

               
                                                 As Reported    Pro forma
                                                 -----------    ---------
      Earnings applicable to 
        common shares (in thousands)               $11,962       $10,512
                                                   =======       =======
                                                         
      Earnings per share                             $1.51         $1.33
                                                     =====         =====
 

The  fair  value of stock  options  granted  in 1996  was  estimated  using  the
Black-Scholes   option  pricing  model  with  the  following   weighted  average
assumptions:

              Expected life (years)                  5
              Interest rate                        6.5%
              Volatility                          50.0%
              Dividend yield                       --

                                      F-51
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Information regarding stock option plans for the three years in the period ended
December 26, 1996 is as follows:
1996           1995          1994
                                                   ----------    -----------    ----------
Options outstanding at beginning of year        431,500        445,460       450,760

     Options granted                                 532,750           --          20,000

     Options exercised                               (40,400)       (12,100)      (25,300)

     Options canceled                                 (6,000)        (1,860)         --
                                                  ----------    -----------    ----------
     Options outstanding at end of year              917,850        431,500       445,460
                                                  ==========    ===========    ==========

     Options exercisable at end of year              917,850        431,500       445,460
                                                  ==========    ===========    ==========

     Options available for grant at end of year    1,467,250           --         390,814
                                                  ==========    ===========    ==========

     Weighted average option prices:
         Outstanding at beginning of year             $ 3.89          $5.80        $ 5.86
         Options granted                              $ 5.25            --         $ 5.25
         Options exercised                            $ 5.01         $ 4.00        $ 5.25
         Options canceled                             $10.00         $20.50           --
         Outstanding at end of year                   $ 4.61         $ 3.89        $ 5.80
         Exercisable at end of year                   $ 4.61         $ 3.89        $ 5.80
Significant  option groups outstanding at December 26, 1996 and related weighted
average price and remaining life information are as follows:

                                                                      Remaining
                          Options         Options        Exercise       Life 
         Grant Date     Outstanding     Exercisable        Price       (Years)
         ----------     -----------     -----------      --------      ------- 

          10-04-96        532,750         532,750         $ 5.25          9
                                            
          01-08-93        148,100         148,100         $ 3.75          6 
                                         
          06-22-92          6,000           6,000         $ 5.25          5
                                          
          09-19-91         52,967          52,967         $ 3.65          4 
                                           
          12-19-90        178,033         178,033         $ 3.65          3
                                                            

         Warrants

At December 26, 1996, warrants were outstanding to purchase a total of 1,711,032
common  shares at prices  ranging from $3.50 per share to $9.875 per share.  The
warrants,  exercisable  from the date of issue,  expire at various dates through
2003.  These  warrants were issued  principally as additional  compensation  for
various short-terms loans.

During 1996 ARTRA issued  warrants to purchase an aggregate of 632,583 shares of
its  common  stock at prices  ranging  from  $4.00 per share to $8.00 per share,
principally to certain lenders as additional  compensation for short-term loans.
The  warrants  expire at various  dates from 1999 to 2001.  Warrants to purchase
37,500 shares of ARTRA common stock at prices

                                      F-52
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

ranging from $3.75 per share to $5.00 per share were  exercised  during 1996 and
warrants to purchase  32,600 shares of ARTRA common stock at prices ranging from
$5.375 per share to $10.50 per share expired unexercised during 1996.

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.

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 to 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.

13.      COMMITMENTS AND CONTINGENCIES

The Company and its subsidiaries lease certain buildings and equipment which are
used in its  manufacturing  and distribution  operations.  At December 26, 1996,
future  minimum lease payments  under  operating  leases that have an initial or
remaining noncancellable term of more than one year (in thousands) are:

          Year
          1997                               $   928
          1998                                   532
          1999                                   361
          2000                                   182
          2001                                   191
          After 2001                             784
                                              ------        
                                             $ 2,978
                                              ======

Rental expense was $975,000,  $861,000 and $1,116,000 in fiscal years 1996, 1995
and 1994,  respectively.  Effective  December  1995,  the  building in which the
Company  leases office space for its corporate  headquarters  was purchased by a
trust owned by John Harvey,  the  Company's  Chairman of the board of directors.
The lease expires in December 1997, with an option to renew for one year. Rental
expense for this lease was $126,000 for the year ended December 26, 1996.

In October 1995,  Bagcraft entered into an agreement for the purchase of various
ink products 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.  For the contract year ended  September 30, 1996,
Bagcraft  had a  short-fall  of  approximately  $126,000.  In  January  1997 the
agreement was amended to revise the original minimum  purchase  requirements and
the annual  contract  period.  Beginning in November  1996,  the minimum  dollar
amounts  required  for  each  of  the  remaining  years  ending  October  31 are
$4,426,000 in 1997;  $4,500,000 in 1998;  $3,375,000 in 1999;  and $2,250,000 in
2000. The shortfall  incurred during contract year one was incorporated into the
purchase  requirement  for  contract  year two.  Bagcraft has issued a letter of
credit of $1,000,000 in conjunction with this agreement.

