ARTRA GROUP INC
10-K, 1995-04-13
COSTUME JEWELRY & NOVELTIES
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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-K

[X]          Annual Report Pursuant to Section 13 or 15(d) of the Securities and
             Exchange Act of 1934 For the fiscal year ended December 29, 1994

                                       OR

[   ]        Transition Report Pursuant to Section 13 or 15(d) of the
             Securities and Exchange Act of 1934
             For the transition period from                 to

                         Commission file number 1-3916

                            ARTRA GROUP INCORPORATED
             (Exact name of registrant as specified in its charter)


  Commonwealth of Pennsylvania                         25-1095978
(State or other jurisdiction of            (I.R.S. Employer Identification No.)
 incorporation or organization)

   500 Central Avenue, Northfield, IL                     60093
(Address of principal executive offices)               (Zip Code)

Registrant's telephone number, including area code:    (708) 441-6650

Securities registered pursuant to Section 12(b) of the Act:

                                                   Name of Each Exchange
     Title of Each Class                            on Which Registered
- -------------------------------                   ----------------------
Common stock, without par value                       New York Stock
                                                  Pacific Stock Exchange


Securities registered pursuant to Section 12(g) of the Act:  None.

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best  of  registrant's   knowledge,  in  the  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. [ ]

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


State the aggregate  market value of the voting stock held by  nonaffiliates  of
the registrant at February 28, 1995: $24,176,000.

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practicable date.

           Class                             Outstanding at February 28, 1995
- -------------------------------              --------------------------------
Common stock, without par value                         6,703,243


Documents Incorporated by Reference:   None

<PAGE>

                                     PART I

Item 1.  Business

At December 29,  1994,  ARTRA Group  Incorporated,  a  Pennsylvania  corporation
incorporated in 1933, and its majority-owned  subsidiaries  (hereinafter "ARTRA"
or  the  "Company")  principally  operate  in two  industry  segments  as:  1) a
manufacturer of packaging products principally serving the food industry; and 2)
a designer and distributor of popular-priced fashion costume jewelry.

The  Company's  packaging  products  business is conducted  by the  wholly-owned
Bagcraft  Corporation of America  ("Bagcraft")  subsidiary and its  wholly-owned
subsidiary Arcar Graphics, Inc. acquired effective April 9, 1994.

During 1994,  the  Company's  jewelry  business was conducted by its 66.4% owned
subsidiary The Lori Corporation ("Lori") through its wholly-owned subsidiaries:

New Dimensions Accessories, Ltd. ("New Dimensions"), formerly R. N. Koch, Inc.
Rosecraft, Inc. ("Rosecraft")
Lawrence Jewelry Corporation ("Lawrence")

See Note 19 to the  Consolidated  Financial  Statements  for a  presentation  of
industry segment data.


                           Packaging Products Segment

Effective March 3, 1990, ARTRA entered into the packaging products business with
its  acquisition  of  Bagcraft.  Bagcraft,  established  in 1947,  is a  leading
manufacturer  and  supplier  of  flexible  packaging  products to the fast food,
bakery,  microwave popcorn and supermarket  industries and is also a significant
supplier to the theater  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  design  studios,
laboratory and  engineering  departments.  Bagcraft's  sales and technical staff
work in conjunction with Bagcraft's customers to determine the proper components
of the package.  Bagcraft's art department creates packaging designs, subject to
customer approval,  or duplicates  customer-supplied  designs.  Thereafter,  the
packaging is produced in accordance with customer specifications using a variety
of  papers,  film,  foil and  lamination.  Bagcraft  has  developed  a number of
proprietary  innovations  in the  manufacture  of its packaging  products.  Such
innovations include the Dubl-Wax(TM) bag, which introduced  specialty waxed bags
to the retail bakery industry. Bagcraft is also credited with being instrumental
in developing and producing the first microwave popcorn bags.

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

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

Bagcraft's  products are sold  throughout  the United States by a sales force of
approximately 20 full-time salespersons who sell to wholesale distributors and a
number of  independent  brokers who sell  Bagcraft  product  lines to large food
processors

<PAGE>

and food  chains.  Bagcraft  presently  sells its  products  to more than  1,000
customers.  Although  some  of  these  are the  largest  and  most  recognizable
companies in the food industry,  no single customer  accounted for more than 10%
of ARTRA's consolidated net sales in 1994.

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

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


         Paper Division

Bagcraft  believes it is the  industry  leader in  specialty  paper bags,  which
represented  approximately  30% of Bagcraft's 1994 sales.  Bakeries  account for
approximately 60% of the paper division's sales which also include  supermarkets
and  various  retail food  chains.  A number of the paper  division's  products,
including  Dubl-Wax(TM),  Dubl-Panel(TM),  Dubl-Clear(TM) and  Sealing-Strip(TM)
represent  significant  manufacturing  innovations  which  have  contributed  to
Bagcraft's position as the industry leader.  Major customers include Walgreen's,
Albertson's  and Dunkin'  Donuts.  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
1994 sales, is a leader among its competitors.  Bagcraft's  products sold to the
food service  industry  include  foil and paper bags and sheets for  sandwiches,
french fries, chicken and other prepared foods. Major customers in this industry
include Wendy's, Burger King, Taco Bell, Dairy Queen and McDonald's.

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



<PAGE>

         Specialty Bag Division

The  Specialty Bag Division  represented  approximately  15% of Bagcraft's  1994
sales. Many of the division's  products represent unique additions to Bagcraft's
standard products.  The Cue-Pon Bag(TM) has a "tear out" coupon affixed near the
window on the bag which offers the shopper the  immediate  benefit of the coupon
upon  purchase.  The Cue-Pon  Pocket Bag(TM) has a pouch on the front of the bag
which can be filled with novelty items by the retailer.

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

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


         Microwave Popcorn Division

The Microwave Popcorn Division, which represented approximately 7% of Bagcraft's
1994 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.
Golden Valley, which held a patent on the susceptor technology pursuant to which
Bagcraft held a license,  recently  lost a court  decision  which  resulted in a
determination  that the patent was invalid.  Unless  overturned on appeal,  this
decision  means  Bagcraft will be able to produce and sell these products to all
customers without paying a license fee.

One of the former leading microwave popcorn accounts,  Orville Redenbacher,  has
recently changed to self-manufacture.  However, with the growth anticipated from
such  customers as U.S.A.  Family  Foods,  this division is expected to continue
modest long-term growth.

In 1993,  Bagcraft  completed  the sale of its former Roll Press  Division.  The
disposal  of the Roll Press  division  has  enabled  Bagcraft to focus on higher
margin specialty product bags and sheets and avoid the more competitive  pricing
pressures  experienced  in this  line  of  business.  The  Roll  Press  Division
accounted for  approximately  6% of Bagcraft's 1993 sales (12% in 1992, the last
full  year  of Roll  Press  Division  production),  producing  products  such as
wrapping for candy, baked foods, coffee and meat.

As  discussed  in Note 3 to the  Company's  Consolidated  Financial  Statements,
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  include  printers  of tags and  labels,  flexible
packaging  manufacturers  and polycoated  cup  manufacturers.  Arcar's  products
include ink systems and presside  additives which represented  approximately 86%
and 14% of 1994 sales, respectively.  Management believes its product line of 39
ink  systems  is more  extensive  than those of most of its  competitors.  Arcar
competes on the basis of product  quality and  performance,  as well as service.
Price is a less  significant  competitive  factor since ink  represents  only an
estimated 3% of waterbase ink users' operating costs.


<PAGE>


Arcar was founded in 1982.  The Company's  corporate  offices and  manufacturing
facilities  are located in West Chicago,  Illinois.  The Company also  maintains
four satellite  distribution centers in the Philadelphia,  Atlanta,  Cincinnati,
and Kansas City metropolitan areas.


                                Jewelry Segment

On  February  8,  1985,  ARTRA  acquired  a  majority   interest  in  Lori  and,
concurrently,  Lori entered into the jewelry business through the acquisition of
all of the outstanding  capital stock of New  Dimensions.  On June 4, 1986, Lori
acquired  all of the  capital  stock of  Rosecraft.  On October 22,  1986,  Lori
acquired all of the capital stock of Lawrence.

Each of the Lori operating subsidiaries is a distributor of fashion jewelry. The
Lori operating subsidiaries contract with outside sources for the manufacture of
the  jewelry  it  sells.  Management  believes  that  the loss of any one of its
suppliers  would not have a material  adverse effect on its business  because an
adequate number of other  suppliers are available.  This jewelry is manufactured
from readily  available  materials,  which include gold, brass,  steel,  copper,
zinc, plastics, glass stones, lacquer and enamel. Management believes that there
is  currently an ample supply of the raw  materials  needed by its  suppliers to
manufacture its jewelry and that multiple sources of supply exist.

The  fashion  jewelry  business  is highly  competitive.  The  Company  competes
primarily  with other  fashion  jewelry  designers  and  distributors.  Sales of
fashion jewelry have not returned to the levels experienced prior to the general
economic  recession in the United States in 1990-1991.  Despite the  broad-based
recovery in the United States  economy which has been evident at least since the
third quarter of 1993,  sales of fashion  jewelry  products have not returned to
pre-recession  levels.  Although the fashion jewelry industry has  traditionally
been regarded as cyclical,  the failure of fashion jewelry sales to rebound with
the economy suggests that the current industry  conditions reflect a fundamental
adverse change in the industry  rather than merely the trough in a cycle.  Among
the factors which have been  identified as  contributing to the recession in the
fashion  jewelry  industry  are (i) current  fashion,  which favors a minimum of
jewelry and  adornment;  (ii) the general trend in the United States toward more
casual  attire in office and  evening  wear,  with which  attire no jewelry or a
minimum of jewelry is worn; and (iii) the  recessionary  environment in the fine
jewelry  industry,   which  has  resulted  in  fine  jewelry  manufacturers  and
distributors  lowering prices and making available lower cost items,  such as 10
karat gold jewelry,  to increase  market share at the expense of fashion jewelry
distributors.

The  continuing  recession  in the fashion  jewelry  industry  has resulted in a
number of competitors  ceasing  operations (in what is commonly referred to as a
"shake out" in the industry). Many of the remaining competitors have taken steps
designed to strengthen their positions in the markets or, in certain  instances,
simply to enable  them to  survive.  These  steps  include  improving  operating
efficiencies  in  the  manufacturing  or  sourcing  of  goods,  reducing  staff,
pressuring  suppliers to lower costs or identifying new suppliers  willing to do
so, and accepting lower profit margins or increasing the use of service programs
under  which  goods  unsold  by  the  retailer  are  accepted  for  return  (or,
alternatively,  increasing the guaranteed profit margins of the retailers).  The
implementation   of  these  steps  by  various   competitors   has  resulted  in
significantly heightened competition in the fashion jewelry industry.

Competitive  pressure  has also been  introduced  in the  industry  by  national
discount  department  store  chains.  Tactics  employed  by  these  increasingly
powerful  chains have included (i) direct  sourcing of  "knock-offs" of the most
successful  lines or items sold,  (ii)  pressuring  distributors  such as Lori's
operating  subsidiaries  to accept  returns of unsold goods,  (iii)  delaying or
withholding payments on other orders,  threatening to suspend future business or
unilaterally  terminating other orders,  and (iv) selling  competitors'  jewelry
lines  side-by-side.  As these national  chains continue to capture market share
and drive regional chains and independently-owned  stores out of business, their
buying  departments  will have an increasing  ability to dictate  pricing in the
fashion jewelry industry.

Due  to  the  conditions  noted  above,  in  recent  years,  Lori  has  suffered
significant  operating  losses.  No  assurances  can be given  that  either  the
business and operations of Lori or the market  conditions in the fashion jewelry
industry generally will improve in the immediate future.
<PAGE>

Since  December 30, 1993 and during 1994,  Lori and its  operating  subsidiaries
were not in compliance  with certain  provisions of their  respective  bank loan
agreements.  As discussed in Item 7.  "Management's  Discussion  and Analysis of
Financial  Condition and Results of  Operations," on August 18, 1994, as amended
December 23, 1994, ARTRA, Lori's parent,  Fill-Mor Holding,  Inc.  ("Fill-Mor"),
Lori and Lori's  operating  subsidiaries  entered into an agreement  with Lori's
bank  lender to settle  obligations  due the bank  under  terms of the bank loan
agreements of Lori and its operating  subsidiaries and Fill-Mor.  Under terms of
the amended  settlement  agreement,  as partial  consideration,  the bank lender
received  all  of the  assets  of  New  Dimensions  and  New  Dimensions  ceased
operations.  The operations of the Company's  other  subsidiaries,  Lawrence and
Rosecraft, are continuing as discussed below.


         Lawrence

Lawrence  is  engaged  in  the   distribution   and  sale  of  a  full  line  of
popular-priced   fashion  costume  jewelry  and  fashion   accessories  to  mass
merchandise  retailers,  department  stores and specialty stores  throughout the
United States.  Lawrence's sales are subject to seasonal  fluctuations with peak
selling seasons consisting of Spring (March/April), Back-to-School and Christmas
(October/November).

A majority  of  Lawrence's  annual  sales  involve  the sale of fashion  costume
jewelry.  Lawrence  markets over 3,500 different styles of costume jewelry items
annually.

Approximately  95% of Lawrence's  products are marketed  though its full service
sales  program,  designed  to  provide  customers  with  a  continuous  flow  of
merchandise.  Services  provided  under this program  include  packaging,  price
pre-ticketing, stocking, merchandise display and inventory control.

Lawrence has approximately 20 customers with approximately  2,500 retail outlets
in the United States.  Among them are  department  stores,  mass  merchandisers,
chain stores,  specialty stores,  boutiques,  children's stores and gift stores.
Lawrence  sells all of its products  directly to its customers who, on a limited
basis, may be offered extended payment terms beyond 30 days depending upon their
trade practices and financial  strength.  Lawrence does not have sales contracts
with its customers.

Lawrence  believes  it  is  one  of a  number  of  significant  costume  jewelry
companies.  Some of these,  however,  are national  suppliers which have greater
financial resources than Lawrence. Lawrence competes largely through the ability
of its full time staff of professional marketing and service  representatives to
meet  customers'  needs for continuity and timeliness of service and through the
ability  of its  staff  to  identify  fashion  trends  and  develop  appropriate
products.

Lawrence has recently  expanded its business to include  outside  retail support
services to non-jewelry companies.  Lawrence views this relatively new market as
a potentially significant source of additional revenue.


         Rosecraft

Rosecraft is a creator, designer,  importer and distributor on a direct basis of
popular-priced  fashion  costume  jewelry and related  accessories  for children
which is sold in junior  specialty  chains,  department and specialty stores and
mass merchandise  retailers throughout the United States.  Rosecraft offers over
1,700  styles  of  earrings,  necklaces,   bracelets,  hair  and  other  fashion
accessories.  Many items are sold under the trademark "Rosecraft Kids", which is
a recognized name in children's fashion jewelry and related accessories.

Rosecraft  employs  designers to develop fashion costume jewelry and accessories
to satisfy  consumer demand and is responsible for creating items to provide new
merchandise for Rosecraft's customers. Approximately 80% of Rosecraft's products
are imported from the Far East with the remaining 20% of its products  purchased
from domestic manufacturers.  Rosecraft believes that multiple sources of supply
exist for its line of children's fashion costume jewelry and accessories.

Rosecraft has approximately 275 active customers with approximately 4,000 retail
outlets in the United States.  Rosecraft  sells all of its products  directly to
its customers who, on a limited  basis,  may be offered  extended  payment terms
beyond 30 days  depending  upon their trade  practices and  financial  strength.
Rosecraft does not have sales contracts with its customers.

Rosecraft believes that it competes in a fragmented  industry with many regional
suppliers  and a few national  suppliers,  some of whom have  greater  financial
resources  than  Rosecraft.  Rosecraft  competes on the basis of design,  price,
quality, delivery time and customer service.


<PAGE>



In June,  1992,  Rosecraft  closed its Ladies line of fashion costume jewelry in
order to concentrate  on its higher margin  Children's  line of fashion  costume
jewelry and  accessories.  During the year ended  December 31, 1992,  the Ladies
line  accounted  for  approximately  16% of  Rosecraft's  sales.  The closing of
Rosecraft's  Ladies line  resulted in a charge to  operations  of $900,000.  The
restructuring  charge included  inventory  liquidation  costs, lease termination
costs and employee severance costs.


         New Dimensions

As discussed above, under terms of the amended settlement agreement, Lori's bank
lender  received all of the assets of New Dimensions  and New Dimensions  ceased
operations effective December 27, 1994 (See Note 7). Previously,  New Dimensions
was principally  engaged in the design,  distribution and sale of popular-priced
fashion costume jewelry and key chains to mass merchandise  retailers throughout
the United States. New Dimensions' operations were conducted principally through
its service program in which New Dimensions provided product,  packaging,  price
pre-ticketing,  stocking,  merchandise  display  and  inventory  control  of the
costume jewelry sold through its customers' retail outlets.




Employees

At  December  29,  1994,  the  Company  employed  approximately  1,600  persons,
including  approximately 350 part-time jewelry segment service  representatives.
The Company considers its relationships with its employees to be good.


<PAGE>



Item 2.  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>

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

ARTRA:
   Northfield, IL (1)       Headquarters facility of                             Leased, month to month
                            approximately 27,000 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 1996
                            approximately 63,000 sq. ft

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

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

    Edison, NJ              Warehouse facility                                   Leased, expiring in 1999
                            of approximately 45,000 sq. ft

ARCAR:
    West Chicago, IL        Manufacturing, warehouse and office                  Leased, expiring in 2000
                            facility of approximately 24,000 sq. ft

    West Chicago, IL        Warehouse facility                                   Leased, expiring in 2000
                            of approximately 8,000 sq. ft
</TABLE>
<PAGE>


<TABLE>
<CAPTION>

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

Lori and Rosecraft:
    Woonsocket, RI          Headquarters (Lori and Rosecraft) and distribution   Leased, expiring in 1996
                            facility of approximately 86,200 sq.ft.

    New York, NY            Showroom of approximately 4,300 sq. ft.              Leased, expiring in 1996

Lawrence:
    Eden Prairie, MN        Headquarters and distribution facility of            Leased, expiring in 1995
                            approximately 42,000 sq. ft.

<FN>

    (1)  In July,  1992  ARTRA  sold  its  headquarters  building  under a lease
         arrangement  with an  option to buy that  expired  in July,  1993.  The
         building  continues  to be  available  to ARTRA under a  month-to-month
         lease.

    (2)  This lease provides for two ten-year  options to renew at the same base 
         rental upon the expiration of its current term.

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


</FN>
</TABLE>

<PAGE>


Item 3.  Legal Proceedings

As discussed in Note 6 to the Consolidated  Financial Statements in March, 1989,
Envirodyne Industries,  Inc.  ("Envirodyne") and Emerald Acquisition Corporation
("Emerald")  entered into a definitive  agreement for a subsidiary of Emerald to
acquire all of the issued and  outstanding  shares of  Envirodyne  common stock.
Pursuant to the terms of certain letter agreements,  ARTRA agreed to participate
in the transaction and received  Envirodyne's consent to sell its then 4,830,000
Envirodyne  common  shares (a 26.3%  interest)  to  Emerald.  On May 3, 1989 the
transaction was  consummated.  ARTRA received  consideration  consisting of: (i)
cash of  $75,000,000;  (ii) a 27.5% common  stock  interest in Emerald and (iii)
Emerald  junior  debentures  ("Junior  Debentures")  with a principal  amount of
$20,992,710.  The Junior Debentures were scheduled to mature May 1, 2001, twelve
years from the date of  issuance,  and to accrue and pay interest in the form of
cash or additional Junior Debentures,  at Emerald's option,  semi-annually,  for
the first six years at the rate of 15% and to pay interest at the rate of 15% in
the form of cash thereafter, semi-annually in arrears. ARTRA's 27.5% interest in
Emerald  common  stock  and  Emerald  Junior  Debentures,  as  required  by  the
Securities  and  Exchange  Commission  Staff  Accounting  Bulletin  No. 81, were
carried net of a valuation allowance.

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

On December 17, 1993 the Bankruptcy Court confirmed the First Amended Joint Plan
of  Reorganization as twice modified (the "Plan") with respect to Envirodyne and
certain of its  subsidiaries.  The  confirmation of the Plan was affirmed by the
United States  District Court for the Northern  District of Illinois on December
28, 1993 and Envirodyne and certain of its subsidiaries  emerged from Chapter 11
on December  31,  1993,  the  Effective  Date.  A notice of appeal to the United
States Court of Appeals for the Seventh Circuit was thereafter  filed by certain
holders of Envirodyne's 13.5% Subordinated Notes Due 1996.  Envirodyne has filed
a motion, which is currently pending, to dismiss the appeal. Envirodyne believes
that the  confirmation  of the Plan should be affirmed  on appeal.  However,  no
assurance  can be given that  Envirodyne  will prevail on the appeal or what the
effect of any such  reversal of the Plan would have on  Envirodyne  or the Plan.
The Emerald Chapter 11 case is still pending although ARTRA has moved to dismiss
that case.

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

On November 2, 1993,  ARTRA  filed suit in the Circuit  Court of the  Eighteenth
Judicial  Circuit for the state of Illinois  (the State Court  Action")  against
Salomon Brothers,  Inc., Salomon Brothers Holding Company,  Inc.  (collectively,
"Salomon")  D.P.  Kelly &  Associates,  L.P.  ("DPK"),  Donald P. Kelly  ("Kelly
Defendants"  along with DPK),  Charles K. Bobrinskoy,  James F. Massey,  William
Rifkind  and  Michael  J.  Zimmerman.  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  maintained  jurisdiction  of ARTRA's  claims against the
individual defendants for breaching their fiduciary duty as directors of Emerald
to Emerald's creditors and interference with ARTRA's contractual  relations with
Emerald. ARTRA's appeal of the Bankruptcy Court retention of claims is currently
pending.

On December 21, 1994, the Salomon  Defendants and the Kelly  defendants  brought
motions to dismiss  ARTRA's Second Amended  Complaint in the State Court Action.
On February 8, 1995,  ARTRA's  Second  Amended  Complaint was dismissed in part,
with leave to replead.


<PAGE>


On March 10,  1995,  ARTRA filed a Third  Amended  Complaint  in the State court
Action,  pleading  causes of action for  breach of  fiduciary  duty,  fraudulent
misrepresentation  and  negligent  misrepresentation  ARTRA  seeks in the action
compensatory  damages of $136.2 million,  punitive damages of $408.6 million and
approximately $33 million in fees paid to Salomon.

The case is in its early stages and  discovery is just  beginning.  ARTRA cannot
predict, with any certainty, the outcome of the suit.

On February  5, 1993,  Lori's New  Dimensions  subsidiary  filed a petition  for
reorganization  under  Chapter 11 of the  Bankruptcy  Code in the United  States
Bankruptcy Court for the Southern District of New York (Case No. 93 B 40653). On
April 9, 1993, New Dimensions'  reorganization plan was confirmed by an order of
the  Bankruptcy   Court.  On  May  3,  1993,  the   consummation   date  of  the
reorganization,   New  Dimensions  emerged  from  Chapter  11  bankruptcy  court
protection.  See Note 7 to the Company's Consolidated Financial Statements for a
discussion of the terms of New Dimensions' plan of reorganization.

As a result of the time required to complete the restructuring of New Dimensions
and the financial significance to ARTRA and Lori of the restructuring, ARTRA and
Lori did not timely file Form 10-K for the year ended December 31, 1992 and Form
10-Q for the  quarter  ended  March 31, 1993 and have also been late in previous
annual  and  quarterly  filings  with the  Securities  and  Exchange  Commission
("SEC").  As a result of discussions with the SEC, in June, 1993, ARTRA and Lori
readily  consented to a Final Judgment of Permanent  Injunction to file with the
SEC Form 10-K for the year ended December 31, 1992 and Form 10-Q for the quarter
ended  March  31,  1993  by late  July  and to meet  future  filing  requirement
deadlines.