In conjunction with a prior  self-insurance plan, Bagcraft maintained a $875,000
letter of credit at December 26, 1996.

                                      F-53
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

The Company and its subsidiaries are the defendants in various  business-related
litigation  and  environmental  matters.  At December  26, 1996 and December 28,
1995, the Company had accrued current  liabilities of $1,900,000 and $1,800,000,
respectively,   for  potential  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 ("PRP") 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 to
formally extinguish the EPA claim. In September 1989, Bagcraft was served with a
complaint filed by the State of Illinois against  seventeen  parties for alleged
involvement  with the Cross  Brothers site.  The complaint  alleges  Bagcraft is
responsible  for the costs of  cleanup  incurred  and to be  incurred.  Bagcraft
denies the material  allegations an is participating  in settlement  discussions
with the State and thirteen other potential  responsible  parties to resolve all
claims  associated with the State. An agreement has been reached in principal to
settle  the State  claim,  pending  resolution  of the  terms of an  appropriate
consent  order.  Bagcraft's  share of the proposed  settlement is  approximately
$150,000.

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'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.  In April  1997,  the EPA  filed an
administrative complaint and has proposed a $250,000 civil penalty. Bagcraft has
filed a response to the complaint and is attempting to negotiate a settlement.

Bagcraft reported a release  associated with solvent tanks located in a vault at
its Chicago  manufacturing  facility.  After seeking  approval from the Illinois
Environmental  Protection Agency ("IEPA"),  Bagcraft  installed and is currently
operating  a soil vapor gas  extraction  system  designed  to  achieve  remedial
objectives which the IEPA has determined to be appropriate to the site. Bagcraft
has since received a No Further Recommendation Letter from the IEPA.

                                      F-54
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Bagcraft has been  notified  that it may have  responsibility  with respect to a
clean-up  site  on  Basket  Creek  Road,  Georgia.  Bagcraft  presently  has  no
indication of its liability, if any or whether it is a responsible party.

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 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.

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.

                                      F-55
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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 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.

14.      INCOME TAXES

The  provision  (credit)  for income  taxes (in  thousands)  is  included in the
statements of operations as follows:

                                           1996     1995      1994
                                          ------   ------    ------

     Continuing operations               $   152  $    51   $     9
     Extraordinary credit                    200     --        --
     Discontinued  operations                --        17        74
                                          ------   ------    ------ 
                                         $   352  $    68   $    83
                                          ======   ======    ======

A summary of the  provision  (credit)  for  income  taxes (in  thousands)  is as
follows:

                                           1996     1995      1994
                                          ------   ------    ------ 

     Current:
         Federal                         $   200  $  --     $  --
         State                               152       68        83
                                          ------   ------    ------ 
                                         $   352  $    68   $    83
                                          ======   ======    ======

The 1996, 1995 and 1994 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 in due to the utilization of
tax loss  carryforwards,  except for Federal alternative minimum tax incurred in
1996.

                                      F-57
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

14.      INCOME TAXES, continued

In 1996,  1995 and 1994,  the  effective  tax rates from  operations,  including
discontinued operations were 2.5%, (3.9)% and (.4)% respectively, as compared to
the statutory Federal rate, which are reconciled (in  thousands) as follows:

                                                     1996     1995      1994
                                                    ------   ------    ------ 

     Provision (credit) for income taxes
       using statutory rate                        $ 4,709   $  (600)  $(6,629)
     State and local taxes,
       net of Federal benefit                          152        68        73
     Current year tax loss not utilized               --        --       3,151
     Deferred finance fee                              127      --        --
     Amortization of goodwill                          104       155       206
     Previously unrecognized benefit
       from utilizing tax loss carryforwards        (4,767)   (2,136)     --
     Effect of not including all subsidiaries
        in the consolidated tax return                --       2,546     3,249
     Other                                              27        35        33
                                                   -------   -------   -------
                                                   $   352   $    68   $    83
                                                   =======   =======   =======

                                      F-58
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

14.      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 26, 1996 and December 28,
1995 and their approximate tax effects (in thousands) are as follows:
1996                     1995
                                                          --------------------      -------------------- 
                                                         Temporary      Tax        Temporary      Tax
                                                         Difference  Difference    Difference  Difference
                                                         ----------  ----------    ----------  ----------
Trade accounts receivable                             $   --      $    100      $    200    $    100
     Investment in Emerald Acquisition Corporation           10,600       4,100          --          --
     Investment in COMFORCE Corporation                      39,500      15,400          --          --
     Accrued personnel costs                                  1,600         600         1,800         700
     Restructuring reserve                                      100        --             200         100
     Environmental reserve                                      500         200           400         200
     Other                                                      600         200         2,900       1,100
     Capital loss carryforward                                2,100         800        11,000       4,300
     Net operating loss                                      35,900      14,000        44,000      17,200
                                                                       --------                  --------
               Total deferred tax assets                                 35,300                    23,700
                                                                       --------                  --------

     Inventories                                             (4,500)     (1,700)       (6,700)     (2,600)
     Accumulated depreciation                                (6,400)     (2,500)       (7,900)     (3,100)
     Other                                                   (1,000)       (300)         (800)       (300)
                                                                       --------                  --------
               Total deferred tax liabilities                            (4,500)                   (6,000)
                                                                       --------                  --------
               Valuation allowance                                      (30,800)                  (17,700)
                                                                       --------                  --------
               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 26, 1996,  the Company and its  subsidiaries  had Federal income tax
loss carryforwards of approximately $36,000,000,  expiring principally in 2002 -
2010,  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.

                                      F-59
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

15.      EMPLOYEE BENEFIT PLANS

The Company maintains a defined contribution 401 (k) plan covering substantially
all employees. Both employee and employer contributions are generally determined
as a percentage of the covered employee's annual compensation. The total expense
charged to operations  relating to this plan amounted to $513,000,  $477,000 and
$333,000 in 1996, 1995 and 1994, respectively.

Effective   January  1,  1996,   Bagcraft   established  an  unfunded   deferred
compensation  plan for  certain  key  executives  providing  for  payments  upon
retirement,  death or permanent disability.  Under the plan, retirement payments
are  determined  as a  percentage  of the value of  Bagcraft  and the  extent of
participation in the plan. Participants vest on a pro-rata basis over four years
from the plan's origination date. At December 26, 1996,  Bagcraft recorded other
noncurrent assets and other  liabilities of $515,000 and $685,000,  respectively
related  to  the  deferred  compensation  plan.  Deferred  compensation  expense
relating to this plan amounted to $170,000 for the year ended December 26, 1996.

Effective  June 1, 1990, the Company  adopted an Employee  Stock  Ownership Plan
("ESOP")  which  covered  eligible   employees  of  ARTRA  and  certain  of  its
subsidiaries.  Employer  contributions  to the Plan  were at the  discretion  of
ARTRA's Board of Directors. Employee contributions were not permitted. Effective
August 1, 1995, the Company terminated the ESOP and subsequently distributed the
related Employee accounts to participants.  The Company  contributed 8,750 ARTRA
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 and 15,000 ARTRA 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.

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.

16.      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.

17.      INDUSTRY SEGMENT INFORMATION

At December 26, 1996, 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,  ARTRA's then majority owned subsidiary,  COMFORCE,
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.

As discussed in Note 3, on September 11, 1995,  COMFORCE signed a stock purchase
agreement  to  participate  in the  acquisition  of one  hundred  percent of the
capital stock of COMFORCE Telecom. COMFORCE Telecom 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.  On October 17, 1995, COMFORCE
completed  the  acquisition  of one  hundred  percent  of the  capital  stock of
COMFORCE Telecom.

                                      F-60
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Due to  the  issuances  of  COMFORCE  common  shares  in  conjunction  with  the
acquisition of COMFORCE Telecom,  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 equity  method  during the fourth  quarter of 1995.  As
discussed in Note 5, 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
1996, 1995 and 1994.

18.      LITIGATION

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 by 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 and junior debentures 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.

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

                                      F-61
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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.

The  Company  and  its   subsidiaries   are  the  defendants  in  various  other
business-related  litigation and environmental matters (see Note 13). Management
does not  believe  the  outcome of these  matters  will have a material  adverse
effect on the Company's financial statements.

19.      RELATED PARTY TRANSACTIONS

Advances to Peter R. Harvey,  ARTRA's  president,  classified  in the  Company's
consolidated  balance sheet as a reduction of common  shareholders'  equity, (in
thousands) consist of:

                                                      December 26,  December 28,
                                                           1996          1995
                                                         -------       ------- 
    
    Total advances, including accrued interest           $ 7,998       $ 5,369
    Less interest for the period January 1, 1993    
      to date, accrued and fully reserved                 (1,530)       (1,051)
                                                         -------       ------- 
          Net advances                                   $ 6,468       $ 4,318
                                                         =======       =======

ARTRA has total  advances  due from its  president,  Peter R.  Harvey,  of which
$7,998,000 and $5,369,000,  including accrued interest,  remained outstanding at
December  26, 1996 and  December  28,  1995,  respectively.  The  advances  bear
interest  at the prime rate plus 2% (10.25% at  December  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.  See Note 8 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 (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.

                                      F-62
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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 years ended  December  26, 1996 and December
28, 1995 totaled $479,000 and $436,000, 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.

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 COMFORCE's October 1995 acquisition of COMFORCE Telecom (see
Note 3), 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  December  26,  1996  and  December  28,  1995,  respectively,  $348,000  and
$4,500,000 of such  pre-existing  Lori  liabilities  were  classified in ARTRA's
consolidated balance at as current liabilities of discontinued operations.

For a discussion of certain other related party debt obligations see Note 8.

                                      F-63
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

20.      SUBSEQUENT EVENT

Effective January 2, 1997,  Bagcraft  purchased the business assets,  subject to
buyer's assumption of certain liabilities, of AB Specialty Holding Company, Inc.
("AB") for consideration  consisting of cash of approximately $2.4 million.  The
acquisition of AB, funded through  borrowings under Bagcraft's Credit Agreement,
will  accounted  for by the  purchase  method and,  accordingly,  the assets and
liabilities  of AB will be included in the  Company's  financial  statements  at
their  estimated fair market value at the date of  acquisition.  At December 26,
1996, other noncurrent  assets includes a deposit of approximately  $1.2 million
related to the acquisition of AB.