Effective  December  31,  1989,  ARTRA  completed  the  disposal  of its  former
scientific  products  segment  with the sale of its Welch  subsidiary,  formerly
Sargent-Welch   Scientific  Company,  to  a  privately  held  corporation  whose
president and sole  shareholder was a vice president of Welch prior to the sale.
The  consideration  received by ARTRA  consisted of $2,625,000  payable June 30,
1997,  with  interest  at  10%  beginning  June  30,  1990,  under  terms  of  a
noncompetition  agreement  and the buyer's  subordinated  note in the  principal
amount of  $2,500,000.  The  receivable  due June 30,  1997  under  terms of the
noncompetition  agreement is reflected in ARTRA's  consolidated balance sheet at
December  29, 1994 and  December  30, 1993 in other  assets at  $2,625,000.  The
subordinated  security, due in 1997, was originally scheduled to be non-interest
bearing for a period of three years,  after which time  interest  will accrue at
the rate of 10% per annum.  The note was  discounted at a rate of 10% during the
non-interest  bearing  period and is reflected in ARTRA's  Consolidated  Balance
Sheet at December 29, 1994 and December 30, 1993 in other assets at  $1,375,000,
net of a discount of $1,125,000.

In December,  1991 Welch filed a lawsuit  against  ARTRA  alleging  that certain
representations, warranties and covenants made by ARTRA, which were contained in
the parties' Stock Purchase Agreement, were false. Welch is 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 is
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.

The Company and its subsidiaries are the defendants in various  business-related
litigation  and  environmental  matters.  At December  29, 1994 and December 30,
1993,  the Company has  accrued  $1,500,000  and  $1,850,000,  respectively  for
potential business-related litigation and environmental liabilities. However, as
discussed in  Management's  Discussion  and Analysis of Financial  Condition and
Results of  Operations,  ARTRA may not have available  funds to pay  liabilities
arising out of these  business-related  litigation and environmental matters or,
in certain instances, to provide for its legal defense.

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


<PAGE>


Although  Bagcraft  has denied  liability  for the site,  it has entered  into a
settlement  agreement with the EPA, along with the other third party defendants,
to resolve all claims  associated with the site except for state claims. In May,
1994  Bagcraft  paid  $850,000  plus  accrued  interest  of $29,000 to  formally
extinguish  the EPA claim.  Bagcraft  filed  suit in 1993 in the  United  States
District  Court for the Northern  District of Illinois,  against its insurers to
recover a portion of its liability  costs in connection  with the Cross Brothers
case.  Bagcraft  recovered  $725,000 from its insurers in 1994 and an additional
$250,000 in 1995. With regard to the state action,  Bagcraft is participating in
settlement  discussions  with the State and thirteen other potential  parties to
resolve all claims  associated  with the State.  The maximum state claim is $1.1
million.  Bagcraft  has  accrued  $120,000  related  to the State  action in the
Company's consolidated financial statements at December 29, 1994.

Bagcraft  was  listed  as a de  minimis  contributor  at the  American  Chemical
Services,  Inc. off-site disposal  location in Griffith,  Indiana.  This site is
included in the EPA's National  Priorities List. Bagcraft is presently unable to
determine its liability, if any, with respect to this site.

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

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

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

In  connection  with this suit, in a case filed in 1992 in the Circuit Court for
Baltimore City,  Maryland,  American  Motorists  Insurance  Company ("AMICO") is
seeking a declaratory  judgment that it is not required to defend,  indemnify or
provide  insurance  coverage to ARTRA in  connection  with the  Sherwin-Williams
case. The Circuit Court ruled in favor of AMICO,  but in June 1994, the Court of
Special Appeals of Maryland reversed the final Circuit Court,  ruling that AMICO
was obligated to defend and indemnify ARTRA.

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.


<PAGE>


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

In a case  titled  City of  Chicago  v. NL  Industries,  Inc.  and  ARTRA  GROUP
Incorporated,  filed in the Circuit Court of Cook County,  Illinois, the City of
Chicago  alleged that ARTRA (and NL  Industries,  Inc.) had  improperly  stored,
discarded and disposed of hazardous  substances  at the subject  site,  and that
ARTRA had conveyed the site to Goodwill  Industries to avoid clean-up  costs. At
the time the suit was  filed,  the  City of  Chicago  claimed  to have  expended
$1,000,000 in clean-up  costs.  ARTRA and NL Industries,  Inc. have counter sued
each other and have filed third party actions  against the subsequent  owners of
the  property.  The City of  Chicago  has made an offer to settle the matter for
$400,000 for all parties.  The parties are currently conducting  discovery.  The
Company  is  presently  unable  to  determine  ARTRA's  liability,  if  any,  in
connection with this case.


<PAGE>



                                    PART II

Item 5.  Market  For the  Registrant's  Common  Equity and  Related  Shareholder
Matters.

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 March 31, 1995 and
December 29,  1994,  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 past two fiscal years were as
follows: 
<TABLE> 
<CAPTION>

                                        1994                        1993
                               ---------------------       ---------------------
                                 High          Low           High          Low
                               -------       -------       -------       -------
<S>                            <C>           <C>           <C>          <C>
First quarter ..........       7 - 3/4       5 - 1/8       4 - 5/8       3 - 1/2
Second quarter .........       6 - 1/4       4 - 3/8       4 - 7/8       3
Third quarter ..........       7 - 1/4       5             5 - 3/4       3 - 1/4
Fourth quarter .........       5 - 3/8       3 - 3/4       8 - 3/8       4 - 7/8
</TABLE>


No  dividends  were paid in 1994 or 1993 nor are any  anticipated  in 1995.  The
Company is prohibited from paying dividends to its stockholders  pursuant to the
terms  of  its  bank  loan  agreement.  In  addition,  the  Company's  operating
subsidiaries  are  prohibited  from or restricted in paying  dividends or making
distributions  under their  respective bank loan agreements  (except for limited
overhead allocations payable to the parent entity).  Accordingly,  even if ARTRA
were  permitted  to pay  dividends  to its  stockholders,  the  restrictions  or
limitations on these operating  subsidiaries in upstreaming  payments would make
the payment of dividends by ARTRA unlikely. See Item 7. "Management's Discussion
and Analysis of Financial  Condition and Results of Operations" for a discussion
of the loan agreements of the Company and its operating subsidiaries.



<PAGE>


Item 6.  Selected Financial Data.

Following is a  consolidated  summary of selected  financial data of the Company
(in  thousands,  except per share data) for each of the five fiscal years in the
period ended December 29, 1994. The  information for the year ended December 29,
1994  includes the  operations of Arcar  Graphics,  Inc.  since its  acquisition
effective  April 9, 1994. The  information  for the year ended December 31, 1990
includes the operations of Bagcraft Corporation of America since its acquisition
effective March 3, 1990.
<TABLE>
<CAPTION>

                                                                                      Fiscal Year Ended (E)
                                                  --------------------------------------------------------------------------------
                                                     1994              1993              1992             1991             1990
                                                  ---------         ---------         ---------         ---------       ----------
<S>                                               <C>               <C>               <C>               <C>              <C>

Net sales ................................        $ 152,115         $ 159,638         $ 196,568         $ 230,740        $ 210,106
 Loss from
   continuing operations (A) .............          (29,435)           (8,543)          (38,302)          (13,161)          (3,894)
Earnings from
 discontinued operations (B) .............                                                  330                                772
Extraordinary credits (C) ................            8,965            22,057                                                   35
Net earnings (loss) ......................          (20,470)           13,514           (37,972)          (1,161)           (3,087)

Earnings (loss) per share:
   Continuing operations .................            (5.30)            (1.88)            (8.98)            (3.36)           (1.25)
   Discontinued operations ...............                                                  .08                                .21
   Extraordinary credits .................             1.57              4.49                                                  .01
   Net earnings (loss) ...................            (3.73)             2.61             (8.90)            (3.36)           (1.03)

Total assets (D) .........................           93,429            92,774            98,731           126,277          141,345
Long-term debt ...........................           19,673            29,264            13,802            57,296           67,116
Debt subsequently discharged .............            9,750                                
Liabilities subject
   to compromise .........................                                               41,500             
Cash dividends ...........................                                                 

<FN>


(A)     The loss from continuing operations for the year ended December 29, 1994
        includes a charge to operations of $10,800,000  representing a write-off
        of  New  Dimensions  goodwill  December  31,  1994.  See  Note  7 to the
        Company's  Consolidated  Financial Statements.  The loss from continuing
        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.

(B)     Earnings from  discontinued  operations  for the year ended December 31,
        1992  represents  a gain  from  the  sale  of  ARTRA's  Ratex  Resources
        subsidiary.   Ratex  was  part  of  ARTRA's  discontinued  oil  and  gas
        operations.  Earnings from  discontinued  operations  for the year ended
        December 31, 1990 represents a gain due to additional  proceeds received
        from the disposition of the Company's  former  Sargent-Welch  Scientific
        Company.

(C)     The 1994 extraordinary  credit represents a gain from a net discharge of
        indebtedness under terms of the Company's debt settlement agreement with
        its  bank..  See  Note  7  to  the  Company's   Consolidated   Financial
        Statements.  The 1993 extraordinary  credit represents a gain from a net
        discharge of indebtedness due to the reorganization of the Company's New
        Dimensions  subsidiary.   See  Note  8  to  the  Company's  Consolidated
        Financial  Statements.  The 1990 extraordinary credit represent gains on
        purchases of New  Dimensions  senior  notes at market  prices lower than
        face value.

(D)     As partial consideration for the debt settlement agreement, in December,
        1994  the  Company's  bank  lender  received  all of the  assets  of New
        Dimensions.   See  Note  7  to  the  Company's   Consolidated  Financial
        Statements.

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

</FN>
</TABLE>
<PAGE>

Item 7. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations.


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


Changes in Business

As discussed in Note 3 to the Consolidated Financial Statements, in March, 1994,
Bagcraft entered into an agreement to purchase the business  assets,  subject to
buyer's assumption of certain liabilities,  of Arcar Graphics, Inc. ("Arcar"), a
manufacturer   and   distributor  of  waterbase  inks,  for   consideration   of
$10,264,000.  The consideration consisted of cash of $2,264,000 and subordinated
promissory notes totaling $8,000,000.  In addition to the initial consideration,
the purchase price may be increased based upon Arcar's cumulative  earnings,  as
defined in the  purchase  agreement,  for the period from  January 1, 1994 until
December  31,  1997  ("earnout  compensation").  The  earnout  compensation,  if
applicable,  is payable on or before January 2, 1999 along with interest thereon
at the prime rate for the period January 1, 1998 until final payment. The seller
also  received a warrant to purchase  177,778  ARTRA common shares at a price of
$5.625 per share, the market value at the date of grant. Exercise of the warrant
is payable  only through a reduction of the  subordinated  promissory  notes and
accrued  interest  due the seller  under terms of the  purchase  agreement.  The
acquisition  of Arcar,  completed  on April 8, 1994,  was  accounted  for by the
purchase method and, accordingly,  the assets and liabilities of Arcar have been
included in ARTRA's financial statements at their estimated fair market value at
the date of acquisition. The purchase price has been allocated to the assets and
liabilities  of Arcar  based on their  estimated  respective  fair  values.  The
purchase  price and expenses  associated  with the  acquisition  exceed the fair
value of Arcar's net assets by  approximately  $8,400,000 and is being amortized
on a  straight-line  basis over forty years.  Arcar's results of operations have
been included in ARTRA's  financial  statements since April 8, 1994, the date of
acquisition.  Arcar's  results of operations  prior to its  acquisition  are not
considered material to the Company's consolidated financial statements.

As discussed in Note 6 to the Consolidated  Financial Statements in March, 1989,
Envirodyne Industries,  Inc.  ("Envirodyne") and Emerald Acquisition Corporation
("Emerald")  entered into a definitive  agreement for a subsidiary of Emerald to
acquire all of the issued and  outstanding  shares of  Envirodyne  common stock.
Pursuant to the terms of certain letter agreements,  ARTRA agreed to participate
in the transaction and received  Envirodyne's consent to sell its then 4,830,000
Envirodyne  common  shares (a 26.3%  interest)  to  Emerald.  On May 3, 1989 the
transaction was  consummated.  ARTRA received  consideration  consisting of: (i)
cash of  $75,000,000;  (ii) a 27.5% common  stock  interest in Emerald and (iii)
Emerald  junior  debentures  ("Junior  Debentures")  with a principal  amount of
$20,992,710.  The Junior Debentures were scheduled to mature May 1, 2001, twelve
years from the date of  issuance,  and to accrue and pay interest in the form of
cash or additional Junior Debentures,  at Emerald's option,  semi-annually,  for
the first six years at the rate of 15% and to pay interest at the rate of 15% in
the form of cash thereafter, semi-annually in arrears. ARTRA's 27.5% interest in
Emerald  common  stock  and  Emerald  Junior  Debentures,  as  required  by  the
Securities  and  Exchange  Commission  Staff  Accounting  Bulletin  No. 81, were
carried net of a valuation allowance.

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

On December 17, 1993,  the  Bankruptcy  Court  confirmed the First Amended Joint
Plan of Reorganization as twice modified (the "Plan") with respect to Envirodyne
and certain of its  subsidiaries.  The order confirming the Plan was affirmed by
the United  States  District  Court for the  Northern  District  of  Illinois on
December 28, 1993 and  Envirodyne and certain of its  subsidiaries  emerged from
Chapter 11 on December 31, 1993, the Effective  Date.  The order  confirming the
Plan was affirmed by the United States Court of Appeals for the Seventh  Circuit
on July 12, 1994.  The Emerald  Chapter 11 case is still pending  although ARTRA
has moved to dismiss that case.

Envirodyne's plan of  reorganization  did not provide any consideration or value
to Emerald and Emerald,  therefore,  is without assets to provide value to ARTRA
for ARTRA's  investment in Emerald common stock and Emerald  Junior  Debentures.
See  discussion  below and in Note 20 Litigation  for remedies  being pursued by
<PAGE>

ARTRA as  compensation  for the lost value of its  investment in Emerald  common
stock and Emerald Junior Debentures.

On November 2, 1993,  ARTRA  filed suit in the Circuit  Court of the  Eighteenth
Judicial  Circuit for the state of Illinois  (the State Court  Action")  against
Salomon Brothers,  Inc., Salomon Brothers Holding Company,  Inc.  (collectively,
"Salomon")  D.P.  Kelly &  Associates,  L.P.  ("DPK"),  Donald P. Kelly  ("Kelly
Defendants"  along with DPK),  Charles K. Bobrinskoy,  James F. Massey,  William
Rifkind  and  Michael  J.  Zimmerman.  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  maintained  jurisdiction  of ARTRA's  claims against the
individual defendants for breaching their fiduciary duty as directors of Emerald
to Emerald's creditors and interference with ARTRA's contractual  relations with
Emerald. ARTRA's appeal of the Bankruptcy Court retention of claims is currently
pending.

On December 21, 1994, the Salomon  Defendants and the Kelly  defendants  brought
motions to dismiss  ARTRA's Second Amended  Complaint in the State Court Action.
On February 8, 1995,  ARTRA's  Second  Amended  Complaint was dismissed in part,
with leave to replead.

On March 10,  1995,  ARTRA filed a Third  Amended  Complaint  in the State court
Action,  pleading  causes of action for  breach of  fiduciary  duty,  fraudulent
misrepresentation  and  negligent  misrepresentation  ARTRA  seeks in the action
compensatory  damages of $136.2 million,  punitive damages of $408.6 million and
approximately $33 million in fees paid to Salomon.

The case is in its early stages and  discovery is just  beginning.  ARTRA cannot
predict, with any certainty, the outcome of the suit.

As discussed below in the "Liquidity and Capital Resources" section, on February
5, 1993 the Lori's New Dimensions subsidiary filed a petition for reorganization
under Chapter 11 of the Bankruptcy  Code in the United States  Bankruptcy  Court
for the Southern  District of New York (Case No. 93 B 40653).  On April 9, 1993,
New Dimensions'  reorganization plan was confirmed by an order of the Bankruptcy
Court.  On May 3,  1993,  the  consummation  date  of  the  reorganization,  New
Dimensions  emerged from Chapter 11 bankruptcy court  protection.  On August 18,
1994, as amended  effective  December 23, 1994, ARTRA,  Lori's parent,  Fill-Mor
Holding, Inc. ("Fill-Mor"),  Lori and Lori's operating subsidiaries entered into
and agreement with Lori's bank lender to settle  obligations  due the bank under
terms of the bank loan  agreements  of Lori and its operating  subsidiaries  and
Fill-Mor.  Under terms of the amended settlement  agreement,  Lori's bank lender
received  all  of the  assets  of  New  Dimensions  and  New  Dimensions  ceased
operations effective December 27, 1994.


Liquidity and Capital Resources

Cash and cash equivalents  increased  approximately  $1,000,000  during the year
ended December 29, 1994. Cash flows from financing  activities of  approximately
$21,700,000  exceeded cash flows used by operating  activities of  approximately
$8,300,000  and  cash  flows  used  by  investing  activities  of  approximately
$12,400,000.  Cash flows from financing activities were principally attributable
to  borrowings  obtained  for the  construction  of  Bagcraft's  new  production
facility  in Baxter  Springs,  Kansas and  borrowings  used to finance  the cash
portion  of  Bagcraft's  acquisition  of Arcar.  Cash  flows  used by  operating
activities were principally  attributable to the Company's loss from operations,
partially  offset  by the  effect of  depreciation  and  amortization  and other
noncash  expenses.  Cash  flows  used  by  investing  activities  represent  net
expenditures   for  plant  and  equipment  and  cash  expended  for   Bagcraft's
acquisition of Arcar.

The Company's  consolidated working capital deficiency  increased  approximately
$13,500,000  to  approximately  $60,500,000  during the year ended  December 29,
1994. The increase in working capital deficiency is principally  attributable to
the current maturity of borrowings under Bagcraft's Credit Agreement,  partially
offset by a net discharge of indebtedness  under terms of the debt restructuring
agreement  with a bank lender as discussed  below and in Note 7 to the Company's
Consolidated Financial Statements.

At December 29, 1994 the Company's corporate entity was in default of provisions
of certain of its credit  agreements.  Under certain  subsidiary debt agreements
ARTRA is limited in the amounts it can withdraw from its operating subsidiaries.
See Notes 9 and 10 to the Consolidated Financial Statements.
<PAGE>

Effective  August 18, 1994,  as amended  effective  December  23,  1994,  ARTRA,
Fill-Mor,  Lori and Lori's operating subsidiaries entered into an agreement with
Lori's  bank lender to settle  obligations  due the bank under terms of the bank
loan agreements of Lori and its operating  subsidiaries and Fill-Mor. See Note 7
to the Consolidated Financial Statements and discussion below.


         ARTRA Corporate

At December 30, 1993 (the end of ARTRA's  previous fiscal year),  $18,452,000 in
ARTRA notes and  related  loan fees of  $1,107,000  were  payable to a bank.  On
December 31, 1993, a religious  organization,  currently  holding  approximately
5.8% of ARTRA's  outstanding common stock, made a $2,000,000  short-term loan to
the Company  with  interest  at 10%.  See Note 9 to the  Consolidated  Financial
Statements   for  further   discussion  of  this   transaction   and  additional
consideration received by the religious organization.  The proceeds of this loan
were  remitted to the bank to pay interest and other costs due through  December
31, 1993 and to reduce the  principal  amount  outstanding  on the bank notes to
$17,063,000.

On March 31, 1994,  ARTRA entered into a series of  agreements  with its primary
bank lender and with a private  corporation  that had  guaranteed  $2,500,000 of
ARTRA's  bank  notes.  Per  terms of the  agreements,  the  private  corporation
purchased  $2,500,000  in ARTRA notes from  ARTRA's  bank  thereby  reducing the
outstanding principal on ARTRA's bank notes to $14,563,000 at March 31, 1994 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. See Note 9 to the Consolidated  Financial Statements for further
discussion of this  transaction  and  additional  consideration  received by the
private  corporation.  A major  shareholder and executive officer of the private
corporation is an ARTRA director.

The  $14,563,000  of ARTRA bank notes were  payable on September  30,  1994.  On
October 25, 1994,  ARTRA's  bank lender filed suit against  ARTRA in the Circuit
Court of Cook County,  Illinois alleging  nonpayment by ARTRA of the amounts due
under the above notes payable to the bank. The bank has requested that the court
enter  judgment  in its  favor  against  ARTRA in the  amount  of  approximately
$16,000,000,  which includes the principal  balance of the notes of $14,563,000,
plus interest, costs and fees.

As discussed in Note 21 to the Consolidated Financial Statements,  Related Party
Transactions,  ARTRA has total advances due from its president, Peter R. Harvey,
of which $3,205,000 and $2,713,000 remained outstanding at December 29, 1994 and
December 30, 1993,  respectively.  The advances  bear interest at the prime rate
plus 2%. Additionally,  in May, 1991, ARTRA's  wholly-owned  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%. At
December 29, 1994 and December 30, 1993,  advances of $1,510,000 and $1,404,000,
respectively, were outstanding.  Commencing January 1, 1993 to date, interest on
the ARTRA and Fill-Mor advances has been accrued and fully reserved.

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).
<PAGE>
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.

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. At
December 29, 1994,  options are  outstanding  that, if exercised,  would require
ARTRA to repurchase  279,679 shares of its common stock for an aggregate  amount
of approximately $4,100,000.  ARTRA does not have available funds to satisfy its
obligations if these options were  exercised.  However the holders of redeemable
common stock have the option to sell their  shares in the market  subject to the
limitations  of Securities  Act Rule 144. At its  discretion  and subject to its
financial  ability,  ARTRA could reimburse the  optionholders for any short-fall
resulting from such sale.

As  discussed  in  Note  12 to the  Consolidated  Financial  Statements,  ARTRA,
Bagcraft  and  Bagcraft's  parent  BCA  Holdings,   Inc.  ("BCA")  have  various
redeemable   preferred  stock  issues  with  an  aggregate   carrying  value  of
approximately  $17,200,000  outstanding at December 29, 1994.  These  redeemable
preferred stock issues have various maturity dates commencing in 1997.

Due to its  limited  ability  to  receive  operating  funds  from its  operating
subsidiaries,  ARTRA historically has met its operating  expenditures with funds
generated  by such  alternative  sources as private  placements  of ARTRA common
stock,   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.  However, ARTRA does
not have  available  funds to repay the  principal  amount of its bank  notes at
their scheduled maturity date of December 29, 1994 and is pursuing a refinancing
or  restructuring  of its bank notes.  As a result,  ARTRA will continue to have
high levels of indebtedness in the future.  The level of indebtedness may affect
the rate at which or the  ability  of ARTRA to  effectuate  the  refinancing  or
restructuring of its bank notes.  ARTRA has neither  identified any other lender
to refinance  such  obligations  nor received  any  commitment  from the bank to
further  extend the  maturity of the notes.  On October 25,  1994,  ARTRA's bank
lender filed suit against  ARTRA in the Circuit  Court of Cook County,  Illinois
alleging nonpayment by ARTRA of the amounts due under the above notes payable to
the bank.  Unless ARTRA  receives a commitment  from another lender to refinance
these  obligations  or from the bank to  extend  these  obligations  past  their
scheduled maturity dates, of which there can be no assurance,  it is anticipated
that ARTRA could suffer severe adverse  consequences  which may include the sale
by the bank of all or substantially all of the related collateral.  As a result,
ARTRA may be forced to  liquidate  its assets or file for  protection  under the
Bankruptcy Code.