                                      F-64
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
           SCHEDULE I . CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                            ARTRA GROUP INCORPORATED
                                 BALANCE SHEETS
                         (Registrant Only In Thousands)

                                                  December 26,   December 28,
                                                      1996           1995
                                                  ------------   ------------

                   ASSETS
Current assets:
   Cash                                                  $162         $2,347
   Receivables                                             30             25
   Other current assets                                   853             85
                                                  ------------   ------------
                                                        1,045          2,457
                                                  ------------   ------------

Property, plant and equipment                              33             25
Less accumulated depreciation and amortization             33             14
                                                  ------------   ------------
                                                                          11
                                                  ------------   ------------

Investments in and advances to affiliates               8,266          2,567
                                                  ------------   ------------
                                                        $9,311         $5,035
                                                  ============   ============

                   LIABILITIES
Current liabilities:
   Notes payable                                      $16,131        $25,300
   Accounts payable                                        25            509
   Accrued expenses                                     6,508          9,323
   Income taxes                                           265            200
                                                  ------------   ------------
                                                       22,929         35,332
                                                  ------------   ------------

Redeemable common stock                                 3,657          4,774
                                                  ------------   ------------

Redeemable preferred stock                              4,315          3,694
                                                  ------------   ------------

         SHAREHOLDERS' EQUITY (DEFICIT)
Common stock                                            5,793          5,540
Additional paid-in capital                             40,211         38,526
Unrealized appreciation of investments                 25,719         21,047
Receivable from related party,
   including accrued interest                          (6,468)        (4,318)
Accumulated deficit                                   (86,793)       (98,755)
                                                  ------------   ------------
                                                      (21,538)       (37,960)
Less treasury stock, at cost                               52            805
                                                  ------------   ------------
                                                      (21,590)       (38,765)
                                                  ------------   ------------
                                                       $9,311         $5,035
                                                  ============   ============

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

                                      F-65
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
           SCHEDULE I . CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                            ARTRA GROUP INCORPORATED
                            STATEMENTS OF OPERATIONS
                         (Registrant Only In Thousands)
Fiscal Year
                                                             ------------------------------
                                                               1996      1995        1994
                                                             --------  --------   ---------
Selling, general and administrative expenses                  $1,998    $1,760      $2,158
Depreciation and amortization                                     19        27           4
Interest expense                                               3,997     4,953       3,139
Equity in (earnings) loss of affiliates                       (7,745)    7,817       6,129
Other expense, net                                                 1       424         308
                                                             --------  --------   ---------
Loss from continuing operations before income taxes            1,730   (14,981)    (11,738)
Benefit (charge) equivalent to  income taxes                   1,819    (1,962)     (1,791)
                                                             --------  --------   ---------

Loss from continuing operations                                3,549   (16,943)    (13,529)

Equity in earnings (loss) of discontinued affiliate               -         10     (15,906)
                                                             --------  --------   ---------
Loss before extraordinary credit                               3,549   (16,933)    (29,435)

Extraordinary credit, net discharge of indebtedness            9,424    14,030       8,965
                                                             --------  --------   ---------

Net earnings (loss)                                          $12,973   ($2,903)   ($20,470)
                                                             ========  ========   =========
The accompanying notes are an integral part of the condensed financial information.
F-66
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
           SCHEDULE I . CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                            ARTRA GROUP INCORPORATED
                            STATEMENTS OF CASH FLOWS
                         (Registrant Only In Thousands)
Fiscal Year
                                                                                ----------------------------------- 
                                                                                    1996         1995        1994
                                                                                ----------    ---------   ---------
Cash flows from operating activities:
   Net earnings (loss)                                                            $12,973      ($2,903)   ($20,470)
     Adjustments to reconcile net loss
     to cash flows from operating activities:
        Extraordinary gain from 
          net discharge of indebtedness                                            (9,424)     (14,030)     (8,965)
        Equity in loss of affiliates                                               (7,745)       7,817       6,129
        Equity in (earnings) loss of discontinued operations                           -           (10)     15,906
        Equity in (earnings) loss of discontinued operations
       Other, principally common stock issued as compensation                         239        1,370         489
       Changes in assets and liabilities:
            Increase (decrease) in other current and noncurrent assets             (1,315)          32          56
            Increase in other current and noncurrent liabilities                    1,696        1,738       2,152
           (Increase) decrease in receivable from related party                    (1,061)        (218)       (257)
                                                                                ----------    ---------   ---------
Net cash flows used by operating activities                                        (4,637)      (6,204)     (4,960)
                                                                                ----------    ---------   ---------

Cash flows from investing activities:
   Proceeds from collection of Welch notes                                            342        3,000                 -
   Dividends and advances from (to) subsidiaries                                    4,473           -         (772)
   Additions to property, plant and equipment                                          (8)          (6)         (9)
                                                                                ----------    ---------   ---------
Net cash flows from (used by) investing activities                                  4,807        2,994        (781)
                                                                                ----------    ---------   ---------