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


         Bagcraft

Effective December 17, 1993,  Bagcraft refinanced its bank debt by entering into
a Credit  Agreement  that provides for a revolving  credit loan and two separate
term loans. The term loans were separate two-year facilities  initially totaling
$12,000,000  (Term Loan A) and $8,000,000 (Term Loan B), bearing interest at the
lender's index rate plus 1.75% and 3%,  respectively.  The principal  under Term
Loan A is payable at maturity  (December 17,  1995),  unless  accelerated  under
terms of the Credit  Agreement.  The  principal  under  Term Loan B  ($5,000,000
outstanding  at December  29, 1994) is payable in varying  monthly  installments
from January 1, 1994 to December 1, 1995, with the remaining  principal  balance
payable at maturity  (December 17, 1995),  unless accelerated under terms of the
Credit Agreement.  At December 29, 1994,  interest rates on Term Loan A and Term
Loan B were 10.25% and 11.5%, respectively.

The amount available to Bagcraft under the revolving credit loan is subject to a
borrowing base, as defined in the agreement, up to a maximum of $18,000,000.  At
December 29, 1994 and December 30, 1993,  approximately $450,000 and $1,800,000,
respectively,  was available and unused by Bagcraft  under the revolving  credit
loan.  The revolving  credit loan bears interest at the lender's index rate plus
1.5%.  The  revolving  credit loan is  scheduled  to become due and payable upon
maturity of the Credit Agreement  (December 17, 1995),  unless accelerated under
terms of the Credit  Agreement.  At December 29, 1994 the  interest  rate on the
revolving credit loan was 10%.
<PAGE>

Borrowings under the Credit Agreement are collateralized by substantially all of
the  assets of  Bagcraft.  The Credit  Agreement  contains  various  restrictive
covenants,  that among other restrictions,  require Bagcraft to maintain minimum
levels of tangible net worth and liquidity  levels and limit  additional  loans,
dividend  payments,  capital  expenditures and payments to related  parties.  In
addition,  the Credit Agreement  prohibits changes in ownership of Bagcraft.  At
December 29, 1994  Bagcraft was not in  compliance  with the  provisions  of its
Credit Agreement.  Bagcraft is currently negotiating with its lender to amend or
restructure the Credit Agreement.

As additional compensation for borrowings under the Credit Agreement, the lender
received a  detachable  warrant  with a put option to  purchase up to 10% of the
fully  diluted  common  equity of  Bagcraft.  The  warrant  allows  Bagcraft  to
reacquire up to 2-1/2% of Bagcraft's fully diluted common equity from the lender
contingent  upon  Bagcraft's  repayment  of Term Loan B as defined in the Credit
Agreement.  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 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 29, 1994, Bagcraft had borrowed the
         maximum of $7,000,000 available under this loan agreement.

         A  $5,000,000   subordinated   promissory   note  payable  as  follows:
         $2,000,000  installments due June 30,1998 and June 30, 1999; $1,000,000
         due on January 2, 2000. The  subordinated  promissory  note is interest
         free  provided  that loan  payments  are made on a timely  basis and no
         events of default occur under terms of the  agreement.  At December 29,
         1994 Bagcraft had outstanding  borrowings of $4,810,000 under this loan
         agreement.

         A  $250,000  subordinated   promissory  note  payable  in  240  monthly
         installments  commencing  August 1, 1995  through  maturity on July 18,
         2015. The  subordinated  promissory note is interest free provided that
         loan payments are made on a timely basis and no events of default occur
         under  terms of the  agreement.  At December  29,  1994,  Bagcraft  had
         borrowed the maximum amount available under this loan agreement.

         A $250,000  subordinated  promissory note payable January 20, 2005. The
         subordinated  promissory  note is  interest  free  provided  that  loan
         payments  are made on a timely  basis and no events  of  default  occur
         under  terms of the  agreement.  At December  29,  1994,  Bagcraft  had
         borrowed the maximum amount available 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.   At  December  29,  1994,
approximately $800,000 of borrowings from the above loan agreements is reflected
in the  Consolidated  Balance  Sheet in current  assets as  restricted  cash and
equivalents.  These funds,  invested in interest bearing cash  equivalents,  are
restricted for expenditures associated with the Baxter Springs, Kansas project.

In December,  1993 the Bagcraft  subsidiary  recorded a charge to  operations of
$1,175,000  representing  equipment and inventory  relocation costs and employee
severance and  outplacement  costs  relating to the  construction  of the Baxter
Springs,  Kansas plant. These costs were expended  principally in the second and
third  quarters of 1994. The new facility  became  operational in late 1994. The
new Kansas facility replaced Bagcraft's production facility in Joplin, Missouri.
Additionally, with the completion of the new Kansas facility, Bagcraft converted
the manufacturing facility in Forest Park, Georgia into a distribution facility.
The former  Carteret,  New Jersey  facility was sold in  December,  1994 and the
proceeds  of  approximately  $1,700,000  were  used to reduce  borrowings  under
Bagcraft's Credit Agreement.
<PAGE>

As discussed in Note 3 to the  Consolidated  Financial  Statements,  on April 8,
1994,, Bagcraft completed the acquisition of Arcar for consideration  consisting
of cash of $2,264,000 and subordinated promissory notes totaling $8,000,000. The
promissory  notes provide for interest  payable  quarterly at the prime rate (as
defined in the agreement).  The promissory  notes mature as follows:  $2,500,000
payable March 15, 1995;  $2,500,000  payable March 15, 1996;  $2,500,000 payable
March 15, 1997;  $500,000  payable  March 15, 1998.  The seller also  received a
warrant to purchase  177,778 ARTRA common shares at a price of $5.625 per share.
Exercise of the warrant is payable only through a reduction of the  subordinated
promissory notes and accrued interest due the seller under terms of the purchase
agreement.

Effective April 8, 1994,  Arcar entered into a Loan and Security  Agreement (the
"Agreement")  with a bank that  provides for a revolving  credit loan and a term
loan. The term loan, in the principal  amount of  $2,750,000,  bears interest at
the prime  rate plus  .75%.  The  principal  under the term loan is  payable  in
forty-eight varying monthly  installments from April 30, 1995 to March 31, 1999,
unless accelerated under terms of the Agreement.

The amount  available to Arcar under the  revolving  credit loan is subject to a
borrowing base, as defined in the agreement, up to a maximum of $1,500,000.  The
revolving  credit loan bears interest at the prime rate plus .5% and becomes due
and payable March 31, 1995, unless accelerated under terms of the Agreement. The
revolving credit loan is renewable,  solely at the discretion of the lender, for
additional  one year periods until  maturity of the Agreement  (March 31, 1999).
The revolving  credit loan has been renewed until March 31, 1996. As of December
29, 1994,  Arcar had not yet utilized funds available under the revolving credit
loan.

Borrowings under the Agreement are  collateralized  by substantially  all of the
assets of Arcar. The Agreement  contains  various  restrictive  covenants,  that
among other restrictions,  require Arcar to maintain minimum levels of net worth
and liquidity  levels and limit additional  loans,  dividend  payments,  capital
expenditures and payments to related parties.

Bagcraft has historically  generated cash flow from operations and has available
funds under its revolving credit loan.  These sources should provide  sufficient
cash flow to fund  Bagcraft's  short-term  capital  requirements.  As  discussed
above,  Bagcraft is currently negotiating to amend or restructure the borrowings
under the Credit Agreement.  It is anticipated that the successful completion of
these  negotiations,  of which there can be no assurance,  will provide Bagcraft
with the ability to fund its long-term capital requirements.

Bagcraft  anticipates  that its 1995 capital  expenditures,  principally for the
Kansas facility and manufacturing  equipment,  will be approximately  $2,500,000
and will be funded  principally from the above mentioned  credit  facilities and
also from operations.


         Lori

In recent years, Lori has suffered significant operating losses,  principally at
its New Dimensions  subsidiary.  As a result of the  significant  operating loss
incurred in 1992,  on  February 5, 1993,  New  Dimensions  filed a petition  for
reorganization  under Chapter 11 of the  Bankruptcy  Code. On April 9, 1993, New
Dimensions'  reorganization  plan was  confirmed  by an order of the  Bankruptcy
Court and on May 3,  1993,  the  consummation  date of the  reorganization,  New
Dimensions emerged from Chapter 11 bankruptcy court protection.  The plan, among
other  things,  provided  for New  Dimensions'  bank lender to have the right to
receive  all of the issued and  outstanding  shares or assets of New  Dimensions
immediately prior to the consummation date. The bank then assigned its rights to
receive the New Dimensions  stock to a newly formed Lori  subsidiary,  which was
then merged into New Dimensions,  for consideration of $2,500,000,  evidenced by
New  Dimensions'  term loan note  originally  scheduled to be payable in varying
quarterly  installments,  commencing  March 31, 1994 through  December 31, 1996.
Lori assumed and guaranteed the balance of New Dimensions'  pre-bankruptcy loans
payable to the bank, amounting to $12,036,000, including accrued interest, which
included the New Dimensions  former line of credit and the New Dimensions former
term  loan,  net of New  Dimensions'  direct  obligation  payable to the bank of
$2,500,000  as noted  above.  The  bank  also  provided  New  Dimensions  with a
revolving line of credit, including a letter of credit facility. Borrowings were
limited to the lesser of $1,600,000 or a calculated borrowing base.

On February 5, 1993,  Lawrence  entered into a credit agreement with Lori's bank
that provided for a revolving line of credit,  which includes a letter of credit
facility.  Borrowings  were limited to the lesser of  $2,100,000 or a calculated
borrowing base.
<PAGE>

Effective  March 31, 1993  Rosecraft  entered into  agreements  with a bank that
provided  for a term loan of  $2,977,000  and a  revolving  line of credit.  The
revolving line of credit provided for  borrowings,  including a letter of credit
facility.  Borrowings  were limited to the lesser of  $1,000,000 or a calculated
borrowing base, less outstanding letters of credit. In addition to the revolving
line of credit,  the bank has  provided  an  overadvance  credit  commitment  of
$1,200,000.

Since  December 30, 1993 and during 1994,  Lori and its  operating  subsidiaries
were not in compliance  with certain  provisions of their  respective  bank loan
agreements.  At December 30, 1993,  borrowings under the bank loan agreements of
Lori  and  its  operating  subsidiaries  totaled  $21,952,000.  In  addition  to
scheduled  maturitities of $2,833,000 under the bank loan agreements of Lori and
its operating  subsidiaries,  the remaining  borrowings of $19,119,000 under the
bank loan agreements of Lori and its operating subsidiaries were reclassified as
currently payable at December 30, 1993.

Effective August 18, 1994, Lori and Lori's operating subsidiaries (collectively,
the "Borrowers"),  ARTRA and Fill-Mor entered into an agreement with Lori's bank
lender  to  settle  obligations  due the  bank  under  terms  of the  bank  loan
agreements of Lori and its operating  subsidiaries.  On December 13, 1994,  Lori
and Lori's operating  subsidiaries were notified by the bank of certain defaults
under the  Settlement  Agreement,  including  but not  limited  to a  $1,115,000
payment due the bank on December 8, 1994. Prior to receipt of the default notice
and thereafter,  ARTRA and Lori entered into negotiations with the bank to amend
or restructure the terms of the August 18, 1994 Settlement Agreement.

Effective  December 23,  1994,  the  Borrowers,  ARTRA and Fill-Mor and the bank
entered into an amendment to the August 18, 1994 Settlement  Agreement ("Amended
Settlement   Agreement").   Per  terms  of  the  Amended  Settlement  Agreement,
borrowings due the bank under the loan  agreements of the Borrowers and Fill-Mor
(approximately  $25,000,000 as of December 23, 1994),  plus amounts due the bank
for accrued  interest and fees were reduced to $10,500,000 (of which  $7,855,000
pertained  to  Lori's  obligation  to  the  bank  and  $2,645,000  pertained  to
Fill-Mor's  obligation to the bank). Upon the satisfaction of certain conditions
of the Amended Settlement  Agreement in 1995, as discussed below, the balance of
this indebtedness was discharged.

In  conjunction  with the Amended  Settlement  Agreement,  ARTRA  entered into a
$1,850,000  short-term  loan agreement with a  non-affiliated  corporation,  the
proceeds of which were used to fund amounts due the bank as discussed below. The
loan, due June 30, 1995, with interest payable monthly at 10%, is collateralized
by 100,000  shares of Lori common  stock.  These 100,000 Lori common shares were
originally  issued to the bank under  terms of the August  18,  1994  Settlement
Agreement.

In  exchange  for the  reduction  of  amounts  due the bank,  and as  additional
consideration   for  the   $1,850,000   short-term   loan   agreement  from  the
non-affiliated corporation,  the Borrowers, ARTRA and Fill-Mor agreed to pay the
following  consideration,  which  supersedes the  consideration  agreed to under
terms of the August 18, 1994 Settlement Agreement:

             A)   A cash  payment  to the  bank of  $1,900,000, which was made
                  prior to  consummation  of the  Amended Settlement
                  Agreement.

             B)   400,000  shares of ARTRA common  stock..  These  400,000 ARTRA
                  common shares were  originally  issued to the bank under terms
                  of the August 18, 1994 Settlement Agreement. The bank retained
                  100,000  shares and the  non-affiliated  corporation  received
                  300,000 shares as additional  consideration for its short-term
                  loan.

             C)   Assignment to the bank of all of the assets of Lori's New
                  Dimensions subsidiary.

             D)   A $750,000 note payable to the bank due March 31, 1995.


Among other  things,  ARTRA has agreed to register  the ARTRA  shares  issued in
order  to  enable  the  ARTRA  shares  issued  to be  freely  tradeable  without
restriction on or before July 31, 1995. Additionally, ARTRA advanced $400,000 to
Lori to be used to fund  the  installment  payment  due  December  31,  1994 for
unsecured claims arising from the May 3, 1993 reorganization of New Dimensions.



<PAGE>


The August 18, 1994  settlement  agreement  required ARTRA to contribute cash of
$1,500,000 to Lori for working capital.  ARTRA's cash contribution was funded by
private  placements  of  ARTRA  common  stock.  An   officer/director   of  Lori
participated in the private placement of ARTRA common stock purchasing  $150,000
of ARTRA common stock (37,500 shares),  subject to the same terms and conditions
as the other outside investors.

Lori  recognized  an  extraordinary  gain of  $8,965,000  ($1.57  per  share) in
December  1994 as a result of the  reduction  of amounts  due the bank under the
loan  agreements  of  the  Borrowers  and  Fill-Mor  to  $10,500,000  (of  which
$7,855,000  pertained to Lori's obligation to the bank and $2,645,000  pertained
to  Fill-Mor's  obligation  to the  bank) as of  December  23,  1994.  Lori also
recorded  a  charge  against  operations  of  $10,800,000  in  December  1994 to
write-off New Dimensions' remaining goodwill.

On March  31,  1995 the  $750,000  note due the bank was paid and the  remaining
indebtedness  of Lori and Fill-Mor was  discharged,  resulting in an  additional
extraordinary  gain to Lori and Fill-Mor of  approximately  $9,400,000  in 1995.
Among other  things,  ARTRA has agreed to register  the ARTRA  shares  issued in
order  to  enable  the  ARTRA  shares  issued  to be  freely  tradeable  without
restriction  on or  before  July 31,  1995.  In the  event  the  shares  are not
registered  by July 31,  1995,  the bank has the right to put the 100,000  ARTRA
shares  back to ARTRA for an  exercise  price of  $500,000.  The  $750,000  note
payment  was  funded  with the  proceeds  of a $850,000  short-term  loan from a
director of Lori. The loan provides for interest at the prime rate plus 1%, and,
as additional  consideration,  the director  received 150,000 Lori common shares
valued at $337,500  ($2.25 per share) based upon Lori's  closing market value on
March 30, 1995.

In recent years,  New Dimensions has  experienced a pattern of operating  losses
primarily  due to a shift in the buying  patterns of its major  customers  (i.e.
certain mass  merchandisers)  from participation in the New Dimension's  service
program  to  purchases  of  costume  jewelry  and   accessories   directly  from
manufacturers.  Accordingly,  the assignment to the Company's bank lender of all
of the assets of the New Dimensions  subsidiary in accordance  with terms of the
Amended Settlement Agreement,  resulted in New Dimensions ceasing its operations
effective  December 27, 1994.  New  Dimensions  cessation of  operations  is not
expected to have a material adverse effect on the financial condition, liquidity
or results of operations of the Company in the immediate future.

Lori  anticipates  that the successful  completion of the  restructuring  of its
debt, plus additional  working capital  borrowings either from ARTRA or external
sources will permit it to fund its capital  requirements  in 1995.  In addition,
the Company  continues  to  restructure  its  operations  and is  attempting  to
increase  sales such that operating  results will improve.  If Lori is unable to
obtain working capital borrowings to fund its operations in 1995 and improve the
results  of  operations,  it may be forced to  liquidate  its assets or file for
protection under the Bankruptcy Code.

Lori's 1995  business  plan is based on the  continued  dependence  upon certain
major customers.

The common stock and  virtually  all the assets of the Company and its operating
subsidiaries have been pledged as collateral for the Company's and its operating
subsidiaries' bank borrowings.  Under its debt agreements the Company is limited
in the amounts it can withdraw from its operating subsidiaries.  At December 29,
1994  substantially  all  cash and  equivalents  on the  Company's  consolidated
balance  sheet  were  restricted  to use  by and  for  the  Company's  operating
subsidiaries.  Due to the limited  ability of the Company to receive  funds from
its operating subsidiaries, effective July 1, 1989, ARTRA placed a moratorium on
the accrual of interest and the declaration and accrual of dividends on its Lori
note and  preferred  stock,  respectively.  The  moratorium  has  been  extended
indefinitely.

During 1994,  ARTRA made net  advances to Lori of  $2,531,000  during 1994.  The
advances  consisted of a $1,850,000  short-term  note with  interest at 10%, the
proceeds of which were used to fund the  $1,900,000  cash payment to the bank in
conjunction with the Amended  Settlement  Agreement with Lori's bank lender, and
certain  non-interest  bearing  advances  used  to  fund  Lori  working  capital
requirements.

Effective December 29, 1994 ARTRA exchanged $2,242,000 of its notes and advances
for additional Lori Series C preferred stock. Additionally,  the August 18, 1994
Settlement  Agreement  required ARTRA to contribute cash of $1,500,000 and ARTRA
common stock with a fair market value of $2,500,000 to Lori's capital account.

In February, 1993, ARTRA transferred all of its notes (with a principal value of
$15,990,000) to Lori's capital account.
<PAGE>

Rosecraft, Lawrence and Lori's corporate entity have no material commitments for
capital expenditures.

The Company's  operating  subsidiaries  sell all of their  products  directly to
their  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 and its subsidiaries are the defendants in various  business-related
litigation and  environmental  matters.  See Notes 14 and 20 to the Consolidated
Financial  Statements.  At December 29, 1994 and December 30, 1993,  the Company
had   accrued   $1,500,000   and   $1,850,000,   respectively,   for   potential
business-related litigation and environmental liabilities. However, as discussed
above 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.

At December 29, 1994,  the Company and its  subsidiaries  had Federal income tax
loss carryforwards of approximately  $97,000,000 available to be applied against
future taxable income,  if any. ARTRA's tax loss  carryforwards of approximately
$32,000,000 expire principally in 2003 - 2009. ARTRA's  discontinued  Ultrasonix
and  Ratex   subsidiaries   had  Federal  income  tax  loss   carryforwards   of
approximately $11,000,000 available to be applied against future taxable income,
if any.  Lori  has  Federal  income  tax  loss  carryforwards  of  approximately
$54,000,000  available to be applied against future Lori taxable income, if any,
expiring  principally  in 1995 - 2009. 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.


Results of Operations

         1994 vs 1993

Net sales of  approximately  $152,100,000  for the year ended  December 29, 1994
were approximately  $7,500,000, or 4.7%, lower than net sales for the year ended
December 30, 1993. Jewelry segment sales decreased approximately  $11,600,000 or
25.2% while packaging segment sales increased approximately  $4,100,000 or 3.6%.
The 1994 jewelry segment results of operations  include New Dimensions net sales
of $13,701,000 and operating loss of $2,143,000  before a write-off of goodwill.
The 1994 jewelry  segment  sales  decrease is  principally  attributable  to the
combination  of a soft  retail  environment,  a planned  reduction  of  in-store
inventory  levels by certain  major  customers in 1994 and a shift in the buying
patterns of certain  mass  merchandisers  from  participation  in the  Company's
service program to purchases of costume  jewelry and  accessories  directly from
manufacturers.   The  1994   packaging   segment  sales  increase  is  primarily
attributable to the April,  1994  acquisition of Arcar,  partially offset by the
sale of  Bagcraft's  Roll  Press  division,  which was  completed  in the second
quarter of 1993.

The Company's  cost of sales of  approximately  $119,100,000  for the year ended
December 29, 1994 increased approximately $800,000 as compared to the year ended
December 30, 1993.  Cost of sales in the year ended  December 29, 1994 was 78.3%
of net sales compared to a cost of sales  percentage of 74.1% for the year ended
December 30, 1993.  Jewelry  segment cost of sales  decreased  $3,700,000 in the
year ended  December 29, 1994, as compared to the year ended  December 30, 1993.
Jewelry  segment cost of sales was 61.2% of net sales in the year ended December
29, 1994, as compared to 58.3% of net sales in the year ended December 30, 1993.
The 1994 jewelry  segment cost of sales decrease is principally  attributable to
the decrease in sales volume as noted above.  The jewelry  segment cost of sales
percentage  increase  of  3.9%  is  primarily  attributable  to  a  soft  retail
environment that resulted in depressed operating margins. Packaging segment cost
of sales  increased  $4,500,000 in the year ended December 29, 1994, as compared
to the year ended December 30, 1993.  Packaging  segment cost of sales was 83.3%
of net sales in the year ended December 29, 1994, as
<PAGE>

compared to 82.3% of net sales in the year ended December 30, 1993. is primarily
attributable  to the April,  1994  acquisition  of Arcar.  The  increase  in the
packaging  segment  cost  of  sales  percentage  is  primarily  attributable  to
unforeseen  delays in the  completion  of and higher than  anticipated  start-up
costs of the Baxter Springs,  Kansas production facility and higher raw material
costs in the second half of 1994,  partially offset by a more favorable  product
mix.

Selling,  general and administrative expenses were approximately  $34,100,000 in
the year ended December 29, 1994 as compared to approximately $33,600,000 in the
year ended December 30, 1993. Selling,  general and administrative expenses were
22.4% of net sales in the year ended  December  29, 1994 as compared to 21.1% of
net sales in the year ended December 30, 1993. The increase in selling,  general
and  administrative   expenses  as  a  percentage  of  net  sales  is  primarily
attributable to the semi-fixed nature of these expenses.

As partial consideration per the terms of its debt settlement agreement with its
bank  lender  the  Company  assigned  the  bank  all of the  assets  of it's New
Dimensions  subsidiary.  Accordingly,  the  Company  recorded  a charge  against
operations  of  $10,800,000  in December  1994  representing  a write-off of New
Dimensions' remaining goodwill.

Operating loss in the year ended December 29, 1994 was approximately $17,800,000
as compared to operating  earnings of  approximately  $700,000 in the year ended
December 30, 1993. The jewelry segment incurred an operating loss of $15,200,000
as compared to operating earnings of approximately  $1,600,000 in the year ended
December 31, 1993. The 1994 operating  loss is principally  attributable  to the
write-off of New  Dimensions  goodwill,  plus the  combination  of a soft retail
environment,  a planned reduction of in-store  inventory levels by certain major
customers  in  1994  and  a  shift  in  the  buying  patterns  of  certain  mass
merchandisers  from  participation in the Company's service program to purchases
of costume jewelry and accessories  directly from  manufacturers.  The packaging
segment  operating  earnings  were  approximately  $900,000  in the  year  ended
December 29, 1994, as compared to operating earnings of approximately $2,000,000
the year  ended  December  30,  1993.  The  jewelry  segment  operating  loss is
principally  attributable to the combination of a soft retail  environment and a
planned  reduction of in-store  inventory  levels by certain major  customers in
1994 and to the  discontinuance  of New Dimensions  "Contempra"  line of fashion
costume jewelry service program in February,  1993 as noted above.  The decrease
in packaging  segment  operating profit is primarily  attributable to unforeseen
delays in the  completion of and higher than  anticipated  start-up costs of the
Baxter Springs, Kansas production facility.

Interest  expense in the year ended  December 29, 1994  increased  approximately
$2,900,000 as compared to the year ended December 30, 1993. The 1994 increase is
principally due to the combination of long-term debt incurred in connection with
Bagcraft's acquisition of Arcar, to an overall increase in borrowings and to the
effect of an increase in the prime rate.

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


         1993 vs 1992

Net sales of  approximately  $159,600,000  for the year ended  December 30, 1993
were  approximately  $37,000,000,  or 18.8%,  lower  than net sales for the year
ended  December  31,  1992.   Jewelry  segment  sales  decreased   approximately
$29,400,000 or 38.9%,  while  packaging  segment sales  decreased  approximately
$7,500,000  or 6.2%.  The 1993  jewelry  segment  sales  decrease  is  primarily
attributable to the New Dimensions  reorganization which resulted in a reduction
of New Dimensions'  operating  focus to certain  product lines which  management
believed  would be better  received in the market than  discontinued  lines.  In
early 1993,  Wal-Mart ended its  participation  in New  Dimensions'  "Contempra"
service program,  although Wal-Mart  continues to be a significant  customer for
New Dimensions'  "Sarah  Coventry" line of ladies costume jewelry and Trilko key
chains  through  New  Dimensions'   service   program.   Due  primarily  to  the
discontinuance  of the  "Contempra"  service program with Wal-Mart and other New
Dimensions  customers,  in conjunction with its Chapter 11  reorganization,  New
Dimensions  terminated  its in-house  service staff early in 1993 and contracted
with Lori's  Lawrence  subsidiary  to conduct  its  remaining  service  program.
Additionally,  in June, 1992 Rosecraft closed its Ladies line of fashion costume
jewelry in order to concentrate on its higher margin  Children's line of fashion
costume jewelry and  accessories.  The packaging  segment 1993 sales decrease is
primarily  attributable  to the  sale  of it  Roll  Press  division,  which  was
completed in the second quarter of 1993.
<PAGE>

The Company's cost of sales in the year ended December 30, 1993 of approximately
$118,300,000  in the  year  ended  December  30,  1993  decreased  approximately
$32,300,000  as compared to the year ended  December 31, 1992.  Cost of sales in
the year ended  December  30, 1993 was 74.1% of net sales  compared to a cost of
sales percentage of 76.6% for the year ended December 31, 1992.  Jewelry segment
cost of sales  decreased  $29,500,000  in the year ended  December 30, 1993,  as
compared to the year ended December 31, 1992.  Jewelry segment cost of sales was
53.8% of net sales in the year ended  December 30, 1993, as compared to 72.0% of
net sales the year ended  December 31, 1992.  The jewelry  segment cost of sales
decrease is primarily  attributable to the sales volume decrease as noted above.
The jewelry segment cost of sales percentage decrease is primarily  attributable
to  management's  efforts to  concentrate  on higher margin lines of jewelry and
accessories  and to costs  incurred  in 1992  related to  discontinued  lines of
business. Packaging segment cost of sales decreased $2,800,000 in the year ended
December 30, 1993,  as compared to the year ended  December 31, 1992.  Packaging
segment  cost of sales  was 82.8% of net sales in the year  ended  December  30,
1993, as compared to 79.5% of net sales in the year ended December 31, 1992. The
packaging  segment 1993 cost of sales decrease is primarily  attributable to the
sale of it Roll Press  division,  which was  completed in the second  quarter of
1993.  The  decrease in the  packaging  segment's  cost of sales  percentage  is
primarily attributable to a more favorable product mix.

Selling, general and administrative expenses in the year ended December 30, 1993
decreased  approximately  $22,800,000 as compared to the year ended December 31,
1992.  Selling,  general and administrative  expenses were 21.1% of net sales in
the year ended  December  30, 1993 as compared to 28.7% of net sales in the year
ended  December 31, 1992.  The decrease in selling,  general and  administrative
expenses is attributable  to a combination of the 1993 jewelry segment  decrease
in sales volume and to the jewelry segment  management's  aggressive  cutting of
fixed overhead costs that began in the second half of 1992.

Depreciation and amortization  expense decreased  approximately  $600,000 in the
year ended  December  30, 1993 as compared to the year ended  December 31, 1992.
The decrease is primarily attributable to the New Dimensions reorganization.

In December,  1993 the Bagcraft  subsidiary  recorded a charge to  operations of
$1,175,000  representing  equipment and inventory  relocation costs and employee
severance and outplacement  costs, to be expended  principally in the second and
third  quarters of 1994,  relating to the  construction  of a new  manufacturing
facility in Baxter  Springs,  Kansas.  The new facility has replaced  Bagcraft's
production facility in Joplin,  Missouri (except for limited production which is
being phased-out as the new facility  achieves full operational  capacity),  its
facility in  Carteret,  New Jersey  (which was sold in  December,  1994) and its
facility in Forest Park,  Georgia  (which has been converted into a distribution
facility).

During  1992  Lori's  subsidiaries  incurred   restructuring  costs  aggregating
$1,575,000. In June, 1992, Lori's Rosecraft subsidiary closed its Ladies line of
fashion costume jewelry in order to concentrate on its higher margin  Children's
line of fashion  costume  jewelry and  accessories.  The closing of  Rosecraft's
Ladies  line  resulted  in a  charge  to  operations  of  $900,000  representing
principally  inventory  liquidation  costs, lease termination costs and employee
severance costs. In the fourth quarter of 1992, Lori's New Dimensions subsidiary
closed  certain of its "Whims"  retail  outlet  stores and made the  decision to
close  additional  "Whims"  retail outlet stores and its New York City sales and
executive  office in 1993.  The closing of the "Whims"  retail outlet stores and
the New York City sales and executive  office resulted in a charge to operations
of  $675,000   representing   principally  inventory  liquidation  costs,  lease
termination costs and employee  severance costs which were expended  principally
in the first quarter of 1993.  Operating earnings in the year ended December 30,
1993  were   approximately   $700,000  as  compared  to  an  operating  loss  of
approximately  $27,200,000  in the year ended  December  31,  1992.  The jewelry
segment had  operating  earnings of  approximately  $1,600,000 in the year ended
December 30, 1993 as compared to an operating loss of approximately  $28,800,000
in the year ended December 31, 1992. The packaging  segment  operating  earnings
were approximately $2,000,000 in the year ended December 30, 1993 as compared to
operating  earnings of  approximately  $4,100,000 in the year ended December 31,
1992. The 1993 jewelry segment operating  earnings are principally  attributable
to the New  Dimensions  reorganization  which  resulted  in a  reduction  of New
Dimensions'  operating focus to certain product lines which management  believed
would be better  received  in the market  than  discontinued  lines and to costs
incurred in 1992  related to  discontinued  lines of  business.  The decrease in
packaging   segment   operating  profit  is  primarily   attributable  the  1993
restructuring  charge  relating  to  the  construction  of a  new  manufacturing
facility in Baxter  Springs,  Kansas.  Corporate and other  operating costs were
approximately  $2,2000,000  in the year ended  December  30, 1993 as compared to
approximately $2,100,000 in the year ended December 31, 1992.
<PAGE>

The  1993  extraordinary  credit  represents  a  gain  from a net  discharge  of
indebtedness  at Lori's New  Dimensions  subsidiary.  No income  tax  expense is
reflected in the Company's financial statements resulting from the extraordinary
credit due to the  utilization of tax loss  carryforwards.  Due to the Company's
tax loss carryforwards,  no income tax benefit was recognized in connection with
the Company's 1992 pre-tax loss.



         Seasonality

Retail sales of the  Company's  jewelry  segment  products are higher during the
Spring  (February  through  April)  and  Christmas  seasons  (September  through
December).  As a result of these seasonal factors, the Company's jewelry segment
inventories  of finished goods reach peak levels just prior to these periods and
are generally lower during the balance of the year.



         Impact of Inflation and Changing Prices

Inflation has become a less significant factor in our economy;  however,  to the
extent permitted by competition, the Company generally passes increased costs to
its customers by increasing sales prices over time.







Item 8.  Financial Statements and Supplementary Data.

Financial Statements and Schedules as listed on Page F-1.





Item  9.  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
          Financial Disclosure.

None.


<PAGE>



                                    PART III



Item 10.   Directors and Executive Officers of the Registrant


Item 11.   Executive Compensation


Item 12.   Security Ownership of Certain Beneficial Owners and Management


Item 13.   Certain Relationships and Related Transactions


The information required by Part III will be filed as an amendment to Form 10-K.






                                    PART IV

Item 14.  Exhibits, Financial Statement Schedules, and Reports on
                Form 8-K.

          (a)      1.   Financial Statements as listed on Page F-1.
                   2.   Financial Statement Schedules as listed on Page F-1.
                   3.   Exhibits as listed on Page E-1.


          (b)      Reports on Form 8-K.

                   On October 31, 1994 the Company  filed Form 8-K to report the
                   complaint filed on October 25, 1994 by Bank America  Illinois
                   in the Circuit Court of Cook County,  Illinois  against ARTRA
                   and  certain of its  subsidiaries  for  amounts  due the bank
                   under terms of certain ARTRA promissory notes.

                   On January 3, 1995 the  Company  filed Form 8-K to report the
                   December  13, 1994  notification  of certain  defaults by the
                   Company's 66.4% owned subsidiary The Lori Corporation and its
                   operating  subsidiaries  under  the  August  Debt  Settlement
                   Agreement  with a bank.  Effective  December  23,  1994,  the
                   parties  entered  into an  Amended  Settlement  Agreement  to
                   discharge certain indebtedness due the bank.



<PAGE>




                                   SIGNATURE

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  registrant  has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

                            ARTRA GROUP INCORPORATED

                                            By:           JOHN HARVEY
                                                      -----------------------
                                                          John Harvey
                                                       Chairman and Director
Dated:     April 12, 1995                             Chief Executive Officer



Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons, on behalf of the registrant,  in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S>                               <C>                             <C>


   JOHN HARVEY                    Chairman and Director           April 12, 1995
 -----------------
   John Harvey                    Chief Executive Officer


 PETER R. HARVEY                  President and Director          April 12, 1995
 -----------------
 Peter R. Harvey                  Chief Operating Officer


 JAMES D. DOERING                 Vice President /Treasurer       April 12, 1995
 -----------------
 James D. Doering                 Chief Financial Officer


 GERARD M. KENNY                  Director                        April 12, 1995
- ------------------
 Gerard M. Kenny

 LAWRENCE D. LEVIN                Controller                      April 12, 1995
 ------------------
 Lawrence D. Levin

</TABLE>


<PAGE>

                         INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>

                                                                                        Page
                                                                                        -----
<S>                                                                                     <C>

ARTRA GROUP INCORPORATED AND SUBSIDIARIES

  Report of Independent Accountants                                                      F-2

  Consolidated Balance Sheets as of December 29, 1994
  and December 30, 1993                                                                  F-3

  Consolidated Statements of Operations
  for each of the fiscal years in the three year period ended December 29, 1994          F-5

  Consolidated Statements of Changes in Shareholders' Equity (Deficit)
  for each of the fiscal years in the three year period ended December 29, 1994          F-6

  Consolidated Statements of Cash Flows
  for each of the fiscal years in the three year period ended December 29, 1994          F-7

  Notes to Consolidated Financial Statements                                             F-9


  Schedules:

  I.  Condensed Financial Information  of Registrant                                     F-39

  II.  Valuation and Qualifying Accounts                                                 F-43


</TABLE>


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



<PAGE>


                       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 29, 1994 and December 30,
1993, and the consolidated  results of their operations and their cash flows for
each of the  three  fiscal  years  in the  period  ended  December  29,  1994 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 the current  credit  arrangements,  certain of which are in default,  to
fund its debt  service and to satisfy  liquidity  requirements  for 1995.  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 12, 1995



<PAGE>



                            ARTRA GROUP INCORPORATED
                          CONSOLIDATED BALANCE SHEETS
                           (In thousands of dollars)
<TABLE>
<CAPTION>

                                                            Dec 29,     Dec 30,
                                                             1994        1993
                                                            ------      ------
   <S>                                                      <C>        <C>

   ASSETS
   Current assets:
      Cash and equivalents                                  $ 2,070    $ 1,060
      Restricted cash and equivalents                         1,324        875
      Receivables, less allowance
         for doubtful accounts
         and markdowns of $1,654 in
         1994 and $3,095 in 1993                             13,707     11,972
      Inventories                                            20,268     21,540
      Other                                                   1,148      2,047
                                                             ------     ------
                                                             38,517     37,494
                                                             ------     ------


   Property, plant and equipment:
      Land                                                      930      2,283
      Buildings                                              10,584      8,345
      Improvements to land and leaseholds                       187        493
      Machinery and equipment                                33,756     31,923
      Construction in in progress                             2,693      2,397
                                                             ------     ------
                                                             48,150     45,441
   Less accumulated depreciation and amortization            17,110     18,034
                                                             ------     ------
                                                             31,040     27,407
                                                             ------     ------


   Other assets:
      Excess of cost over net assets acquired, net
         of accumulated amortization of $7,934 in
         1994 and $21,634 in 1993                            19,076     22,693
      Other                                                   4,796      5,180
                                                             ------     ------
                                                             23,872     27,873
                                                             ------     ------
                                                            $93,429    $92,774
                                                             ======     ======

</TABLE>


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



<PAGE>
                           ARTRA GROUP INCORPORATED
                          CONSOLIDATED BALANCE SHEETS
                           (In thousands of dollars)
<TABLE>
<CAPTION>
                                                           Dec 29,     Dec 30,
                                                            1994        1993
                                                           ------      ------
 <S>                                                     <C>         <C>
   LIABILITIES
   Current liabilities:
      Notes payable, including amounts due to
         related parties
         of $5,669 in 1994 and $1,446 in 1993            $ 28,053    $ 29,444
      Current maturities of long-term debt                 37,521       5,851
      Long-term debt reclassified as current                           19,119
      Accounts payable                                     16,788      12,495
      Accrued expenses                                     16,533      17,214
      Income taxes                                             94         402
                                                           ------      ------
                                                           98,989      84,525
                                                           ------      ------

   Long-term debt                                          19,673      29,264

   Debt subsequently discharged                             9,750

   Other noncurrent liabilities                             1,463       2,853

   Commitments and contingencies

   Redeemable common stock,
      issued 279,679 shares in 1994 and 245,413
      shares in 1993                                        4,144       3,276

   ARTRA  redeemable  preferred  stock  payable
      to a related  party,  $1,000 par
      value,  Series A, 6%  cumulative  
      payment-in-kind,  including  accumulated
      dividends,  net of  unamortized  discount 
      of $1,842 in 1994 and $2,076 in
      1993;  redeemable  March 1, 2000 at $1,000 
      per  share,  plus  accumulated
      dividends;  authorized  2,000,000
      shares all series;  issued 3,750 shares               3,129       2,613
    
   Bagcraft  redeemable  preferred stock payable
      to a related party,  cumulative
      $.01 par value, 13.5%, including accumulated 
      dividends; redeemable in 1997 with a  
      liquidation preference equal to $100 per share
      50,000  shares authorized and issued                  10,119      9,444

   BCA Holdings preferred stock payable to a 
      related party, $1,000 par value, 
      6%cumulative,  including accumulated  
      dividends;  liquidation  preference of
      $1,000 per share;  10,000  shares 
      authorized; issued  3,675 shares                       3,922      3,708


   SHAREHOLDERS' EQUITY (DEFICIT)

   Common stock, no par value; authorzed
      7,500,000 shares; issued 6,455,602 shares
      in 1994 and 4,983,608 shares in 1993                  5,052       3,922
   Additional paid-in capital                              36,613      31,042
   Receivable from related party,
      including accrued interest                           (4,100)     (3,843)
   Accumulated deficit                                    (94,520)    (73,225)
                                                          -------     -------
                                                          (56,955)    (42,104)
   Less treasury stock (57,038 shares), at cost               805         805
                                                           ------      ------
                                                          (57,760)    (42,909)
                                                           ------      ------
                                                         $ 93,429    $ 92,774
                                                           ======      ======
</TABLE>
The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.
<PAGE>

                            ARTRA GROUP INCORPORATED
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                (In thousands of dollars, except per share data)

<TABLE>
<CAPTION>
                                                              Fiscal Year
                                               -----------------------------------------
                                                  1994            1993            1992
                                               ---------       ---------       ---------
  <S>                                          <C>             <C>             <C>
  Net sales                                    $ 152,115       $ 159,638       $ 196,568
                                               ---------       ---------       ---------

  Costs and expenses:
     Cost of goods sold, exclusive of            119,081         118,256         150,591
       depreciation and amortization
     Selling, general and administrative          34,090          33,647          56,414
     Depreciation and amortization                 5,945           5,906           6,496
     Impairment of  goodwill                      10,800                           8,664
     Restructuring costs                                           1,175           1,575
                                               ---------       ---------       ---------
                                                 169,916         158,984         223,740
                                               ---------       ---------       ---------

  Operating earnings (loss)                      (17,801)            654         (27,172)
                                               ---------       ---------       ---------

  Other income (expense):
     Interest expense                            (10,655)         (7,733)        (10,846)
     Other income (expense), net                      (7)             51             123
     Reorganization and debt
       renegotiation costs                                          (767)           (700)
                                               ---------       ---------       ---------
                                                 (10,662)         (8,449)        (11,423)
                                               ---------       ---------       ---------

  Loss from continuing operations before
    income taxes and minority interest           (28,463)         (7,795)        (38,595)
  (Provision) credit for income taxes                (83)            (40)            968
  Minority interest                                 (889)           (708)           (675)
                                               ---------       ---------       ---------
  Loss from continuing operations                (29,435)         (8,543)        (38,302)
  Earnings from discontinued operations,
     net of income taxes of $170                                                     330
                                               ---------       ---------       ---------
  Loss before extraordinary credit               (29,435)         (8,543)        (37,972)
  Extraordinary credit,
    net discharge of indebtedness                  8,965          22,057
                                               ---------       ---------       ---------
  Net earnings (loss)                            (20,470)         13,514         (37,972)
  Dividends applicable to
    redeemable preferred stock                      (516)           (471)           (431)
  Reduction of retained earnings
    applicable to redeemable common sto             (309)           (243)           (511)
                                               ---------       ---------       ---------
  Earnings (loss) applicable to
    common shares                              $ (21,295)      $  12,800       $ (38,914)
                                               =========       =========       =========
  Earnings (loss) per share:
     Continuing operations                     $   (5.30)      $   (1.88)      $   (8.98)
     Discontinued operations                                                        0.08
                                               ---------       ---------       ---------
     Loss before extraordinary credit              (5.30)          (1.88)          (8.90)
     Extraordinary credit                           1.57            4.49
                                               ---------       ---------       ---------
                 Net earnings (loss)           $   (3.73)      $    2.61       $   (8.90)
                                               =========       =========       =========

  Weighted average number of shares of
  common stock and
     common stock equivalents outstanding          5,702           4,908           4,372
                                               =========       =========       =========

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

                            ARTRA GROUP INCORPORATED
              CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'
                                EQUITY (DEFICIT)
                  (In thousands of dollars, except share data)


<TABLE>
<CAPTION>

                                                                                       Receivable                             Total
                                                           Common Stock      Additional   From              Treasury Stock  Shrhldrs
                                                     ---------------------    Paid-in   Related Accumulated --------------   Equity
                                                       Shares      Dollars    Capital    Party   (Deficit)   Shares    $   (Deficit)
                                                     ----------    -------    -------   -------  --------   -------  ----  --------
<S>                                                   <C>           <C>       <C>        <C>      <C>        <C>    <C>    <C>

Balance at December 31, 1991                          3,973,050     $3,118    $25,793   ($5,250) ($47,111)   4,245  ($ 66) ($23,516)
   Net loss                                                                                       (37,972)                  (37,972)
   Redeemable common stock accretion                                                                 (511)                     (511)
   Redeemable common stock put options exercised        144,106         59      1,103                       46,793   (645)      517
   Common stock issued to pay liabilities               281,812        302      1,548                                         1,850
   Exercise of stock options                             24,333         18        176                        6,000    (94)      100
   Net increase in receivable from related
    party, including accrued interest                                                      (635)                               (635)
   Redeemable preferred stock dividends                                                              (431)                     (431)
   Common stock contributed to ESOP                     100,000         75        325                                           400
   Common stock issued as compensation                   19,291         15         89                                           104
                                                     ----------    -------    -------   -------   --------  -------  ----  --------
 Balance at December 31, 1992                         4,542,592      3,587     29,034    (5,885)  (86,025)   57,038  (805)  (60,094)
   Net earnings                                                                                    13,514                    13,514
   Redeemable common stock accretion                                                                 (243)                     (243)
   Common stock issued to pay liabilities               292,996        224      1,412                                         1,636
   Exercise of stock options                             74,700         56        294                                           350
   Net decrease in receivable from related party                                          2,042                               2,042
   Redeemable preferred stock dividends                                                              (471)                     (471)
   Common stock issued as compensation                   73,320         55        302                                           357
                                                     ----------    -------    -------   -------   --------  -------  ----  --------
 Balance at December 30, 1993                         4,983,608      3,922     31,042    (3,843)  (73,225)   57,038  (805)  (42,909)
   Net loss                                                                                       (20,470)                  (20,470)
   Redeemable common stock accretion                                                                 (309)                     (309)
   Common stock sold through private placements         855,000        641      2,484                                         3,125
   Common stock issued for Lori
    debt settlement agreement                           400,000        300      2,200                                         2,500
   Common stock issued to pay liabilities               142,635        107        684                                           791
   Sale and reclass of redeemable common stock          (14,266)        15       (192)                                         (177)
   Common stock contributed to ESOP                      65,000         49        292                                           341
   Exercise of stock options                              5,300          4         26                                            30
   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)
                                                     ==========    =======    =======   =======   ========  =======  ====  ========
</TABLE>