Cash flows from financing activities:
   Proceeds from private placements of ARTRA common stock                              -            -        3,230
   Proceeds from exercise of stock options and warrants                               369           48          30
   Net increase (decrease) in short-term borrowings                                (2,214)       5,488       1,226
   Exercise of redeemable common stock options                                       (510)         (70)        (50)
                                                                                ----------    ---------   ---------
Net cash flows from (used by) financing activities                                 (2,355)       5,466       4,436
                                                                                ----------    ---------   ---------

Net increase (decrease) in cash                                                    (2,185)       2,256      (1,305)
Cash balance beginning of year                                                      2,347           91       1,396
                                                                                ----------    ---------   ---------
Cash balance end of year                                                             $162       $2,347         $91
                                                                                ==========    =========   =========

Supplemental schedule of noncash investing and financing activities:
   Issue common stock and redeemable common stock
     to pay down current liabilities                                               $1,274       $1,040        $791
    Issue common stock as additional consideration
       for short-term borrowings                                                      661        1,266          -
    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.
F-67
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 13 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 8 and 10 of the consolidated financial
statements for additional information.

4.   Notes Payable and Long-Term Debt

See Notes 8 and 9 of the consolidated financial statements.

5.   Redeemable Common and Preferred Stock and Stock Options

See Notes 10, 11 and 12 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.   Related Party Transactions

See Notes 8 and 19 of the consolidated financial statements.

                                      F-68
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
                 SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
    for each of the three fiscal years in the period ended December 26, 1996
                                 (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                 $    290    $      191                    $   (232)(D)     $     249
                                                        ========    ==========                    ========         =========

      Allowance for doubtful accounts                   $    250    $      365                    $   (103)(E)     $     512
                                                        ========    ==========                    ========         =========
  
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
                                                        ========      ========                    ========         =========
(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.

                                      F-69
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                                       250,000*

         Accounting Fees                                   70,000*

         Blue Sky Fees and Expenses                         1,625

         Miscellaneous                                     19,690*
                                                          ------- 
         Total                                          $ 350,000*
                                                          =======

         -----------
         * 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 FEBRUARY 10, 1991 (As of October 17, 1997)

                                        Issuance     Number of     Exercise
Warrant Holder                            Date         Shares       Price
-----------------------------------    ----------     --------     -------
Alltech Associates                       07-01-98       10,000      $6.000
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                         03-09-93       11,000      $6.000
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      $6.000
Evelyn Bishop, Trustee                   11-17-91        4,457      $6.000
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                   06-13-96       10,911      $8.000
Evelyn Bishop, Trustee                   05-17-91        4,244      $6.000
Evelyn Bishop, Trustee                   05-29-91        6,367      $6.000
Alexander Verde                          02-10-91       39,907      $5.000
Alexander Verde                          08-09-92       76,480      $5.000
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      $5.000
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
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  

                                      II-2
Issuance     Number of     Exercise
Warrant Holder                            Date         Shares       Price
-----------------------------------    ----------     --------     -------
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
Austin Iodice                            08-05-91        12,500     $5.750
Research  Center  Of  Kabbalah           10-29-93        21,250     $6.000
Research  Center  Of  Kabbalah           12-31-93        65,000     $7.000
Research  Center  Of  Kabbalah           02-14-97       100,000     $5.625
Research  Center  Of  Kabbalah           04-14-97       100,000     $5.000
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        15,000     $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        15,000     $6.000
Charles Reeder                           04-15-96        20,000     $6.000
William G. Reynolds, Jr.                 04-15-96         1,250     $6.000
Nora Baker                               04-15-96         5,000     $6.000
Stephen N. Engberg                       04-15-96        10,000     $6.000
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