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

<PAGE>

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


<TABLE>
<CAPTION>
                                                                                         Fiscal Year
                                                                            -----------------------------------------
                                                                              1994           1993          1992
                                                                            ---------     ---------     ---------
<S>                                                                         <C>            <C>          <C>
Cash flows from operating activities:
   Net earnings (loss)                                                      ($20,470)      $13,514      ($37,972)
     Adjustments to reconcile net earnings (loss)
       to cash flows from operating activities:
         Extraordinary gain from net discharge of indebtedness                (8,965)      (22,057)
         Depreciation of property, plant and equipment                         4,252         4,283         4,762
         Amortization of excess of cost over net assets acquired               1,693         1,623         1,734
         Impairment of goodwill                                               10,800                       8,664
         Amortization of other assets                                            963           216           665
         Inventory valuation reserve                                                                       4,900
         (Gain) loss on sale of property, plant and equipment                    (59)         (284)          267
         Gain on sale of Ratex subsidiary                                                                   (500)
         Minority interest                                                       889           708           675
         Contribution to ARTRA  ESOP                                              77           423           400
         Other                                                                   485           389           327
     Changes in assets and liabilities, net of effects of
       Arcar acquisiton and debt restructuring
          (Increase) decrease in receivables                                  (1,923)         (348)        6,650
          Decrease in inventories                                               (727)        2,453         1,309
          (Increase) decrease in other current and noncurrent assets           1,068        (1,031)          671
          Increase in payables and accrued expenses                            4,675           804         2,362
          Decrease in other current and noncurrent liabilities                  (763)          170          (889)
          (Increase) decrease  in receivable from related party,
             including accrued interest                                         (257)           42          (635)
                                                                            ---------     ---------     ---------
Net cash flows from (used by) operating activities                            (8,262)          905        (6,610)
                                                                            ---------     ---------     ---------
Cash flows from investing activities:
   Proceeds from sale of property, plant and equipment                         2,251         1,401         1,717
   Additions to property, plant and equipment                                (11,881)       (3,156)       (3,508)
   Retail fixtures                                                              (665)         (951)
   Acquisition of Arcar                                                       (2,264)
   Proceeds from sale of Ratex subsidiary                                                                  1,089
   Other                                                                         101
                                                                            ---------     ---------     ---------
Net cash flows used by investing activities                                  (12,458)       (2,607)         (702)
                                                                            ---------     ---------     ---------

</TABLE>


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



<PAGE>


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

<TABLE>
<CAPTION>
                                                                                  Fiscal Year
                                                                       -----------------------------------------
                                                                          1994        1993        1992
                                                                       ---------   ---------   ---------
<S>                                                                     <C>         <C>        <C>

Cash flows from financing activities:
   Net increase in short term debt                                        1,920          54       8,455
   Proceeds from long term borrowings                                   116,775     123,743     132,212
   Reduction of long term debt                                         (100,131)   (124,759)   (133,196)
   Proceeds from private placements of ARTRA common stock                 3,230
   Proceeds from exercise of stock options                                   30         129          48
   Proceeds from sale of BCA Holdings preferred stock                                 3,000         675
   Exercise of redeemable common stock put options                          (50)                   (456)
   Other                                                                    (44)       (187)        (21)
                                                                       ---------   ---------   ---------
Net cash flows from financing activities                                 21,730       1,980       7,717
                                                                       ---------   ---------   ---------

Increase in cash and cash equivalents                                     1,010         179         405
Cash and equivalents, beginning of year                                   1,060         881         476
                                                                       ---------   ---------   ---------
Cash and equivalents, end of year                                     $   2,070   $   1,060   $     881
                                                                       =========   =========   =========



Supplemental cash flow information: Cash paid during the year for:
  Interest                                                            $   8,811   $   7,333   $   7,743
  Income taxes paid (refunded), net                                          59        (108)        190


Supplemental schedule of noncash investing and financing activities:
    Issue common stock and redeemable common stock
       to pay down current liabilities                                $     756   $   1,636   $   2,601
    Notes issued to sellers as consideration for Arcar acquisition        8,000
    ARTRA common stock issued to Lori's bank lender as partial
       consideration for discharge of indebtedness                        2,500
    Transfer New Dimensions assets, net of cash of $674,
       to Lori's bank lender under terms of the
       debt settlement agreement                                          6,475
    Debt refinanced                                                                  36,609


</TABLE>

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



<PAGE>


                   ARTRA GROUP INCORPORATED AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1.   Financial Restructuring and Basis of Presentation

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

The Company has suffered  recurring losses from operations and has a net capital
deficiency. As a result of these factors, the Company has experienced difficulty
in obtaining adequate financing to replace certain current credit  arrangements,
certain  of  which  are in  default,  to fund  its debt  service  and  liquidity
requirements in 1995. These factors raise  substantial doubt about the Company's
ability to continue as a going concern.  The financial statements do not include
any adjustments that might result from the outcome of this uncertainty. See Note
9, Notes  Payable,  and Note 10, Long Term Debt,  for further  discussion of the
status of credit  arrangements  and  restrictions  on the  ability of  operating
subsidiaries to fund ARTRA corporate obligations.  Due to its limited ability to
receive operating funds from its operating subsidiaries,  ARTRA has historically
met its operating  expenditures with funds generated by such alternative sources
as private  placements of ARTRA common  stock,  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.

As discussed in Note 7, on August 18, 1994, as amended December 23, 1994, ARTRA,
The Lori Corporation  ("Lori"), a 66.4% owned subsidiary of the Company,  Lori's
parent,  Fill-Mor Holding, Inc. ("Fill-Mor"),  a wholly-owned  subsidiary of the
Company, and Lori's operating  subsidiaries,  New Dimensions  Accessories,  Ltd.
("New  Dimensions"),  Lawrence Jewelry  Corporation  ("Lawrence") and Rosecraft,
Inc. ("Rosecraft"),  entered into an agreement with Lori's bank lender to settle
obligations due the bank under terms of the bank loan agreements of Lori and its
operating subsidiaries and Fill-Mor.

Lori  anticipates  that the successful  completion of the  restructuring  of its
debt, plus additional  working capital  borrowings either from ARTRA or external
sources will permit it to fund its capital  requirements  in 1995.  In addition,
the Company  continues  to  restructure  its  operations  and is  attempting  to
increase  sales such that operating  results will improve.  If Lori is unable to
obtain working capital borrowings to fund its operations in 1995 and improve the
results  of  operations,  it may be forced to  liquidate  its assets or file for
protection under the Bankruptcy Code.

ARTRA  intends to continue to  negotiate  with its bank and other  creditors  to
extend due dates and allow ARTRA  opportunities to obtain alternative sources of
financing  and to maximize  value from  possible  sale of assets.  Unless  ARTRA
receives a commitment from another lender to refinance these obligations or from
the bank to extend these  obligations  past their  scheduled  maturity dates, of
which there can be no  assurance,  it is  anticipated  that ARTRA  could  suffer
severe  adverse  consequences  which may  include the sale by the bank of all or
substantially all of the related collateral. As a result, ARTRA may be forced to
liquidate its assets or file for protection under the Bankruptcy Code.

On December 31, 1993, a religious organization,  currently holding approximately
5.8% of ARTRA's  outstanding  common made a  $2,000,000  short-term  loan to the
Company  with  interest  at  10%.  See  Note 9 for  further  discussion  of this
transaction and additional consideration received by the religious organization.
The  proceeds of this loan were  remitted to the bank to pay  interest and other
costs  due  through  December  31,  1993  and to  reduce  the  principal  amount
outstanding  on the bank notes to  $17,063,000.  On March 31, 1994 ARTRA entered
into a series of agreements with its bank lender and


<PAGE>


                   ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



with a private corporation that had guaranteed $2,500,000 of ARTRA's bank notes.
Per terms of the agreements,  the private  corporation  purchased  $2,500,000 in
ARTRA notes from  ARTRA's bank thereby  reducing  the  outstanding  principal on
ARTRA's bank notes to  $14,563,000  at March 31, 1994 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. See Note
9 for  further  discussion  of this  transaction  and  additional  consideration
received by the private  corporation.  A major shareholder and executive officer
of the private corporation is an ARTRA director.

Effective  in 1993,  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.


E.    Intangible Assets and Other Assets

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

The Company assesses the  recoverability of this intangible asset by determining
whether the  amortization of the goodwill  balance (for each operating  company)
over its remaining life can be recovered through  forecasted future  operations.
The charge to operations of $10,800,000 in 1994  represents the write-off of all
of New Dimensions' goodwill.


<PAGE>


                   ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



At December 31, 1992,  the Company  recognized  an impairment of goodwill at the
New Dimensions subsidiary due to the significant operating loss incurred in 1992
which resulted in the Chapter 11  reorganization  of New Dimensions as discussed
in Note 8. The Company  adjusted the carrying value of New Dimensions'  goodwill
to its estimated value based upon New Dimensions'  expected level of future cash
flows from operations and reduced the  amortization  period of the remaining New
Dimensions goodwill to a twenty year period beginning January 1, 1993.

Retail  displays,  classified in other assets,  are amortized on a straight-line
basis over their estimated lives.


F.   Revenue Recognition

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


G.   Income Taxes

Income  taxes  are  accounted  for  as  prescribed  in  Statement  of  Financial
Accounting  Standards No. 109 - Accounting for Income Taxes. Under the asset and
liability  method of Statement No. 109,  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.


H.   Reclassifications

The Company has made certain  reclassifications in the Consolidated Statement of
Operations  for the  year  ended  December  30,  1993  to  conform  to the  1994
presentation.  The reclassifications had no effect on operating earnings (loss),
net loss or loss per share.


3.   ACQUISITION

In March,  1994,  Bagcraft  entered  into an  agreement to purchase the business
assets, subject to buyer's assumption of certain liabilities, of Arcar Graphics,
Inc.   ("Arcar"),   a  manufacturer  and  distributor  of  waterbase  inks,  for
consideration of $10,264,000.  The consideration consisted of cash of $2,264,000
and  subordinated  promissory  notes  totaling  $8,000,000.  In  addition to the
initial  consideration,  the purchase price may be increased  based upon Arcar's
cumulative earnings,  as defined in the purchase agreement,  for the period from
January 1, 1994 until  December 31, 1997 ("earnout  compensation").  The earnout
compensation,  if applicable, is payable on or before January 2, 1999 along with
interest  thereon at the prime rate for the period  January 1, 1998 until  final
payment.  The seller also  received a warrant to purchase  177,778  ARTRA common
shares at a price of $5.625  per share,  the market  value at the date of grant.
Exercise of the warrant is payable only through a reduction of the  subordinated
promissory notes and accrued interest due the seller under terms of the purchase
agreement.  The  acquisition  of Arcar,  completed  on April 8,  1994,  is being
accounted  for  by  the  purchase  method  and,  accordingly,   the  assets  and
liabilities of Arcar have been included in ARTRA's financial statements at their
estimated fair market value at the date of  acquisition.  The purchase price has
been allocated to the assets and  liabilities of Arcar based on their  estimated
respective  fair values.  The purchase  price and expenses  associated  with the
acquisition  exceed  the fair  value of  Arcar's  net  assets  by  approximately
$8,400,000  and is being  amortized on a  straight-line  basis over forty years.
Arcar's results of operations have been included in ARTRA's financial statements
since April 8, 1994,  the date of  acquisition.  Arcar's  results of  operations
prior  to  its  acquisition  are  not  considered   material  to  the  Company's
consolidated financial statements.


<PAGE>


                   ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



4.   DISCONTINUED BUSINESS

In  February,  1992,  the  Company  completed  the sale of the common  stock and
preferred  stock  of  its  Ratex  Resources  Incorporated  ("Ratex")  subsidiary
resulting in a gain of $330,000,  net of income taxes of $170,000.  The proceeds
received  of  approximately   $1,100,000  were  used  to  pay  down  outstanding
liabilities.   Ratex  was  part  of  the  Company's  discontinued  oil  and  gas
operations.


 5.   INVENTORIES

Inventories (in  thousands) consist of:
<TABLE>

                                                  December 29,   December 30,
                                                      1994            1993
     <S>                                             <C>            <C>
                                                     -------        -------

     Raw materials and supplies                      $ 7,041        $ 5,299
     Work in process                                     877            408
     Finished goods                                   12,350         15,833
                                                     -------        -------
                                                     $20,268        $21,540
                                                     =======        =======
</TABLE>


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

In  March,  1989,  Envirodyne  Industries,   Inc.   ("Envirodyne")  and  Emerald
Acquisition  Corporation  ("Emerald") entered into a definitive  agreement for a
subsidiary  of Emerald to acquire  all of the issued and  outstanding  shares of
Envirodyne  common stock.  Pursuant to the terms of certain  letter  agreements,
ARTRA agreed to participate in the transaction and received Envirodyne's consent
to sell its then  4,830,000  Envirodyne  common  shares  (a 26.3%  interest)  to
Emerald.  On May  3,  1989  the  transaction  was  consummated.  ARTRA  received
consideration consisting of: (i) cash of $75,000,000;  (ii) a 27.5% common stock
interest in Emerald and (iii) Emerald junior  debentures  ("Junior  Debentures")
with a principal amount of $20,992,710.  The Junior Debentures were scheduled to
mature May 1, 2001,  twelve years from the date of  issuance,  and to accrue and
pay interest in the form of cash or additional Junior  Debentures,  at Emerald's
option,  semi-annually,  for the  first  six years at the rate of 15% and to pay
interest  at the rate of 15% in the form of cash  thereafter,  semi-annually  in
arrears.  ARTRA's  27.5%  interest in Emerald  common  stock and Emerald  Junior
Debentures,  as  required  by  the  Securities  and  Exchange  Commission  Staff
Accounting Bulletin No. 81, were carried net of a valuation allowance.

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

On December 17, 1993 the Bankruptcy Court confirmed the First Amended Joint Plan
of  Reorganization as twice modified (the "Plan") with respect to Envirodyne and
certain of its  subsidiaries.  The  confirmation of the Plan was affirmed by the
United States  District Court for the Northern  District of Illinois on December
28, 1993 and Envirodyne and certain of its subsidiaries  emerged from Chapter 11
on December  31,  1993,  the  Effective  Date.  A notice of appeal to the United
States Court of Appeals for the Seventh Circuit was thereafter  filed by certain
holders of Envirodyne's 13.5% Subordinated Notes Due 1996.  Envirodyne has filed
a motion, which is currently pending, to dismiss the appeal. Envirodyne believes
that the


<PAGE>


                   ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



confirmation of the Plan should be affirmed on appeal. However, no assurance can
be given that  Envirodyne  will  prevail on the appeal or what the effect of any
such  reversal  of the Plan would have on  Envirodyne  or the Plan.  The Emerald
Chapter 11 case is still pending  although ARTRA has moved to dismiss that case.
Envirodyne's plan of  reorganization  did not provide any consideration or value
to Emerald and Emerald,  therefore,  is without assets to provide value to ARTRA
for ARTRA's  investment in Emerald common stock and Emerald  Junior  Debentures.
See  discussion  below and in Note 20 Litigation  for remedies  being pursued by
ARTRA as  compensation  for the lost value of its  investment in Emerald  common
stock and Emerald Junior Debentures.

On November 2, 1993,  ARTRA  filed suit in the Circuit  Court of the  Eighteenth
Judicial  Circuit for the state of Illinois  (the State Court  Action")  against
Salomon Brothers,  Inc., Salomon Brothers Holding Company,  Inc.  (collectively,
"Salomon")  D.P.  Kelly &  Associates,  L.P.  ("DPK"),  Donald P. Kelly  ("Kelly
Defendants"  along with DPK),  Charles K. Bobrinskoy,  James F. Massey,  William
Rifkind  and  Michael  J.  Zimmerman.  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  maintained  jurisdiction  of ARTRA's  claims against the
individual defendants for breaching their fiduciary duty as directors of Emerald
to Emerald's creditors and interference with ARTRA's contractual  relations with
Emerald. ARTRA's appeal of the Bankruptcy Court retention of claims is currently
pending.

On December 21, 1994, the Salomon  Defendants and the Kelly  defendants  brought
motions to dismiss  ARTRA's Second Amended  Complaint in the State Court Action.
On February 8, 1995,  ARTRA's  Second  Amended  Complaint was dismissed in part,
with leave to replead.

On March 10,  1995,  ARTRA filed a Third  Amended  Complaint  in the State court
Action,  pleading  causes of action for  breach of  fiduciary  duty,  fraudulent
misrepresentation  and  negligent  misrepresentation  ARTRA  seeks in the action
compensatory  damages of $136.2 million,  punitive damages of $408.6 million and
approximately $33 million in fees paid to Salomon.

The case is in its early stages and  discovery is just  beginning.  ARTRA cannot
predict, with any certainty, the outcome of the suit.


7.   DEBT RESTRUCTURING

Effective August 18, 1994, Lori and Lori's operating subsidiaries (collectively,
the "Borrowers"),  ARTRA and Fill-Mor entered into an agreement with Lori's bank
lender  to  settle  obligations  due the  bank  under  terms  of the  bank  loan
agreements of Lori and its operating  subsidiaries.  On December 13, 1994,  Lori
and Lori's operating  subsidiaries were notified by the bank of certain defaults
under the  Settlement  Agreement,  including  but not  limited  to a  $1,115,000
payment due the bank on December 8, 1994. Prior to receipt of the default notice
and thereafter,  ARTRA and Lori entered into negotiations with the bank to amend
or restructure the terms of the August 18, 1994 Settlement Agreement.

Effective  December 23,  1994,  the  Borrowers,  ARTRA and Fill-Mor and the bank
entered into an amendment to the August 18, 1994 Settlement  Agreement ("Amended
Settlement   Agreement").   Per  terms  of  the  Amended  Settlement  Agreement,
borrowings due the bank under the loan  agreements of the Borrowers 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



<PAGE>


                   ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



$7,855,000  pertained to Lori's obligation to the bank and $2,645,000  pertained
to  Fill-Mor's  obligation  to the  bank).  Upon  the  satisfaction  of  certain
conditions of the Amended Settlement  Agreement in 1995, as discussed below, the
bank lender has agreed to discharge the balance of this indebtedness.

In  conjunction  with the Amended  Settlement  Agreement,  ARTRA  entered into a
$1,850,000  short-term  loan agreement with a  non-affiliated  corporation,  the
proceeds of which were used to fund amounts due the bank as discussed below. The
loan, due June 30, 1995, with interest payable monthly at 10%, is collateralized
by 100,000  shares of Lori common  stock.  These 100,000 Lori common shares were
originally  issued to the bank under  terms of the August  18,  1994  Settlement
Agreement.

In  exchange  for the  reduction  of  amounts  due the bank,  and as  additional
consideration   for  the   $1,850,000   short-term   loan   agreement  from  the
non-affiliated corporation,  the Borrowers, ARTRA and Fill-Mor agreed to pay the
following  consideration,  which  supersedes the  consideration  agreed to under
terms of the August 18, 1994 Settlement Agreement:


             A)   A cash  payment  to the  bank of $1,900,000, which  was  made
                  prior to  consummation  of the  Amended Settlement  Agreement.

             B)   400,000  shares of ARTRA common  stock.  These  400,000  ARTRA
                  common shares were  originally  issued to the bank under terms
                  of the August 18, 1994 Settlement Agreement. The bank retained
                  100,000  shares and the  non-affiliated  corporation  received
                  300,000 shares as additional  consideration for its short-term
                  loan.

             C)   Assignment to the bank of all of the assets of Lori's New
                  Dimensions subsidiary .

             D)   A $750,000 note payable to the bank due March 31, 1995.


Among other  things,  ARTRA has agreed to register  the ARTRA  shares  issued in
order  to  enable  the  ARTRA  shares  issued  to be  freely  tradeable  without
restriction on or before July 31, 1995.  Additionally,  the Settlement Agreement
required  ARTRA to advance  $400,000 to Lori which,  along with  $150,000 of the
ARTRA  $1,850,000  short-term loan agreement noted above, was deposited in trust
at December 29, 1994. This deposit was used to fund the installment  payment due
December  31,  1994  for  unsecured   claims   arising  from  the  May  3,  1993
reorganization of New Dimensions (See Note 8). The installment  payment was made
in January, 1995.

The August 18, 1994  settlement  agreement  required ARTRA to contribute cash of
$1,500,000 to Lori for working capital.  ARTRA's cash contribution was funded by
private  placements  of  ARTRA  common  stock.  An   officer/director   of  Lori
participated in the private placement of ARTRA common stock purchasing  $150,000
of ARTRA common stock (37,500 shares),  subject to the same terms and conditions
as the other outside investors.

<PAGE>
                   ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



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

     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 New Dimensions 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            (7,149)
                                                                    ------
                       Net extraordinary gain                     $  8,965
                                                                    ======
</TABLE>

Lori also recorded a charge against operations in December 1994 to write-off New
Dimensions' goodwill, which had a book value of $10,800,000.

Upon  payment  of the  $750,000  note  due the bank on  March  31,  1995 and the
registration  of the ARTRA  common  shares  issued to it, the bank has agreed to
discharge  the  remaining  indebtedness,  which  is  expected  to  result  in an
additional  extraordinary gain in 1995. The $9,750,000 of debt pending discharge
has been  classified as such in the  Consolidated  Balance Sheet at December 29,
1994.

On March  31,  1995 the  $750,000  note due the bank was paid and the  remaining
indebtedness  of Lori and Fill-Mor was  discharged,  resulting in an  additional
extraordinary  gain to Lori and Fill-Mor of  approximately  $9,400,000  in 1995.
Among other  things,  ARTRA has agreed to register  the ARTRA  shares  issued in
order  to  enable  the  ARTRA  shares  issued  to be  freely  tradeable  without
restriction  on or  before  July 31,  1995.  In the  event  the  shares  are not
registered  by July 31,  1995,  the bank has the right to put the 100,000  ARTRA
shares  back to ARTRA for an  exercise  price of  $500,000.  The  $750,000  note
payment  was  funded  with the  proceeds  of a $850,000  short-term  loan from a
director of Lori.  The loan provides for interest at the prime rate plus 1% and,
as additional  consideration,  the director  received 150,000 Lori common shares
valued at $337,500  ($2.25 per share) based upon Lori's  closing market value on
March 30, 1995.


8.   NEW DIMENSIONS 1993 RESTRUCTURING

On February 5, 1993, New Dimensions  filed a petition for  reorganization  under
Chapter 11 of the Bankruptcy Code in the United States  Bankruptcy Court for the
Southern  District  of New York  (Case No. 93 B 40653).  On April 9,  1993,  New
Dimensions'  reorganization  plan was  confirmed  by an order of the  Bankruptcy
Court and on May 3, 1993, the  consummation  date,  New Dimensions  emerged from
Chapter 11 bankruptcy  court  protection,  New Dimensions'  bank lender provided
long-term  working capital financing and Lori guaranteed and assumed certain New
Dimensions' debt obligations.

Lori's  ownership of 100% of the common stock of New Dimensions was not affected
by the  reorganization of New Dimensions.  Accordingly,  the principles of fresh
start  reporting in accordance with the American  Institute of Certified  Public
Accountants  Statement  of Position  90-7,  "Financial  Reporting by Entities in
Reorganization  under  the  Bankruptcy  Code",  were not  applicable  to the New
Dimensions  reorganization and no adjustments were made to the carrying value of
New Dimensions  assets and  liabilities,  except to reflect terms of the plan of
reorganization.
<PAGE>

                   ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



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


<TABLE>
<CAPTION>

     <S>                                                          <C>

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

</TABLE>

Additionally,  during 1993 New Dimensions  incurred  reorganization  expenses of
$767,000   related  to  the   bankruptcy   process,   which  are  classified  as
non-operating expenses.

In conjunction with the consummation of New Dimensions' reorganization plan, the
license  agreement to distribute ladies fashion jewelry and sunglasses under the
"Sarah  Coventry"  trademark  was amended and  restated for a term of five years
commencing  March 31, 1993 through March 31, 1998,  with annual  renewals for an
additional five years.

Due to the reduction of sales volume and resulting  operating losses incurred in
1992 that  culminated in the February,  1993 Chapter 11 filing,  at December 31,
1992 New  Dimensions  recorded a charge to operations  of $8,664,000  ($1.98 per
share) representing the excess of net book value of New Dimensions goodwill over
its estimated  recoverable  value.  Effective January 1, 1993, the remaining New
Dimensions goodwill amortization period was adjusted to twenty years.

At  December  31,  1992,  due to the  reduction  in sales  volume and  resulting
operating losses incurred in 1992 that culminated in the February,  1993 Chapter
11 filing, New Dimensions  discontinued several lines of fashion costume jewelry
and  recorded  a charge  to  operations  of  $4,900,000  ($1.12  per  share)  to
write-down the remaining inventory to estimated net realizable value.
<PAGE>


                   ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



9.   NOTES PAYABLE

<TABLE>
<CAPTION>

                                                  December 29,  December 30,
                                                      1994          1993
                                                    --------      --------
                                                        (in thousands)
     <S>                                            <C>           <C>

     ARTRA bank notes payable,
          at various interest rates                 $ 18,507      $ 24,647
     Amounts due to related parties,
          interest from 7.75% to 15%                   5,669         1,446
     Other, interest from 8.5% to 20%                  3,877         3,351
                                                    --------      --------
                                                    $ 28,053      $ 29,444
                                                    ========      ========

</TABLE>

         ARTRA

At December  30,  1993,  $18,452,000  in ARTRA  notes and  related  loan fees of
$1,107,000  were payable to a bank. The notes provided for interest at the prime
rate. These bank notes are  collateralized  by, among other things,  100% of the
common stock of ARTRA's BCA Holdings,  Inc.  ("BCA")  subsidiary,  the parent of
Bagcraft,  and a secondary  position on the assets of BCA,  payments due under a
noncompetition  agreement  with the  Company's  former Welch  Vacuum  Technology
("Welch")  subsidiary  and by a  subordinated  note in the  principal  amount of
$2,500,000  received  by ARTRA as part of the  proceeds  from the sale of Welch.
Additionally,  at  December  30,  1993 the bank notes were  collateralized  by a
$5,500,000  personal guaranty of a private investor and a $2,500,000 guaranty of
a private corporation.  A major shareholder and executive officer of the private
corporation  is an ARTRA  director.  As  additional  compensation,  the  private
investor is  receiving  1,833  shares of ARTRA  common  stock for each month the
guaranty is outstanding and the private corporation received 833 shares of ARTRA
common stock for each month the guaranty was  outstanding.  Among other  things,
the bank notes prohibit the payment of cash dividends by ARTRA.

On December 31, 1993, a religious organization,  currently holding approximately
5.8% of ARTRA's  outstanding common stock, made a $2,000,000  short-term loan to
the Company  with  interest  at 10%.  See  discussion  of amounts due to related
parties  below  for  further  discussion  of  this  transaction  and  additional
consideration received by the religious organization.  The proceeds of this loan
were  remitted to the bank to pay interest and other costs due through  December
31, 1993 and to reduce the  principal  amount  outstanding  on the bank notes to
$17,063,000 at December 31, 1993.

On March 31,  1994,  ARTRA  entered  into a series of  agreements  with its bank
lender  and  with the  private  corporation  noted  above  that  had  guaranteed
$2,500,000  of ARTRA's  bank  notes.  Per terms of the  agreements,  the private
corporation  purchased  $2,500,000  of ARTRA  notes from  ARTRA's  bank  thereby
reducing the outstanding  principal on ARTRA's bank notes to $14,563,000 and the
bank released the private  corporation  from its $2,500,000  loan guaranty.  The
ARTRA bank notes and  related  loan fees were  payable on  September  30,  1994.
Interest on the bank notes continues to accrue at the prime rate (8.5% and 6% at
December 29, 1994 and December 30, 1993, respectively) and is payable quarterly.
Interest on the bank notes has been paid through June 14, 1994.  Effective March
31, 1994,  ARTRA pledged,  as additional  collateral for its bank notes, any and
all net  proceeds  arising  from its lawsuit  against  Salomon  Brothers,  Inc.,
Salomon  Brothers  Holding Company Inc.  (collectively,  "Salomon") D.P. Kelly &
Associates,  L.P.  ("Kelly") and all of the directors of Emerald for breaches of
fiduciary  duty by the  directors of Emerald,  induced by Salomon and Kelly,  in
connection  with the  reorganization  of  Envirodyne  as discussed in Note 6. 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.
<PAGE>

                   ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



As additional  consideration,  the private corporation has received an option to
put  back to  ARTRA  the  49,980  shares  of  ARTRA  common  stock  received  as
compensation for its former  $2,500,000 ARTRA loan guaranty at a price of $15.00
per  share.  The put  option  is  exercisable  on the  later of the day that the
$2,500,000 note payable to the private  corporation  becomes due or the date the
ARTRA bank notes have been paid in full. The option price increases by $2.25 per
share  annually.  The  $2,500,000  note  payable to the private  corporation  is
reflected in the above table as amounts due to related parties.

On October 25, 1994, ARTRA's bank lender filed suit against ARTRA in the Circuit
Court of Cook County,  Illinois alleging  nonpayment by ARTRA of the amounts due
under the above notes payable to the bank. The bank has requested that the court
enter  judgment  in its  favor  against  ARTRA in the  amount  of  approximately
$16,000,000,  which includes the principal  balance of the notes of $14,563,000,
plus interest, costs and fees.

Effective May 14, 1991, ARTRA, through its wholly-owned  Fill-Mor Holding,  Inc.
("Fill-Mor") subsidiary, entered into a loan agreement with a bank providing for
borrowings  of up to  $2,500,000  with interest at the prime rate plus 2% (10.5%
and 8% at December  29, 1994 and  December  30,  1993,  respectively),  of which
$2,200,000 was  outstanding at December 29, 1994 and December 30, 1993. The loan
was collateralized by ARTRA's interest in Lori common stock and preferred stock,
by the  proceeds  of a tax  sharing  agreement  between  ARTRA and its  Bagcraft
subsidiary and by ARTRA's  interest in Fill-Mor's  common stock. At December 29,
1994,  borrowings on this note were  reclassified  as amounts due under the debt
restructuring agreement discussed in Note 7.

A  $3,600,000  bank note  payable  due  December  31,  1990,  has not been paid.
However,  the bank has not demanded  payment.  This loan is  collateralized by a
$2,500,000 guarantee of Peter R. Harvey, ARTRA's president.

An ARTRA bank note with  outstanding  borrowings  of  $344,000  and  $395,000 at
December  29, 1994 and  December  30, 1993,  respectively,  is  guaranteed  by a
private company. Interest on the note is at the prime rate plus 2% (10.5% and 8%
at December 29, 1994 and December 30, 1993, respectively).


         Amounts Due To Related Parties

During the third quarter of 1992,  ARTRA borrowed funds from its Chairman of the
Board of  Directors,  John  Harvey,  payable  on  demand of which  $42,000  were
outstanding at December 29, 1994 and December 30, 1993. In January,  1995,  John
Harvey  loaned  ARTRA  $100,000  evidenced  by an  unsecured 30 day note bearing
interest at 8%. As additional  compensation for the loan, John Harvey received a
warrant to purchase  6,000 ARTRA common shares at $4.75 per share based upon the
market  value of  ARTRA's  common  stock at the date of  issuance.  The  warrant
expires five years from the date of issuance. If not paid at maturity,  terms of
the note  provide for the  issuance  of  additional  warrants to purchase  ARTRA
common shares as determined by the number of days the loan is outstanding.

At December  29, 1994 and  December  30,  1993,  other  notes  payable  included
borrowings of $127,000 and $829,000,  respectively,  from a director of Lori. As
additional  compensation  the Lori director has received,  through  December 29,
1994, warrants to purchase an aggregate of 236,315 ARTRA common shares at prices
ranging  from $3.75 to $6.375 per share  based upon the market  value of ARTRA's
common  stock at the date of issuance.  The warrants  expire five years from the
date of  issuance.  Terms of the note  provide for the  issuance  of  additional
warrants to purchase ARTRA common shares as determined by the number of days the
loan is outstanding.

At June 30, 1994 and December  30,  1993,  other notes  payable  included  loans
totaling $250,000 and $400,000,  respectively,  from a officer/director of Lori.
The loans are  evidenced by notes  bearing  interest at 12% - 15%. As additional
compensation  the  Lori  officer/director   received  warrants  to  purchase  an
aggregate of 27,500 ARTRA common  shares at prices  ranging from $5.375 to $5.75
per share  based upon the market  value of ARTRA's  common  stock at the date of
issuance. The warrants expire five years from the date of issuance. The $250,000
loan  from the  officer/director  of Lori  outstanding  at June 30,  1994,  plus
accrued  interest  thereon,  was  subsequently  repaid by the issuance of 58,333
shares of ARTRA common  stock.  The ARTRA common shares were valued at $6.00 per
share, based upon the market value of
<PAGE>


                   ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



ARTRA's   common  stock  at  the  date  of   issuance.   In  July,   1994,   the
officer/director of Lori loaned ARTRA an additional  $200,000,  evidenced by two
demand notes bearing interest at 10%. The loans were subsequently  repaid by the
issuance of 50,000  shares of ARTRA common  stock.  The ARTRA common shares were
valued at $4.00 per share,  based upon the market value of ARTRA's  common stock
at the date of issuance

During  1993 a religious  organization,  holding  approximately  7.5% of ARTRA's
outstanding  common  stock as of December 30,  1993,  made a short-term  loan of
$850,000  to the  Company  which was repaid in  December,  1993.  Subsequent  to
year-end,  on December 31, 1993, the religious  organization  loaned the Company
$2,000,000  evidenced by a short-term note bearing interest at 10%. The proceeds
of this loan were  remitted to ARTRA's  bank to pay  principal  and  interest on
ARTRA's  bank  notes  as  discussed  above.  In  January,   1994  the  religious
organization made an additional  $1,000,000  short-term loan to the Company also
with interest at 10%. As additional compensation for the above loans, the lender
received  warrants to purchase an aggregate  of 86,250  ARTRA  common  shares at
prices  ranging  from $6.00 to $7.00 per share  based upon the market of ARTRA's
common  stock at the date of issuance.  The warrants  expire five years from the
date of  issuance.  In July,  1994 ARTRA made a $2,000,000  payment  against the
amounts   outstanding  on  the  above  loans  and  the  religious   organization
subsequently  loaned  ARTRA an  additional  $2,000,000.  As of December 29, 1994
borrowings due the religious organization totaled $3,000,000.


         Other

In conjunction with the debt restructuring  agreement discussed in Note 7, ARTRA
entered  into a  $1,850,000  short-term  loan  agreement  with a  non-affiliated
corporation,  with the proceeds used to fund amounts due the bank under terms of
the debt  restructuring  agreement.  The loan, due June 30, 1995,  with interest
payable  monthly at 10%,  is  collateralized  by 100,000  shares of Lori  common
stock.

Effective as of May 15, 1992, the Company had entered into a letter of intent to
sell a 50% interest in its Bagcraft  subsidiary to Field  Container  Corporation
("Field"),  a manufacturer  and  distributor  of converted  paper and paperboard
products.  On September 18, 1992, the Company announced that it had discontinued
discussions with Field regarding the sale of a 50% interest in Bagcraft.  On May
19, 1992,  Field advanced ARTRA  $1,000,000 under terms of a promissory note due
May 15,  1993,  with  interest  at the prime  rate plus  2-1/2%.  As  additional
consideration  for  this  advance,  the  Company  granted  to  Field a  warrant,
exercisable  for a period of five years  expiring in 1997,  to purchase  150,943
shares of the Company's  common stock for an exercise price of $5.375 per share.
In March,  1994 a payment of $250,000 was made against  amounts due on this note
and in April, 1994 the note was repaid in full.


<PAGE>


                   ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


10.   LONG-TERM DEBT

Long-term debt (in  thousands) consists of:
<TABLE>
<CAPTION>

                                                                   December 29, December 30,
                                                                        1994        1993
                                                                      --------    --------
          <S>                                                         <C>         <C>

          Bagcraft Credit Agreement,
              Term loans,
                  interest at the prime rate plus 1.75% to 3%         $ 17,000    $ 20,000
              Revolving credit loan,
                  interest at the prime rate plus 1.5%                  16,672      12,868
              Unamortized discount                                        (315)       (630)
          Bagcraft, City of Baxter Springs, Kansas loan agreements,
              interest, at varying rates                                12,310
          Arcar subordinated promissory notes due to seller,
              interest, at the prime rate                                8,000
          Arcar bank term loan,
              interest at the prime rate plus .75%                       2,750
          Amounts due a bank term under terms of
              a debt settlement agreement                               10,500
          New Dimensions bank term loan,
              interest at the prime rate plus 1%                                     2,500
          New Dimensions bank line of credit,
              interest at the prime rate plus 1%                                       350
          Lori bank term loan,
              interest at the prime rate plus 1%                                    11,899
          Lawrence bank line of credit,
              interest at the prime rate plus 1.75%                                  2,099
          Rosecraft bank credit agreement,
              interest at the prime rate plus 2%                                     5,104
          Other, at various interest rates,
              due in varying amounts through 1995                           27          44
                                                                      --------    --------
                                                                        66,944      54,234
          Current scheduled maturities                                 (37,521)     (5,851)
          Debt subsequently discharged                                  (9,750)       --
          Long-term debt reclassified as current                                   (19,119)
                                                                      --------    --------
                                                                      $ 19,673    $ 29,264
                                                                      ========    ========

</TABLE>

<PAGE>
                   ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)


         Bagcraft

Effective December 17, 1993,  Bagcraft refinanced its bank debt by entering into
a Credit  Agreement  that provides for a revolving  credit loan and two separate
term loans. The term loans were separate two-year facilities  initially totaling
$12,000,000  (Term Loan A) and $8,000,000 (Term Loan B), bearing interest at the
lender's index rate plus 1.75% and 3%,  respectively.  The principal  under Term
Loan A is payable at maturity  (December 17,  1995),  unless  accelerated  under
terms of the Credit  Agreement.  The  principal  under  Term Loan B  ($5,000,000
outstanding  at December  29, 1994) is payable in varying  monthly  installments
from January 1, 1994 to December 1, 1995, with the remaining  principal  balance
payable at maturity  (December 17, 1995),  unless accelerated under terms of the
Credit Agreement.  At December 29, 1994 and December 30, 1993, interest rates on
Term  Loan  A and  Term  Loan  B  were  10.25%  and  11.5%  and  7.75%  and  9%,
respectively.

The amount available to Bagcraft under the revolving credit loan is subject to a
borrowing base, as defined in the agreement, up to a maximum of $18,000,000.  At
December 29, 1994 and December 30, 1993,  approximately $450,000 and $1,800,000,
respectively,  was available and unused by Bagcraft  under the revolving  credit
loan.  The revolving  credit loan bears interest at the lender's index rate plus
1.5%.  The  revolving  credit loan is  scheduled  to become due and payable upon
maturity of the Credit Agreement  (December 17, 1995),  unless accelerated under
terms of the Credit  Agreement.  At December  29, 1994 and December 30, 1993 the
interest rates on the revolving credit loan was 10% and 7.75%, respectively.

Borrowings under the Credit Agreement are collateralized by substantially all of
the  assets of  Bagcraft.  The Credit  Agreement  contains  various  restrictive
covenants,  that among other restrictions,  require Bagcraft to maintain minimum
levels of net worth and liquidity  levels and limit additional  loans,  dividend
payments, capital expenditures and payments to related parties. In addition, the
Credit  Agreement  prohibits  changes in ownership of Bagcraft.  At December 29,
1994 Bagcraft was not in compliance with the provisions of its Credit Agreement.
Bagcraft is currently  negotiating  with its lender to amend or restructure  the
Credit Agreement.

As additional compensation for borrowings under the Credit Agreement, the lender
received a  detachable  warrant  with a put option to  purchase up to 10% of the
fully  diluted  common  equity of  Bagcraft.  The  warrant  allows  Bagcraft  to
reacquire up to 2-1/2% of Bagcraft's fully diluted common equity from the lender
contingent  upon  Bagcraft's  repayment  of Term Loan B as defined in the Credit
Agreement.  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 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 29, 1994, Bagcraft had borrowed the
         maximum of $7,000,000 available under this loan agreement.

         A  $5,000,000   subordinated   promissory   note  payable  as  follows:
         $2,000,000  installments due June 30,1998 and June 30, 1999; $1,000,000
         due on January 2, 2000. The  subordinated  promissory  note is interest
         free  provided  that loan  payments  are made on a timely  basis and no
         events of default occur under terms of the  agreement.  At December 29,
         1994 Bagcraft had outstanding  borrowings of $4,810,000 under this loan
         agreement.

         A  $250,000  subordinated   promissory  note  payable  in  240  monthly
         installments  commencing  August 1, 1995  through  maturity on July 18,
         2015. The  subordinated  promissory note is interest free provided that
         loan payments are made on a timely basis and no events of default occur
         under  terms of the  agreement.  At December  29,  1994,  Bagcraft  had
         borrowed the maximum amount available under this loan agreement.
<PAGE>


                   ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)



         A $250,000  subordinated  promissory note payable January 20, 2005. The
         subordinated  promissory  note is  interest  free  provided  that  loan
         payments  are made on a timely  basis and no events  of  default  occur
         under  terms of the  agreement.  At December  29,  1994,  Bagcraft  had
         borrowed the maximum amount available 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.   At  December  29,  1994,
approximately $800,000 of borrowings from the above loan agreements is reflected
in the  Consolidated  Balance  Sheet in current  assets as  restricted  cash and
equivalents.  These funds,  invested in interest bearing cash  equivalents,  are
restricted for expenditures associated with the Baxter Springs, Kansas project.


         Arcar

As discussed in Note 2, on April 8, 1994,  Bagcraft completed the acquisition of
Arcar  for  consideration  consisting  of cash of  $2,264,000  and  subordinated
promissory notes totaling $8,000,000.  The subordinated promissory notes provide
for interest payable  quarterly at the prime rate (as defined in the agreement).
The  promissory  notes  mature as follows:  $2,500,000  payable  March 15, 1995;
$2,500,000 payable March 15, 1996;  $2,500,000 payable March 15, 1997;  $500,000
payable March 15, 1998.  The seller also received a warrant to purchase  177,778
ARTRA common shares at a price of $5.625 per share, the market value at the date
of grant.  Exercise of the warrant is payable  only  through a reduction  of the
subordinated promissory notes and accrued interest due the seller under terms of
the purchase agreement.

Effective April 8, 1994,  Arcar entered into a Loan and Security  Agreement (the
"Agreement")  with a bank that  provides for a revolving  credit loan and a term
loan. The term loan, in the principal  amount of  $2,750,000,  bears interest at
the prime  rate plus  .75%.  The  principal  under the term loan is  payable  in
forty-eight varying monthly  installments from April 30, 1995 to March 31, 1999,
unless  accelerated  under  terms of the  Agreement.  At  December  29, 1994 the
interest rate on the term loan was 9.25 %.

The amount  available to Arcar under the  revolving  credit loan is subject to a
borrowing base, as defined in the agreement, up to a maximum of $1,500,000.  The
revolving  credit loan bears interest at the prime rate plus .5% and becomes due
and payable March 31, 1995, unless accelerated under terms of the Agreement. The
revolving credit loan is renewable,  solely at the discretion of the lender, for
additional  one year periods until  maturity of the Agreement  (March 31, 1999).
The revolving  credit loan has been renewed until March 31, 1996. As of December
29, 1994,  Arcar had not yet utilized funds available under the revolving credit
loan.

Borrowings under Agreement are collateralized by substantially all of the assets
of Arcar. The Agreement contains various restrictive covenants, that among other
restrictions,  require  Arcar  to  maintain  minimum  levels  of net  worth  and
liquidity  levels  and  limit  additional  loans,  dividend  payments,   capital
expenditures and payments to related parties.


         Lori

As discussed in Note 8, on February 5, 1993, New Dimensions filed a petition for
reorganization  under Chapter 11 of the  Bankruptcy  Code. On April 9, 1993, New
Dimensions'  reorganization  plan was  confirmed  by an order of the  Bankruptcy
Court and on May 3,  1993,  the  consummation  date of the  reorganization,  New
Dimensions emerged from Chapter 11 bankruptcy court protection.  The plan, among
other  things,  provided  for New  Dimensions'  bank lender to have the right to
receive  all of the issued and  outstanding  shares or assets of New  Dimensions
immediately prior to the consummation date. The bank then assigned its rights to
receive the New Dimensions  stock to a newly formed Lori  subsidiary,  which was
then merged into New Dimensions,  for consideration of $2,500,000,  evidenced by
New Dimensions' term loan note originally



<PAGE>


                   ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)



scheduled to be payable in varying quarterly installments,  commencing March 31,
1994 through December 31, 1996.  Interest on the term note was at the prime rate
plus 1%.  Lori  assumed  and  guaranteed  the  balance of New  Dimensions'  pre-
bankruptcy  loans  payable  to the bank,  amounting  to  $12,036,000,  including
accrued  interest,  which  included  the New  Dimensions  former  line of credit
discussed and the New Dimensions former term loan, net of New Dimensions' direct
obligation  payable  to the bank of  $2,500,000  as noted  above.  The bank also
provided New Dimensions  with a revolving line of credit,  including a letter of
credit facility. Borrowings, limited to the lesser of $1,600,000 or a calculated
borrowing base. The credit agreement was scheduled to mature on April 30, 1996.

On February 5, 1993,  Lawrence  entered into a credit agreement with Lori's bank
that provided for a revolving line of credit,  which included a letter of credit
facility.  Borrowings  were limited to the lesser of  $2,100,000 or a calculated
borrowing  base,  less  outstanding  letters of credit.  The loan  provided  for
interest at the prime rate plus 1.75%.

Effective  March 31, 1993  Rosecraft  entered into  agreements  with a bank that
provided for a term loan of $2,977,000 and a revolving line of credit, both with
interest at the prime rate plus 2%. The term loan was payable in varying monthly
installments  commencing  January 31, 1994,  with the final monthly  installment
originally  scheduled to be payable  November 30, 1997.  The  revolving  line of
credit  provided  for  borrowings,   including  a  letter  of  credit  facility.
Borrowings  were limited to the lesser of $1,000,000  or a calculated  borrowing
base, less outstanding  letters of credit.  In addition to the revolving line of
credit,  the bank has provided an overadvance  credit  commitment of $1,200,000.
The revolving line of credit was scheduled to mature December 31, 1997.

Since  December 30, 1993 and during 1994,  Lori and its  operating  subsidiaries
were not in compliance  with certain  provisions of their  respective  bank loan
agreements.  At December 30, 1993,  borrowings under the bank loan agreements of
Lori  and  its  operating  subsidiaries  totaled  $21,952,000.  In  addition  to
scheduled  maturitities of $2,833,000 under the bank loan agreements of Lori and
its operating  subsidiaries,  the remaining  borrowings of $19,119,000 under the
bank loan agreements of Lori and its operating subsidiaries were reclassified as
currently payable at December 31, 1993.

As discussed in Note 7, effective August 18, 1994, as amended effective December
23, 1994, ARTRA,  Fill-Mor,  Lori and Lori's operating subsidiaries entered into
an agreement  with Lori's bank lender to settle  obligations  due the bank under
terms of the bank loan  agreements  of Lori and its operating  subsidiaries  and
Fill-Mor. Per terms of the Amended Settlement Agreement, borrowings due the bank
under the loan  agreements  of Lori and its  operating  subsidiaries  and Lori's
parent,  Fill-Mor,  plus amounts due the bank for accrued interest and fees were
reduced to $10,500,000 (of which  $7,855,000  pertained to Lori's  obligation to
the bank and $2,645,000 pertained to Fill-Mor's obligation to the bank).

On March  31,  1995 the  $750,000  note due the bank was paid and the  remaining
indebtedness  of Lori and Fill-Mor was  discharged,  resulting in an  additional
extraordinary gain to Lori and Fill-Mor of approximately $9,400,000 in 1995 (See
Note 7).


The common stock and virtually all the assets of ARTRA's  subsidiaries have been
pledged as collateral for ARTRA's and its  subsidiaries'  borrowings.  Under its
debt  agreements  the Company is limited in the amounts it can withdraw from its
operating   subsidiaries.   At  December   29,  1994  and   December  30,  1993,
substantially  all cash and  equivalents on the Company's  consolidated  balance
sheet are restricted to use by and for the Company's operating subsidiaries.