                                      II-3
Issuance     Number of     Exercise
Warrant Holder                            Date         Shares       Price
-----------------------------------    ----------     --------     -------
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
Howard Conant                            12-23-96        25,000     $5.875
Howard Conant                            01-15-97        10,000     $5.750
Howard Conant                            04-21-97       333,333     $5.000
Howard Conant                            06-11-97        40,000     $5.000
Emanuel Tarson                           09-12-96        12,500     $5.000
Emanuel Tarson                           12-23-96        12,500     $6.125
Ronald Tarson                            09-12-96        12,500     $5.000
Ronald Tarson                            12-23-96        12,500     $6.125
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
R & J Lucas Revocable Trust              01-15-97        10,000     $5.750
Ezra Hamway                              03-21-97         5,000     $4.625 
Levy S.D.                                03-21-97        10,000     $4.625 
Peer Pederson                            04-02-97        25,000     $5.000 
Ezra Hamway                              06-21-97         8,000     $5.000
Levy S.D.                                06-21-97        12,000     $5.000   
Robert Jones                             06-16-97         8,000     $4.750
Semamor Enterprises                      06-12-97        60,000     $5.000
Shephard C. Swift Trust                  06-16-97         4,000     $5.000     
Stephen Enberg                           06-17-97         4,000     $5.000
The Shipp Family Trust                   06-20-97         2,000     $5.000
Jerry Mickelson IRA                      06-20-97         3,000     $5.000
James A. Belushi Trust                   06-22-97         7,000     $5.000
Ronald Tarson                            05-24-97        25,000     $5.000
E.B. Tarson                              05-24-97        25,000     $5.000
Woodrow Chamberlain                      05-24-97        25,000     $5.000
Thomas Whitney                           05-24-97         5,000     $5.000
Henry M. Staley Trust                    05-24-97         5,000     $5.000
A.E. Staley Trust                        05-24-97        25,000     $5.000
Diane Wilson                             05-24-97         1,250     $5.000
The Neff Family Trust                    05-24-97        12,500     $5.000
William Seelbach                         05-24-97         2,500     $5.000
D. Michael Meyers                        05-24-97         5,000     $5.000
Douglas B. Nelson & Jessica M. Swift     05-23-97        12,500     $5.000
William Reynolds                         05-23-97         1,250     $5.000
Martha Seelbach                          05-23-97         2,500     $5.000   
Anita Stone Family Trust                 07-14-97        26,660     $4.500
John Bramsen                             07-14-97        13,330     $4.500
Woodrow & Barbara Chamberlain            07-14-97        13,330     $4.500
Ronald E. Tarson                         07-14-97        13,330     $4.500
Lenore Schnick Trust                     07-14-97         7,332     $4.500
Ken Buchanan                             07-14-97         5,332     $4.500
Charles Reeder                           07-14-97         5,332     $4.500
Paul Neff                                07-14-97         2,666     $4.500
Ravinia Investors                        07-14-97         2,666     $4.500
Henry Staley                             07-14-97         2,666     $4.500
Belmad L.P.                              07-16-97       106,667     $4.500

                                      II-4
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
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
Richard Dolan                    09-18-96         7,500       $6.000
Michael Laundrie                 01-17-97         9,773       $5.500
Edward A. Celano                 01-17-97        18,182       $5.500
Josef Strahammer                 01-17-97       115,543       $5.875
PRESTWOOD LIMITED                 10/97         357,270        $4.25    

         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 
Kwiatt, Silverman & Ruben, Ltd.            2/97        12,000         $5.00

                                      II-5
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.

                                             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
Barry Rymer                                  07-18-97       47,492     $4.375

                                      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, COMFORCE  Corporation  (formerly 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 October 17, 1997) OF CERTAIN
            DEBT SECURITIES ISSUED, AMENDED, CONSOLIDATED OR RESTATED
                             SINCE APRIL 20, 1990

Note Holder                             Date of Note (2)     Note Amount (3)
------------------------------          ----------------     --------------- 

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
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
Nora Baker                                  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

                                      II-8
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
Howard Conant                               01/15/97               300,000
R & J Lucas Revocable Trust                 01/15/97               300,000
Ezra Hamway                                 03/21/97               100,000  
Ezra Hamway                                 06/21/97               200,000  
Levy S.D.                                   03/21/97               200,000  
S.D. Levy                                   06/21/97               300,000 
Howard Conant                               03/26/97             1,000,000  
Stephalex International, Inc.               03/26/97             1,000,000  
Robert Jones                                06/16/97               200,000  
Howard Conant                               04/21/97             2,000,000
Howard Conant                               06/10/97             1,000,000
Ronald E. Tarrson                           05/21/97               500,000
E. B. Tarrson                               05/21/97               500,000
Woodrow Chamberlain                         05/22/97               500,000
Thomas Whitney                              05/27/97               100,000
Henry M. Staley Trust                       05/28/97               100,000
A. E. Staley III Trust                      05/28/97               500,000
Diane Wilson                                05/30/97                25,000
The Neff Family Trust                       06/02/97               250,000
William Seelbach                            06/03/97                50,000
D. Michael Meyers                           06/04/97               100,000
Douglas B. Nelson &                                         
  Jessica M. Swift                          06/05/97               250,000
William Reynolds                            06/10/97                25,000
Martha Seelbach                             06/06/97                50,000
Thomas Philipsborn                          06/25/97                25,000
Semamor Enterprises                         06/11/97             1,500,000
Shepard C. Swift Trust                      06/16/97               100,000
Stephen N. Engberg                          06/16/97               100,000
The Shipp Family Trust                      06/20/97                50,000
Jerry Mickelson IRA                         06/20/97                75,000
James A. Belushi Trust                      06/23/97               175,000
Anita Stone Family Trust                    07/15/97             1,000,000
John Bramsen                                07/15/97               500,000
Woodrow & Barbara                          
  Chamberlain                               07/15/97               500,000
Ron Tarrson                                 07/15/97               500,000
Lenore Schmick Trust                        07/15/97               275,000
Ken Buchanan                                07/15/97               200,000
Charles Reeder                              07/15/97               200,000
Paul Neff                                   07/15/97               100,000
Ravinia Investors                           07/15/97               100,000
Henry Staley                                07/14/97               100,000
Belmad L.P.                                 07/16/97             4,000,000

(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.

                                      II-9
(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
         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.