At December  29, 1994 the  aggregate  amount of yearly  maturities  of long-term
debt, exclusive of debt discharged,  is: 1995,  $37,521,000;  1996,  $3,567,000;
1997, $4,062,000; 1998, $4,575,000; 1999, $2,712,000; thereafter, $4,757,000.



<PAGE>


                   ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)



11.   REDEEMABLE COMMON STOCK

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, 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 29, 1994,  options are  outstanding  that, if exercised,  would require
ARTRA to  repurchase  279,679  shares of its common  stock for an  aggregate  of
$4,144,000.


12.   REDEEMABLE PREFERRED STOCK

On September 27, 1989,  ARTRA received a proposal to purchase BCA, the parent of
Bagcraft,  from Sage Group, Inc.  ("Sage"),  a privately-owned  corporation that
owned 100% of the outstanding common stock of BCA. Sage was merged with and into
Ozite  Corporation  ("Ozite")  on August  24,  1990.  Peter R.  Harvey,  ARTRA's
President, and John Harvey, ARTRA's Chairman of the Board of Directors, were the
principal  shareholders  of Sage and are the  principal  shareholders  of Ozite.
Effective  March 3, 1990, a  wholly-owned  subsidiary of ARTRA  acquired 100% of
BCA's issued and  outstanding  common shares for  consideration  of  $5,451,000,
which  included  772,000 shares of ARTRA common stock and 3,750 shares of $1,000
par value junior non-convertible  payment-in-kind  redeemable Series A Preferred
Stock with an estimated fair value of $1,012,000, net of unamortized discount of
$2,738,000. The Series A Preferred Stock accrues dividends at the rate of 6% per
annum and is redeemable by ARTRA on March 1, 2000 at a price of $1,000 per share
plus accrued  dividends.  Accumulated  dividends of $1,221,000 and $939,000 were
accrued at December 29, 1994 and December 30, 1993, respectively.

In 1987,  Bagcraft  issued to an  affiliate,  currently 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 affiliate has agreed to forego dividend
payments as long as such payments are  prohibited  by bank lenders.  Accumulated
dividends of  $5,119,000  and  $4,444,000  were accrued at December 29, 1994 and
December 30, 1993, respectively.

As discussed in Note 10, in 1987, Bagcraft obtained financing from an affiliate,
currently 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 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  new  Credit
Agreement.  Per agreement with the noteholder,  the accrued interest outstanding
on the note of $3,000,000 was remitted to ARTRA and the  noteholder  received an
additional  3,000  shares BCA  preferred  stock  having a  liquidation  value of
$3,000,000.



<PAGE>


                   ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)




13.   STOCK OPTIONS AND WARRANTS

         Stock Option Plan

In July, 1985,  ARTRA's  shareholders  approved a stock option plan (the "Plan")
for certain officers and key employees of the Company and its subsidiaries.  The
Plan  initially  reserved  150,000  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  is to be not less than the  market  value at the date of
grant for incentive  stock options  ("ISO") and not less than 110% of the market
value on the date of grant for an ISO granted to a  shareholder  possessing  10%
more of the voting stock of the Company. Non-qualified options may be granted at
such price and amount as the Company determines at the date of grant.

In December,  1990, ARTRA's shareholders approved an amendment to the Plan which
increased the number of shares  available under the Plan from 150,000 to 500,000
shares and provided for  discretionary  grants of nonqualified  stock options to
non-employee  directors.  The  Plan  provided  for  an  initial  grant  to  each
non-employee  director  of an  option  for  2,000  shares.  Thereafter  the Plan
provides for an annual grant,  effective January,  1991 and each year thereafter
until expiration of the Plan, to each  non-employee  director on such date of an
option for 1,000 shares of ARTRA common stock. The granting of annual options to
non-employee  directors,  effective  January,  1991 is  subject to  approval  by
ARTRA's  Board of  Directors.  The  exercise  price of all  options  granted  to
non-employee  directors will be equal to 100% of the closing market price on the
trading day before the date of grant.

During 1994,  the Company  issued a former  officer of Bagcraft a  non-qualified
option to purchase  20,000  shares of ARTRA  common  stock at $5.75 per share as
additional compensation for short-term loans to ARTRA.

In December,  1993, ARTRA's shareholders approved an amendment to the Plan which
increased  the  number  of shares  available  under  the Plan  from  500,000  to
1,000,000 shares.

Effective January 8, 1993, the Company issued certain officers and key employees
of ARTRA options to purchase  148,100  shares of ARTRA common stock at $3.75 per
share. The options expire ten years from the date of grant.

During 1993,  the Company  issued to a then officer of Bagcraft a  non-qualified
option to purchase  50,000  shares of ARTRA  common  stock at $3.75 per share as
additional  compensation  for  short-term  loans  to  ARTRA.  The  options  were
exercised  during  1993.  The  exercise of these  options was  principally  paid
through a reduction of the then Bagcraft officer's loans to ARTRA.

Effective June 22, 1992, the Company issued certain officers of Bagcraft options
to purchase 50,000 shares of ARTRA common stock at $5.25 per share.  The options
expire ten years  from the date of grant.  Additionally,  at the same  time,  an
officer of Bagcraft was issued a non-qualified  option to purchase 50,000 shares
of ARTRA common stock at $5.25 per share.  The option  expires  seven years from
the date of grant.

Effective  September  19,  1991,  the Company  issued  certain  officers and key
employees of ARTRA  options to purchase  58,967  shares of ARTRA common stock at
$8.00 per share. The options expire ten years from the date of grant.

Effective December 19, 1990, the Company canceled all options previously granted
under  the  Plan  to  certain  officers  and  key  employees  of  ARTRA  and its
subsidiaries and issued options to purchase 197,366 shares of ARTRA common stock
at $5.75 per share. The options expire ten years from the date of grant.

In conjunction with Lori's acquisition of New Dimensions,  ARTRA granted certain
New  Dimensions  employees  options to acquire 43,912 ARTRA shares at $20.50 per
share on the closing date of the New Dimensions acquisition.  The options, which
expire ten years from the date of grant,  became  exercisable  when the plan was
approved by the ARTRA shareholders in July, 1985.


<PAGE>


                   ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


A summary of stock option  transactions  for the three years in the period ended
December 29, 1994 is as follows:
<TABLE>
<CAPTION>


                                            1994        1993        1992
                                          --------    --------    --------
     <S>                                   <C>        <C>         <C>

     Outstanding at beginning of year:
         Shares                            450,760     340,360     265,991

                                           $  3.75    $   5.25    $   5.75
         Prices                             to        to          to
                                           $ 20.50    $  20.50    $  20.50

     Options granted:
         Shares                             20,000     198,100     100,000
         Prices                            $  5.75    $   3.75    $   5.25

     Options exercised:
         Shares                            (25,300)    (74,700)    (17,333)

                                                      $   3.75    $   5.25
         Prices                            $  5.25    to          to
                                                      $   5.25    $   5.75

     Options canceled:
         Shares                                        (13,000)     (8,298)

                                                      $   5.25
         Prices                                       to          $  20.50
                                                      $   5.75

     Outstanding at end of year:
         Shares                            445,460     450,760     340,360
                                           =======     =======     =======

                                           $  3.75    $   3.75    $   5.25
         Prices                             to        to          to
                                           $ 20.50    $  20.50    $  20.50


     Options exercisable at end of year    450,760     450,760     340,360
                                           =======     =======     =======
     Options available for future grant
         at December 31                    390,814     410,814     104,212
                                           =======     =======     =======
</TABLE>



<PAGE>

                   ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



         Warrants

At December 29, 1994, warrants were outstanding to purchase a total of 1,234,151
common  shares at prices  ranging from $3.50 per share to $11.63 per share.  The
warrants,  exercisable  from the date of issue,  expire at various dates through
2003.

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, the
fair  market  value at the  dates  of  grant,  principally  to  certain  lenders
principally as additional compensation for short-term loans. The warrants expire
at various  dates  from 1996 and 1999.  As  discussed  in Note 3, as part of the
consideration  for Bagcraft's  acquisition of Arcar,  the seller also received a
warrant to purchase  177,778 ARTRA common shares at a price of $5.625 per share.
Exercise of the warrant is payable only through a reduction of the  subordinated
promissory notes and accrued interest due the seller under terms of the purchase
agreement.  Warrants to purchase  9,166  shares of ARTRA  common stock at prices
ranging  from $10.00 per share to $11.25 per share  expired  unexercised  during
1994.  The  warrants  were  issued  as  additional   compensation   for  various
short-terms loans.

During 1993, ARTRA issued warrants to purchase an aggregate of 326,090 shares of
its common stock at prices ranging from $3.50 per share to $7.00 per share,  the
fair  market  value at the dates of grant,  to certain  lenders  principally  as
additional  compensation  for short-term  loans.  The warrants expire at various
dates from 1998 and 2003.  Additionally,  warrants to purchase  76,668 shares of
ARTRA common  stock at prices  ranging from $18.00 per share to $27.00 per share
expired  unexercised  during  1993.  The  warrants  were  issued  as  additional
compensation for short-term loans in 1988.

During 1992, ARTRA issued warrants to purchase an aggregate of 374,973 shares of
its common stock at prices ranging from $4.75 per share to $7.00 per share,  the
fair  market  value at the date of grant,  to  certain  lenders  principally  as
additional  compensation  for short-term  loans.  The warrants expire at various
dates from 1997 and 2003.  Additionally,  a warrant to purchase 25,000 shares of
ARTRA common stock at $14.00 per share expired unexercised on December 30, 1992.
The warrant was issued as additional compensation for short-term loans in 1987.

During 1991, ARTRA issued warrants to purchase an aggregate of 152,260 shares of
its common stock at prices ranging from $5.75 per share to $10.50 per share, the
fair  market  value at the date of grant,  to  certain  lenders  principally  as
additional  compensation  for short-term  loans.  The warrants expire at various
dates in 1996 and 2001.


14.    RESTRUCTURING COSTS

In December,  1993 the Bagcraft  subsidiary  recorded a charge to  operations of
$1,175,000  representing  equipment and inventory  relocation costs and employee
severance  and  outplacement  costs  relating  to  the  construction  of  a  new
manufacturing  facility in Baxter Springs,  Kansas. The new facility is expected
to be operational in mid 1994. The new Kansas  facility will replace  Bagcraft's
production facility in Joplin,  Missouri.  Additionally,  with the completion of
the new  Kansas  facility,  Bagcraft  plans  to  convert  present  manufacturing
facilities in Carteret,  New Jersey and Forest Park,  Georgia into  distribution
facilities.

In the fourth  quarter of 1992,  the Lori's  New  Dimensions  subsidiary  closed
certain of its  "Whims"  retail  outlet  stores and made the  decision  to close
additional  "Whims"  retail  outlet  stores  and its New  York  City  sales  and
executive  office in 1993.  The closing of the "Whims"  retail outlet stores and
the New York City sales and executive  office resulted in a charge to operations
in the fourth quarter of 1992 of $675,000.  The  restructuring  charge  includes
inventory  liquidation  costs,  lease termination  costs and employee  severance
costs.

In June, 1992, the Lori's Rosecraft subsidiary closed its Ladies line of fashion
costume jewelry in order to concentrate on its higher margin  Children's line of
fashion costume jewelry and accessories.  The closing of Rosecraft's Ladies line
resulted  in a charge  to  operations  of  $900,000.  The  restructuring  charge
includes  inventory  liquidation  costs,  lease  termination  costs and employee
severance costs.
<PAGE>


                   ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



15.   COMMITMENTS AND CONTINGENCIES

The Company and its subsidiaries lease certain buildings and equipment which are
used in its  manufacturing  and distribution  operations.  At December 29, 1994,
future  minimum lease payments  under  operating  leases that have an initial or
remaining noncancellable term of more than one year (in thousands) are:
<TABLE>
<CAPTION>


                             Year
                             ----
                             <S>                        <C>

                             1995                      $   826
                             1996                          705
                             1997                          607
                             1998                          490
                             1999                          490
                             After 1999                    984
                                                       -------
                                                       $ 4,102
                                                       =======

</TABLE>

Rental expense was  $1,116,000,  $1,240,000 and $1,991,000 in fiscal years 1994,
1993 and 1992, respectively, net of sublease income of $73,000 in 1992.

In 1993 the Company entered into management agreements,  for a three year period
ending March 31, 1996, with a corporation  controlled by Austin Iodice, the Vice
Chairman,  President and director of the Company's Lori subsidiary,  and with an
individual  to  provide  managerial  and  supervisory  services  to Lori and its
subsidiaries.  The agreements  provide for minimum salary levels, as well as for
incentive  bonuses which are payable if certain  management  goals are attained.
Additionally, the agreements called for the issuance of non-qualified options to
purchase an aggregate of 555,628 shares of Lori common stock, pursuant to Lori's
Long-Term Stock  Investment  Plan, at a price of $1.125 per share. The aggregate
commitment for future salaries at December 29, 1994,  excluding bonuses,  during
the remaining term of all management and employment  agreements is approximately
$600,000.

The Company and its subsidiaries are the defendants in various  business-related
litigation  and  environmental  matters.  At December  29, 1994 and December 30,
1993,  the Company had accrued  $1,500,000  and  $1,850,000,  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 under the  Comprehensive  Environmental  Responsibility  Compensation  and
Liability  Act  ("CERCLA")  for alleged  release of hazardous  substances at the
Cross  Brothers  site near  Kankakee,  Illinois.  Although  Bagcraft  has denied
liability for the site, it has entered into a settlement agreement with the EPA,
along with the other third party  defendants,  to resolve all claims  associated
with the site except for state claims.  In May, 1994 Bagcraft paid $850,000 plus
accrued  interest of $29,000 to formally  extinguish the EPA claim. The $850,000
settlement  was accrued in the  Company's  financial  statements at December 30,
1993.  Bagcraft  filed suit in 1993 in the United States  District Court for the
Northern District of Illinois,  against its insurers to recover a portion of its
liability costs in connection with the Cross Brothers case.  Bagcraft  recovered
$725,000 from its insurers in 1994 and an additional $250,000 in 1995. With



<PAGE>

                   ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



regard to the state action,  Bagcraft is participating in settlement discussions
with the State and  thirteen  other  potential  parties  to  resolve  all claims
associated with the State. The maximum state claim is $1.1 million. Bagcraft has
accrued  $120,000  related  to the State  action in the  Company's  consolidated
financial statements at December 29, 1994.

Bagcraft  was  listed  as a de  minimis  contributor  at the  American  Chemical
Services,  Inc. off-site disposal  location in Griffith,  Indiana.  This site is
included in the EPA's National  Priorities List. Bagcraft is presently unable to
determine its liability, if any, with respect to this site.

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

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

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

In  connection  with this suit, in a case filed in 1992 in the Circuit Court for
Baltimore City,  Maryland,  American  Motorists  Insurance  Company ("AMICO") is
seeking a declaratory  judgment that it is not required to defend,  indemnify or
provide  insurance  coverage to ARTRA in  connection  with the  Sherwin-Williams
case. The Circuit Court ruled in favor of AMICO,  but in June 1994, the Court of
Special Appeals of Maryland reversed the final Circuit Court,  ruling that AMICO
was obligated to defend and indemnify ARTRA.

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.
<PAGE>


                   ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



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

In a case  titled  City of  Chicago  v. NL  Industries,  Inc.  and  ARTRA  GROUP
Incorporated,  filed in the Circuit Court of Cook County,  Illinois, the City of
Chicago  alleged that ARTRA (and NL  Industries,  Inc.) had  improperly  stored,
discarded and disposed of hazardous  substances  at the subject  site,  and that
ARTRA had conveyed the site to Goodwill  Industries to avoid clean-up  costs. At
the time the suit was  filed,  the  City of  Chicago  claimed  to have  expended
$1,000,000 in clean-up  costs.  ARTRA and NL Industries,  Inc. have counter sued
each other and have filed third party actions  against the subsequent  owners of
the  property.  The City of  Chicago  has made an offer to settle the matter for
$400,000 for all parties.  The parties are currently conducting  discovery.  The
Company  is  presently  unable  to  determine  ARTRA's  liability,  if  any,  in
connection with this case.


16.    INCOME TAXES

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

<TABLE>
<CAPTION>

                                               1994       1993        1992
                                             -----      -----       -----
     <S>                                      <C>        <C>         <C>

     Continuing operations                    $  83      $  40       $(968)
     Discontinued  operations                                          170
                                              -----      -----       -----
                                              $  83      $  40       $(798)
                                              =====      =====       =====
</TABLE>


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


                                               1994       1993        1992
                                              -----      -----       -----
     <S>                                     <C>         <C>         <C>

     Current:
         Federal                                                     $(255)
         State                               $  83       $  40        (543)
                                             -----       -----       -----
                                             $  83       $  40       $(798)
                                             =====       =====       =====
</TABLE>


<PAGE>


                   ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



16.    INCOME TAXES, continued

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

No income tax benefit was  recognized  in  connection  with the  Company's  1992
pre-tax loss due to the Company's tax loss carryforwards.

In 1994,  1993 and 1992,  the  effective  tax rates from  operations,  including
discontinued operations were .4%, .3% and 2.1%, respectively, as compared to the
statutory Federal rate, which are reconciled as follows (in thousands):
<TABLE>
<CAPTION>

                                                    1994        1993       1992
                                                   -----       -----      -----
     <S>                                        <C>         <C>        <C>
     Provision (credit) for income taxes
         using statutory rate                   $ (6,629)   $  4,992   $(12,953)
     State and local taxes,
         net of Federal benefit                       73           7       (529)
     Current year tax loss not utilized            3,151       1,938        971
     Taxes previously provided
         in excess of taxes paid                                           (255)
     Amortization of goodwill                        206         212        206
     Impairment of  goodwill                                              2,946
     Effect of not including all subsidiaries
         in the consolidated tax return            3,249      (7,113)     8,815
      Other                                           33           4          1
                                                --------    --------    -------
                                                $     83    $     40    $  (798)
                                                ========    ========    =======
</TABLE>
<PAGE>


                   ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



16.    INCOME TAXES, continued

The  types  of  temporary  differences  between  the tax  bases  of  assets  and
liabilities and their financial reporting amounts that give rise to the deferred
tax  liabilities  and  deferred tax assets at December 29, 1994 and December 30,
1993 and their approximate tax effects (in thousands) are as follows:
<TABLE>
<CAPTION>

                                                                1994                           1993
                                                      -------------------------     -------------------------
                                                       Temporary        Tax          Temporary        Tax
                                                      Difference     Difference     Difference     Difference
                                                      ----------     ----------     ----------     ----------
     <S>                                             <C>            <C>            <C>            <C>

     Trade accounts receivable                       $     1,700    $       700    $     3,300    $     1,300
     Inventories                                             400            200          5,600          2,200
     Investment in Emerald Acquisition Corporation        18,600          7,200         18,600          7,200
     Accrued personnel costs                               1,900            800          2,000            800
     Restructuring reserve                                 1,100            400          1,200            400
     Environmental reserve                                   400            200            900            300
     Other                                                 2,600          1,000          3,300          1,300
     Net operating loss                                   97,000         37,800         81,000         31,600
                                                                         ------                        ------
               Total deferred tax assets                                 48,300                        45,100
                                                                         ------                        ------
     Inventories                                          (6,100)        (2,400)        (5,300)        (2,100)
     Accumulated depreciation                             (9,500)        (3,700)       (11,000)        (4,300)
     Other                                                  (400)          (200)        (1,000)          (300)
                                                                         ------                        ------
               Total deferred tax liabilities                            (6,300)                       (6,700)
               Valuation allowance                                      (42,000)                      (38,400)
                                                                         ------                        ------
               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 29, 1994,  the Company and its  subsidiaries  had Federal income tax
loss carryforwards of approximately  $97,000,000 available to be applied against
future taxable income,  if any. ARTRA's tax loss  carryforwards of approximately
$32,000,000 expire principally in 2003 - 2009. ARTRA's  discontinued  Ultrasonix
and  Ratex   subsidiaries   had  Federal  income  tax  loss   carryforwards   of
approximately $11,000,000 available to be applied against future taxable income,
if any.  Lori  has  Federal  income  tax  loss  carryforwards  of  approximately
$54,000,000  available to be applied against future Lori taxable income, if any,
expiring  principally  in 1995 - 2009. 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



<PAGE>


                   ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



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.


17.   EMPLOYEE BENEFIT PLANS

The Company and its subsidiaries have certain  contributory and  noncontributory
benefit  plans  covering   eligible   employees.   Both  employee  and  employer
contributions are generally determined as a percentage of the covered employee's
annual compensation. The total expense charged to continuing operations from all
of these plans  amounted to $333,000,  $450,000  and $521,000 in 1994,  1993 and
1992, respectively.

Effective  June 1, 1990, the Company  adopted an Employee  Stock  Ownership Plan
("ESOP")  which  covers   eligible   employees  of  ARTRA  and  certain  of  its
subsidiaries.  Employer  contributions  to the  Plan  are at the  discretion  of
ARTRA's  Board  of  Directors.   Employee   contributions   are  not  permitted.
Contributions  are  allocated in the same  proportion  that the  percentage of a
participant's  compensation  for the Plan year bears to the  compensation of all
participants  for the Plan year.  ARTRA's  contribution  for the plan year ended
December 31, 1994,  15,000 ARTRA  common  shares,  was accrued in the  Company's
Consolidated  Balance Sheet in current liabilities at their fair market value of
$77,000  ($5.125 per share) as of December 29, 1994.  ARTRA  contributed  65,000
common shares to the Plan with a fair market value of $423,000 ($6.50 per share)
for the plan year  ending  December  30,  1993.  During  1992 ARTRA  contributed
100,000  common  shares to the Plan with a fair market value of $400,000  ($4.00
per share) for the plan year ending December 31, 1992. At December 29, 1994, the
ESOP held 277,590 shares of ARTRA common stock.

The Company  typically  does not offer the types of benefit  programs  that fall
under the  guidelines of Statement of Financial  Accounting  Standards No. 106 -
Employers Accounting for Post Retirement Benefits Other Than Pensions.


18.   EARNINGS PER SHARE

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



<PAGE>


                   ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



19.    INDUSTRY SEGMENT INFORMATION

The  Company  and its  subsidiaries  operate  within  the U.S.  in two  industry
segments.  The  Company's  packaging  products  business  is  conducted  by  its
wholly-owned  Bagcraft  subsidiary.  During 1994, Company's jewelry business was
conducted  by its  66.4%  owned  Lori  subsidiary  through  Lori's  wholly-owned
subsidiaries New Dimensions, Rosecraft and Lawrence. Amounts in thousands.

<TABLE>
<CAPTION>

                                       1994       1993       1992
                                       ----       ----       ----
   <S>                               <C>        <C>        <C>
   Net Sales:
     Packaging                       $117,684   $113,584   $121,084
                                     --------   --------   --------
     Jewelry                           34,431     46,054     75,484
                                     --------   --------   --------
                                     $152,115   $159,638   $196,568
                                     ========   ========   ========

   Operating Earnings (Loss):
     Packaging                           $882     $1,960     $4,150
     Jewelry                          (15,219)     1,630    (28,795)
     Corporate and other               (3,464)    (2,936)    (2,527)
                                     --------   --------   --------
                                   $ (17, 801)      $654   $(27,172)
                                     ========   ========   ========

   Identifiable Assets:
     Packaging                        $76,597    $52,682    $57,975
     Jewelry                           12,166     34,256     37,585
     Corporate and other                4,666      5,836      3,171
                                     --------   --------   --------
                                      $93,429    $92,774    $98,731
                                     ========   ========   ========

   Capital Expenditures:
     Packaging                        $11,840     $3,038     $2,889
     Jewelry                               32        108        619
     Corporate and other                    9         10           
                                     --------   --------   --------
                                      $11,881     $3,156     $3,508
                                     ========   ========   ========

   Depreciation and Amortization:
     Packaging                         $4,185     $4,083     $3,982
     Jewelry                            1,756      1,821      2,402
     Corporate and other                    4          2        112
                                     --------   --------   --------
                                       $5,945     $5,906     $6,496
                                     ========   ========   ========
</TABLE>
<PAGE>


                   ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



Operating earnings (loss) represents net sales less operating costs and expenses
pertaining  to a  particular  segment.  There were no  significant  intersegment
sales.  Jewelry  segment 1994  operating loss includes a charge to operations of
$10,800,00 to write-off New Dimensions  goodwill as discussed in Note 7. Jewelry
segment  1992  operating  loss  includes a charge to  operations  of  $8,664,000
representing  an  impairment  of goodwill at Lori's New  Dimensions  subsidiary.
Identifiable assets by segment include all assets directly identified with those
operations.  Corporate  assets  consist  primarily of cash,  investments,  notes
receivable and certain property, plant and equipment.