                        ** 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.

                                      II-11
** 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     THIRD  AMENDMENT  TO  AMENDED  AND  RESTATED
                                    CREDIT AGREEMENT, dated as of July 17, 1997,
                                    by  and  between  BAGCRAFT   CORPORATION  OF
                                    AMERICA,  as Borrower  and GENERAL  ELECTRIC
                                    CAPITAL CORPORATION, as Agent and as Lender.

                        ** 10.2     FOURTH AMENDMENT TO WARRANT dated as of July
                                    17,   1997,   by   and   between    BAGCRAFT
                                    CORPORATION OF AMERICA and GENERAL  ELECTRIC
                                    CAPITAL CORPORATION.

                        ** 10.3     FOURTH  AMENDMENT  TO AMENDED  AND  RESTATED
                                    CREDIT AGREEMENT, dated as of July 25, 1997,
                                    by  and  between  BAGCRAFT   CORPORATION  OF
                                    AMERICA,  as Borrower  and GENERAL  ELECTRIC
                                    CAPITAL CORPORATION, as Agent and as Lender.

                        ** 10.4     TERM  PROMISSORY NOTE , dated as of June 10,
                                    1997,  between ARTRA GROUP  Incorporated and
                                    Howard R. Conant.

                        ** 10.5     WARRANT TO  PURCHASE  COMMON  STOCK of ARTRA
                                    GROUP  Incorporated,  dated  June 10,  1997,
                                    issued to Howard R. Conant.

                        ** 10.6     SECOND AMENDMENT  TO  AMENDED  AND  RESTATED
                                    CREDIT  AGREEMENT, dated as of May 15, 1997,
                                    by  and  between  BAGCRAFT   CORPORATION  OF
                                    AMERICA,  as Borrower  and GENERAL  ELECTRIC
                                    CAPITAL CORPORATION, as Agent and as Lender.

                        ** 10.7     THIRD  AMENDMENT TO WARRANT dated as of  May
                                    15,  1997,  by    and    between    BAGCRAFT
                                    CORPORATION OF  AMERICA and GENERAL ELECTRIC
                                    CAPITAL CORPORATION.

                        ** 10.8     TERM PROMISSORY NOTE , dated as of April 21,
                                    1997,  between ARTRA GROUP  Incorporated and
                                    Howard R. Conant.

                        ** 10.9     AMENDED AND RESTATED STOCK PLEDGE AGREEMENT,
                                    dated as of April 21, 1997, between Fill-Mor
                                    Holding, Inc., a wholly-owned  subsidiary of
                                    ARTRA  GROUP   Incorporated  and  Howard  R.
                                    Conant.

                        ** 10.10    WARRANT TO  PURCHASE  COMMON  STOCK of ARTRA
                                    GROUP  Incorporated,  dated April 21,  1997,
                                    issued to Howard R. Conant.

                        ** 10.11    FIRST  AMENDMENT  TO  AMENDED  AND  RESTATED
                                    CREDIT  AGREEMENT,  dated as of May 5, 1997,
                                    by  and  between  BAGCRAFT   CORPORATION  OF
                                    AMERICA,  as Borrower  and GENERAL  ELECTRIC
                                    CAPITAL CORPORATION, as Agent and as Lender.

                        ** 10.12    SECOND  AMENDMENT TO WARRANT dated as of May
                                    5, 1997, by and between BAGCRAFT CORPORATION
                                    OF  AMERICA  and  GENERAL  ELECTRIC  CAPITAL
                                    CORPORATION.

 
                                      II-12
** 10.13    Term Promissory Note , dated as of March 26,
                                    1997,  between ARTRA GROUP  Incorporated and
                                    Howard R. Conant.

                        ** 10.14    Term Promissory  Note, dated as of March 26,
                                    1997,  between ARTRA GROUP  Incorporated and
                                    Stephalex International, Inc.

                        ** 10.15    Option  Agreement,  dated  as of  March  26,
                                    1997,    by   and   between    ARTRA   GROUP
                                    Incorporated and Howard R. Conant.

                        ** 10.16    Option  Agreement,  dated  as of  March  26,
                                    1997,    by   and   between    ARTRA   GROUP
                                    Incorporated  and  Stephalex  International,
                                    Inc.

                        ** 10.17    AMENDED AND RESTATED CREDIT AGREEMENT, Dated
                                    as  of  December  30,  1996,  by  and  among
                                    BAGCRAFT CORPORATION OF AMERICA, as Borrower
                                    and GENERAL ELECTRIC CAPITAL CORPORATION, as
                                    Agent and as Lender.

                        ** 10.18    AMENDED  AND  RESTATED  WARRANT  To Purchase
                                    Common  Stock  of  BAGCRAFT  CORPORATION  OF
                                    AMERICA (Warrant No. 2).

                        ** 10.19    SETTLEMENT AND RELEASE  AGREEMENT,  dated as
                                    of  December  19,  1996,  by and among ARTRA
                                    GROUP Incorporated,  Fill-Mor Holding,  Inc.
                                    and Peter R. Harvey,  COMFORCE  Corporation,
                                    James  L.   Paterek,   Michael   Ferrentino,
                                    Christopher  P. Franco and Kevin W.  Kiernan
                                    and Kwiatt, Silverman & Ruben, Ltd.

                        ** 10.20    LOCK-UP AGREEMENT,  dated December 19, 1996,
                                    re. sale of COMFORCE common stock.

                        ** 10.21    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.

                        ** 10.22    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.

                        ** 10.23    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.

                        ** 10.24    Registration Rights Agreement dated February
                                    20,   1996   by  and   among   ARTRA   Group
                                    Incorporated and Norton Herrick re: Purchase
                                    of a Secured Convertible Promissory Note.

                        ** 10.25    Form Of Promissory  Note re:  December 1995,
                                    Private  Placement of twelve  percent  (12%)
                                    convertible subordinated promissory notes.

                        ** 10.25    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.

                        ** 10.26    Form  Of  Promissory  Note  re:  July,  1996
                                    Private  Placement of twelve  percent  (12%)
                                    promissory notes due April 15, 1997.

                                      II-13
** 10.27    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.

                        ** 10.28    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").

                        ** 10.29    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").

 
                        ** 10.30    Amended and Restated  Promissory Note, dated
                                    February 26, 1996 made by BCA Holdings, Inc.
                                    in  favor  of  Arabella  S.A.

                        ** 10.31    Option to Purchase Shares of Common Stock of
                                    Bagcraft  Corporation of America sold by BCA
                                    Holdings, Inc. to Arabella S.A.

                        ** 10.32    Preferred   Stock   Agreement  made  by  and
                                    between  BCA  Holdings   Inc.  and  Bagcraft
                                    Corporation of America.

                        ** 10.33    Preferred Stock Exchange Agreement, dated as
                                    of January  31,  1996 by and  between  Ozite
                                    Corporation,  BCA Holdings Inc. and Bagcraft
                                    Corporation of America.

                        ** 10.34    Limited   Consent  and  Sixth  Amendment  to
                                    Credit  Agreement,  dated as of  February 1,
                                    1996 between Bagcraft Corporation of America
                                    and General  Electric  Capital  Corporation.

                        ** 10.35    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").

                        ** 10.36    Limited  Release,  dated  October 30,  1995,
                                    between NatWest Bank N. A. ("Releasor"), and
                                    ARTRA Group Incorporated and Peter R. Harvey
                                    ("Releasee").

                     

                                      II-14
** 10.37    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.

                        ** 10.38    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.
    
                        ** 10.39    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.

                        ** 10.40    Registration and Settlement  Agreement dated
                                    as of March 31,  1995 by and  between  ARTRA
                                    Group  Incorporated  and IBJ Schroder Bank &
                                    Trust   Company.

                        ** 10.41    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.

                        ** 10.42    Loan  Agreement,  dated as of  December  23,
                                    1994, by and among ARTRA Group  Incorporated
                                    and McGoodwin James & Co.

                        ** 10.43    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.

                        ** 10.44    Pledge and  Security  Agreement  between The
                                    Lori  Corporation  and IBJ  Schroder  Bank &
                                    Trust Company  dated as of August 18,  1994.
                                              
                        ** 10.45    Pledge  and   Security   Agreement   between
                                    Lawrence Jewelry Co. and IBJ Schroder Bank &
                                    Trust  Company  dated as of August 18, 1994.
                              
                        ** 10.46    Pledge  and   Security   Agreement   between
                                    Lawrence   Jewelry   Corporation   and   IBJ
                                    Schroder  Bank & Trust  Company  dated as of
                                    August  18,  1994.

                      

                                      II-15
** 10.47    Pledge and  Security  Agreement  between New
                                    Dimensions   Accessories,   Ltd.   and   IBJ
                                    Schroder  Bank & Trust  Company  dated as of
                                    August  18,  1994.

                        ** 10.48    Pledge  and   Security   Agreement   between
                                    Rosecraft,  Inc.  and  IBJ  Schroder  Bank &
                                    Trust Company  dated as of August 18,  1994.
 
                        ** 10.49    Pledge  and   Security   Agreement   between
                                    Fill-Mor Holding, Inc. and IBJ Schroder Bank
                                    & Trust Company dated as of August 18, 1994.

                        ** 10.50    Subordinated Promissory Note dated  December
                                    31, 1993 in the original principal amount of
                                    $3,000,000  from  Registrant to the Research
                                    Center of Kabbalah.

                            23.1    Consent of Kwiatt, Silverman & Ruben, Ltd.

                            23.2    Consent of Coopers & Lybrand  L.L.P.
                      

                         ** 11.1    Computation   of  earnings   per  share  and
                                    equivalent share of common stock for each of
                                    the three years in the period ended December
                                    26, 1996.

                         ** 11.2    Computation   of  earnings   per  share  and
                                    equivalent share of common stock for the six
                                    months ended June 26, 1997 and June 27, 1997
                                    

                         ** 21.1    Subsidiaries.
                                

                         ** 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.
                                   

                                      II-16
** 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.

                          ** 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

                                     II-17
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;

                  (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 October 17, 1997.

                                       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                                   October 17, 1997
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)