Jewelry segment customers are primarily mass merchandisers and others engaged in
the retail industry.  No single jewelry segment customer accounted for more than
10% of  consolidated  net  sales  in 1994  and  1993.  A major  jewelry  segment
customer,  Wal-mart,  accounted for sales of approximately  $21,600,000 in 1992.
Packaging  segment  customers  include major companies in the food industry,  as
well as supermarket  chains and fast food chains.  No single  packaging  segment
customer accounted for more than 10% of consolidated net sales in 1994, 1993 and
1992.


20.   LITIGATION

On February 5, 1993, New Dimensions  filed a petition for  reorganization  under
Chapter 11 of the Bankruptcy Code in the United States  Bankruptcy Court for the
Southern District of New York (Case No. 93 B 40653).

On April 9, 1993, New Dimensions'  reorganization plan was confirmed by an order
of the  Bankruptcy  Court  and  on  May 3,  1993,  the  consummation  date,  New
Dimensions emerged from Chapter 11 bankruptcy court protection,  New Dimensions'
bank lender provided long-term working capital financing and Lori guaranteed and
assumed certain New Dimensions debt obligations.  See Note 5 for a discussion of
the terms of New Dimensions' plan of reorganization.

As a result of the time required to complete the restructuring of New Dimensions
and the financial significance to ARTRA and Lori of the restructuring, ARTRA and
Lori did not timely file Form 10-K for the year ended  December 31, 1992 and its
Form  10-Q for the  quarter  ended  March  31,  1993 and has also  been  late in
previous  annual  and  quarterly   filings  with  the  Securities  and  Exchange
Commission  ("SEC").  As a result of  discussions  with the SEC, in June,  1993,
ARTRA and Lori readily consented to a Final Judgment of Permanent  Injunction to
file with the SEC Form 10-K for the year ended  December  31, 1992 and Form 10-Q
for the quarter  ended  March 31,  1993 by late July and to meet  future  filing
requirement deadlines.

On November 2, 1993,  ARTRA  filed suit in the Circuit  Court of the  Eighteenth
Judicial  Circuit for the state of Illinois  (the State Court  Action")  against
Salomon Brothers,  Inc., Salomon Brothers Holding Company,  Inc.  (collectively,
"Salomon")  D.P.  Kelly &  Associates,  L.P.  ("DPK"),  Donald P. Kelly  ("Kelly
Defendants"  along with DPK),  Charles K. Bobrinskoy,  James F. Massey,  William
Rifkind  and  Michael  J.  Zimmerman.  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  maintained  jurisdiction  of ARTRA's  claims against the
individual defendants for breaching their fiduciary duty as directors of Emerald
to Emerald's creditors and interference with ARTRA's contractual  relations with
Emerald. ARTRA's appeal of the Bankruptcy Court retention of claims is currently
pending.

On December 21, 1994, the Salomon  Defendants and the Kelly  defendants  brought
motions to dismiss  ARTRA's Second Amended  Complaint in the State Court Action.
On February 8, 1995,  ARTRA's  Second  Amended  Complaint was dismissed in part,
with leave to replead.

On March 10,  1995,  ARTRA filed a Third  Amended  Complaint  in the State court
Action,  pleading  causes of action for  breach of  fiduciary  duty,  fraudulent
misrepresentation  and  negligent  misrepresentation  ARTRA  seeks in the action
compensatory  damages of $136.2 million,  punitive damages of $408.6 million and
approximately $33 million in fees paid to Salomon.


<PAGE>


                   ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



The case is in its early stages and  discovery is just  beginning.  ARTRA cannot
predict, with any certainty, the outcome of the suit.

Effective  December  31,  1989,  ARTRA  completed  the  disposal  of its  former
scientific  products  segment  with the sale of its Welch  subsidiary,  formerly
Sargent-Welch   Scientific  Company,  to  a  privately  held  corporation  whose
president and sole  shareholder was a vice president of Welch prior to the sale.
The  consideration  received by ARTRA  consisted of $2,625,000  payable June 30,
1997,  with  interest  at  10%  beginning  June  30,  1990,  under  terms  of  a
noncompetition  agreement  and the buyer's  subordinated  note in the  principal
amount of  $2,500,000.  The  receivable  due June 30,  1997  under  terms of the
noncompetition  agreement is reflected in ARTRA's  consolidated balance sheet at
December  29, 1994 and  December  30, 1993 in other  assets at  $2,625,000.  The
subordinated  security, due in 1997, was originally scheduled to be non-interest
bearing for a period of three years,  after which time  interest  will accrue at
the rate of 10% per annum.  The note was  discounted at a rate of 10% during the
non-interest  bearing  period and is reflected in ARTRA's  Consolidated  Balance
Sheet at December 29, 1994 and December 30, 1993 in other assets at  $1,375,000,
net of a discount of $1,125,000.

In December,  1991 Welch filed a lawsuit  against  ARTRA  alleging  that certain
representations, warranties and covenants made by ARTRA, which were contained in
the parties' Stock Purchase Agreement, were false. Welch is 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 is
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 January,  1985 the United  States  Environmental  Protection  Agency  ("EPA")
notified the Company's Bagcraft subsidiary that it was a potentially responsible
party under the  Comprehensive  Environmental  Responsibility  Compensation  and
Liability  Act  ("CERCLA")  for alleged  release of hazardous  substances at the
Cross  Brothers  site near  Kankakee,  Illinois.  Although  Bagcraft  has denied
liability for the site, it has entered into a settlement agreement with the EPA,
along with the other third party  defendants,  to resolve all claims  associated
with the site except for state claims.  In May, 1994 Bagcraft paid $850,000 plus
accrued  interest of $29,000 to formally  extinguish the EPA claim. The $850,000
settlement  was accrued in the  Company's  financial  statements at December 30,
1993.  Bagcraft  filed suit in 1993 in the United States  District Court for the
Northern District of Illinois,  against its insurers to recover a portion of its
liability costs in connection with the Cross Brothers case.  Bagcraft  recovered
$725,000  from its  insurers in 1994 and an  additional  $250,000 in 1995.  With
regard to the state action,  Bagcraft is participating in settlement discussions
with the State and  thirteen  other  potential  parties  to  resolve  all claims
associated with the State. The maximum state claim is $1.1 million. Bagcraft has
accrued  $120,000  related  to the State  action in the  Company's  consolidated
financial statements at December 29, 1994.

The  Company  and  its   subsidiaries   are  the  defendants  in  various  other
business-related  litigation and environmental matters (see Note 14). Management
does not  believe  the  outcome of these  matters  will have a material  adverse
effect on the Company's financial statements.



<PAGE>


                   ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



21.    RELATED PARTY TRANSACTIONS

Advances to Peter R. Harvey,  ARTRA's president,  classified in the Consolidated
Balance  Sheet as a reduction  of common  shareholders'  equity,  consist of (in
thousands):
<TABLE>
<CAPTION>


                                                          Dec 29,   Dec 30,
                                                           1994      1993
                                                        ---------  --------
        <S>                                               <C>        <C>
        ARTRA                                             $ 3,205    $2,713
        Fill-Mor                                            1,510     1,404
                                                           ------    ------
                                                            4,715     4,117
        Less interest for the period January 1,
        1993 to date, accrued and fully reserved             (615)     (274)
                                                           ------    ------
                                                          $ 4,100   $ 3,843
                                                          =======   =======
</TABLE>


ARTRA has total  advances  due from its  president,  Peter R.  Harvey,  of which
$3,205,000 and $2,713,000,  including accrued interest,  remained outstanding at
December 29, 1994 and December 30, 1993. The advances bear interest at the prime
rate plus 2% (10.5% at December 29, 1994).  This receivable from Peter R. Harvey
has been classified as a reduction of common shareholders' equity.

Prior to its  acquisition by ARTRA,  Bagcraft made certain  advances to Peter R.
Harvey evidenced by demand notes with interest at the prime rate plus 1-1/4%. In
December, 1993, the advances from ARTRA's Bagcraft subsidiary to Peter R. Harvey
of $1,774,000 were transferred to ARTRA as a dividend.

In May, 1991, ARTRA's wholly-owned Fill-Mor subsidiary made advances to Peter R.
Harvey.  The advances bear interest at the prime rate plus 2% (10.5% at December
29,  1994).  At December 29, 1994 and December 30, 1993,  advances of $1,510,000
and $1,404,000, respectively, including accrued interest, were outstanding. 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 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  29, 1994 and December
30, 1993 totaled $341,000 and $274,000, respectively.

Peter R.  Harvey  has not  received  other  than  nominal  compensation  for his
services  as an officer or director  of ARTRA or any of its  subsidiaries  since
October  of  1990.  Additionally,  Mr.  Harvey  has  agreed  not to  accept  any
compensation  for his  services as an officer or director of ARTRA or any of its
subsidiaries  until  his  obligations  to  ARTRA,  described  above,  are  fully
satisfied.

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


<PAGE>


                   ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



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

As partial  collateral  for  amounts due from Peter R.  Harvey,  the Company has
received the pledge of 1,523 shares of ARTRA redeemable  preferred stock (with a
liquidation value of $1,523,000,  plus accrued dividends) which are owned by Mr.
Harvey.  In  addition,  Mr.  Harvey has  pledged a 25%  interest  in  Industrial
Communication Company (a private company). Such interest is valued by Mr. Harvey
at $800,000 to $1,000,000.

For a discussion of certain other related party debt obligations see Note 9.


22.   FOURTH QUARTER ADJUSTMENTS

As  discussed  in Note 7, in  December  1994  Lori  recorded  a  charge  against
operations  of  $10,800,000  ($1.89  per  share) to  write-off  New  Dimensions'
goodwill and also  recognized an  extraordinary  gain of  $8,965,000  ($1.57 per
share) as a result of a net discharge of indebtedness.

In December,  1993 the Bagcraft  subsidiary  recorded a charge to  operations of
$1,175,000  ($.24 per share)  representing  equipment and  inventory  relocation
costs and employee severance and outplacement costs relating to the construction
of a new  manufacturing  facility  in Baxter  Springs,  Kansas.  The new  Kansas
facility  replaced   Bagcraft's   production   facility  in  Joplin,   Missouri.
Additionally, with the completion of the new Kansas facility, Bagcraft converted
the manufacturing facility in Forest Park, Georgia into a distribution facility.
The former  Carteret,  New Jersey  facility was sold in  December,  1994 and the
proceeds  of  approximately  $1,700,000  were  used to reduce  borrowings  under
Bagcraft's Credit Agreement.


<PAGE>


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

                            ARTRA GROUP INCORPORATED
                                 BALANCE SHEETS
                         (Registrant Only In Thousands)
<TABLE>
<CAPTION>
                                                        Dec 29,      Dec 30,
                                                         1994         1993
                                                      ---------     --------
   <S>                                                <C>           <C>
   ASSETS
   Current assets:
      Cash                                            $     91      $  1,396
      Receivables                                           55           143
      Other current assets                                  87            55
                                                      --------       -------
                                                           233         1,594
                                                      --------       -------
   Property, plant and equipment                            19            10
   Less accumulated depreciation and amortization            6             2
                                                      --------       -------
                                                            13             8
                                                      --------       -------
   Other assets:
      Investments in and advances to affiliates        (15,264)       (5,466)
      Other                                              4,000         4,000
                                                      --------       -------
                                                       (11,264)       (1,466)
                                                      --------       -------
                                                      ($11,018)     $    136
                                                      ========      ========

   LIABILITIES
   Current liabilities:
      Notes payable and current
        maturities of long-term debt                  $ 28,053      $ 26,882
      Accounts payable                                   1,576         1,622
      Accrued expenses                                   9,702         8,312
      Income taxes                                         138           340
                                                      --------       -------
                                                        39,469        37,156
                                                      --------       -------
   Redeemable common stock                               4,144         3,276
                                                      --------       -------
   Redeemable preferred stock                            3,129         2,613
                                                      --------       -------
   SHAREHOLDERS' EQUITY (DEFICIT)
   Common stock                                          5,052         3,922
   Additional paid-in capital                           36,613        31,042
   Receivable from related party,
     including accrued interest                         (4,100)       (3,843)
   Accumulated deficit                                 (94,520)      (73,225)
                                                      --------       -------
                                                       (56,955)      (42,104)
   Less treasury stock, at cost                            805           805
                                                      --------       -------
                                                       (57,760)      (42,909)
                                                      --------       -------
                                                      ($11,018)      $   136
                                                      ========       =======
</TABLE>



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


<PAGE>



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

                            ARTRA GROUP INCORPORATED
                            STATEMENTS OF OPERATIONS
                         (Registrant Only In Thousands)

<TABLE>
<CAPTION>
                                                                         Fiscal Year
                                                             ----------------------------------
                                                              1994          1993          1992
                                                             ------        ------        ------
   <S>                                                     <C>           <C>           <C>
   Selling, general and administrative expenses            $  2,158      $  1,907      $  1,644
   Depreciation and amortization                                  4             2           112
   Interest expense                                           3,139         2,641         2,930
   Equity in loss of affiliates                              22,035         3,639        35,312
   Other (income), net                                          308            85          (342)
   Earnings (loss) from continuing                           ------         -----        ------
     operations before income taxes                         (27,644)       (8,274)      (39,656)
   Benefit (charge) equivalent to  income taxes              (1,791)         (269)        1,354
                                                             ------         -----        ------
   Loss from continuing operations                          (29,435)       (8,543)      (38,302)

   Equity in earnings of discontinued affiliate
   Loss before extraordinary credit                                                         330
                                                             ------         -----        ------
                                                            (29,435)       (8,543)      (37,972)
   Extraordinary credit, net discharge of indebtedness        8,965        22,057
                                                             ------        ------        ------
   Net earnings (loss)                                     ($20,470)     $ 13,514      ($37,972)
                                                           ========      ========      ========

</TABLE>

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


<PAGE>



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

                  ARTRA GROUP INCORPORATED
                  STATEMENTS OF CASHFLOWS
               (Registrant Only In Thousands)
<TABLE>
<CAPTION>
                                                                                        Fiscal Year
                                                                            ------------------------------------
                                                                              1994          1993          1992
                                                                            --------      --------      --------
   <S>                                                                      <C>           <C>           <C>
   Cash flows from operating activities:
      Net earnings (loss)                                                   ($20,470)     $ 13,514      ($37,972)
        Adjustments to reconcile net loss
        to cash flows from operating activities:
           Extraordinary gain from net discharge of indebtedness              (8,965)      (22,057)
           Equity in (earnings) loss of affiliates                            22,035         3,639        35,312
           Equity in (earnings) loss of discontinued operations                                             (330)
           Gain on sale of property, plant and equipment                                                    (423)
           Other                                                                 489           392            45
           Changes in assets and liabilities:
               Increase (decrease) in other current and
                 noncurrent assets                                                56           (42)         (237)
               Increase (decrease) in other current and
                 noncurrent liabilities                                        2,152         1,076          (429)
              (Increase) decrease in receivable from related party              (257)           42          (635)
                                                                            --------      --------      --------
   Net cash flows used by operating activities                                (4,960)       (3,436)       (4,669)
                                                                            --------      --------      --------
   Cash flows from investing activities:
      Proceeds from sale of Ratex subsidiary                                                               1,089
      Proceeds from sale of property, plant and equipment                                                  1,425
      Proceeds from sale of BCA Holdings preferred stock                                     3,000           675
      Dividends and advances from (to) subsidiaries                             (772)        1,824         2,254
      Additions to property, plant and equipment                                  (9)          (10)
                                                                            --------      --------      --------
   Net cash flows from investing activities                                     (781)        4,814         5,443
                                                                            --------      --------      --------
   Cash flows from financing activities:
      Proceeds from private placements of ARTRA common stock                   3,230
      Proceeds from exercise of stock options and warrants                        30           129            48
      Net increase (decrease) in short-term borrowings                         1,226          (158)         (546)
      Exercise of redeemable common stock options                                (50)                       (456)
      Other, net                                                                                               1
                                                                            --------      --------      --------
   Net cash flows from (used by) financing activities                          4,436           (29)         (953)
                                                                            --------      --------      --------
   Net increase (decrease) in cash                                            (1,305)        1,349          (179)
   Cash balance beginning of year                                              1,396            47           226
                                                                            --------      --------      --------
   Cash balance end of year                                                 $     91      $  1,396      $     47
                                                                            ========      ========      ========

   Supplemental schedule of noncash investing and financing activities:
      Issue common stock and redeemable common stock
        to pay down current liabilities                                     $    756      $  1,636      $  2,601
      ARTRA common stock issued to Lori's bank lender as partial
        consideration for discharge of indebtedness                            2,500
</TABLE>


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




<PAGE>




               ARTRA GROUP INCORPORATED AND SUB AND SUBSIDIARIES
       SCHEDULE I. CONDENSED FINANCIAL INFORMATION OF REGISTRANT-(Cont.)

                            ARTRA GROUP INCORPORATED
                         NOTES TO FINANCIAL INFORMATION
                               (Registrant Only)


1.   Presentation

The  condensed  financial  information  of the  Registrant  has been prepared in
accordance with the  instructions  for Schedule I to Form 10-K. The Registrant's
investments in subsidiaries and affiliates are presented on the equity method.

2.   Commitments and Contingencies

See Note 15 of the consolidated financial statements.

3.   Restricted Assets

The terms of several agreements place certain  restrictions on the net assets of
certain operating subsidiaries. See Notes 9 and 10 of the consolidated financial
statements for additional information.

4.   Notes Payable and Long-Term Debt

See Notes 9 and 10 of the consolidated financial statements.

5.   Redeemable Common and Preferred Stock and Stock Options

See Notes 11, 12 and 13 of the consolidated financial statements.

6.   Income Taxes

The Registrant files a consolidated income tax return with its 80% or more owned
subsidiaries.  Separate returns are filed by the Company's  majority-owned,  but
less  than  80%  owned  subsidiaries.  For  financial  reporting  purposes,  the
Registrant's   charge  or  benefit  equivalent  to  income  tax  represents  the
difference  between the aggregate of income taxes computed on a separate  return
basis for each of the  subsidiaries and affiliates and the income taxes computed
on a consolidated basis.

7.   Guarantees of Subsidiaries' Obligations

See Notes 9 and 10 of the consolidated  financial statements for a discussion of
guarantees of subsidiary debt obligations.


<PAGE>



                   ARTRA GROUP INCORPORATED AND SUBSIDIARIES
                 SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
    for each of the three fiscal years in the period ended December 29, 1994
                                 (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>                <C>

    For the fiscal year ended December 29, 1994:

       Deducted from assets to which they apply:

          Allowance for inventory valuation            $ 4,315       $    218                          $ (4,326)(A)       $   207
                                                       =======       ========                          ========           =======
          Allowance for markdowns                      $ 2,499       $  4,799                          $ (6,463)(B)       $   835

          Allowance for doubtful accounts                  595            445                              (221)(C)           819
                                                       -------       --------                          --------           -------
                                                       $ 3,094       $  5,244                          $ (6,684)          $ 1,654
                                                       =======       ========                          ========           =======
    For the fiscal year ended December 30, 1993:

       Deducted from assets to which they apply:

          Allowance for inventory valuation            $ 4,900       $    337                          $   (922)(A)       $ 4,315
                                                       =======       ========                          ========           =======
          Allowance for markdowns                      $ 5,280       $  5,722                          $ (8,503)(B)       $ 2,499

          Allowance for doubtful accounts                  671            450                              (526)(C)           595
                                                       -------       --------                          --------           -------
                                                       $ 5,951       $  6,172                          $ (9,029)          $ 3,094
                                                       =======       ========                          ========           =======
For the fiscal year ended December 31, 1992:

       Deducted from assets to which they apply:

          Allowance for inventory valuation                           $ 4,900                                            $  4,900
                                                                      =======                                            ========
          Allowance for markdowns                      $ 5,125       $ 21,051                          $(20,896)(B)       $ 5,280

          Allowance for doubtful accounts                  783            229                              (341)(C)           671
                                                       -------       --------                          --------           -------
                                                       $ 5,908       $ 21,280                          $(21,237)          $ 5,951
                                                       =======       ========                          ========           =======

<FN>
(A)Principally  inventory  written  off,  net  of  recoveries.  (B)  Principally
markdowns  taken.  (C) Principally  uncollectible  accounts  written off, net of
recoveries.
</FN>
</TABLE>

<PAGE>



                               INDEX OF EXHIBITS



     (A) Exhibits included herein:

         EXHIBIT  3        Articles of Incorporation and By-laws

                           3.1      Statement with Respect to Shares of Series
                                    A Preferred Stock of Registrant.
                           3.2      Statement with Respect to Shares of Rights
                                    and Preferences of Series B Preferred Stock
                                    of Registrant.


         EXHIBIT  10       Material contracts

                  10.1     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.

                  10.2     REGISTRATION  AND  SETTLEMENT  AGREEMENT  dated as of
                           March   31,   1995  by  and   between   ARTRA   GROUP
                           Incorporated and IBJ Schroder Bank & Trust Company.


         EXHIBIT  11       Computation  of earnings per share and equivalent
                           share of common  stock for each of the three years in
                           the period ended December 29, 1994.


         EXHIBIT  21       Subsidiaries.


         EXHIBIT  24       Consent of Independent Accountants.



<PAGE>



     (B) Exhibits incorporated herein by reference:


         EXHIBIT  3        Articles of Incorporation and By-laws

                           3.3      Amended    and    Restated    Articles    of
                                    Incorporation  of the Registrant as filed in
                                    the Department of State of  Pennsylvania  on
                                    December 21, 1990.

                           3.4      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.



         EXHIBIT  10       Material contracts

                           10.1     AMENDED  SETTLEMENT  AGREEMENT  by and among
                                    THE LORI CORPORATION,  LAWRENCE JEWELRY CO.,
                                    LAWRENCE JEWELRY CORPORATION, NEW DIMENSIONS
                                    ACCESSORIES  LTD.  (formerly  known  as R.N.
                                    Koch,  Inc.),   ROSECRAFT,   INC.,  FILL-MOR
                                    HOLDING,  INC., ARTRA GROUP INCORPORATED AND
                                    IBJ SCHRODER BANK & TRUST COMPANY,  dated as
                                    of December  23, 1994 filed as an exhibit to
                                    Registrant's  Form  8-K,  dated  January  3,
                                    1995.

                           10.2     Loan  Agreement,  dated as of  December  23,
                                    1994, by and among ARTRA GROUP  Incorporated
                                    and McGOODWIN JAMES & CO filed as an exhibit
                                    to  Registrant's  Form 8-K, dated January 3,
                                    1995.

                           10.3     Settlement  Agreement  dated August 18, 1994
                                    by  among  The  Lori  Corporation,  Lawrence
                                    Jewelry Co.,  Lawrence Jewelry  Corporation,
                                    New Dimensions Accessories, Ltd., Rosecraft,
                                    Inc.,  Fill-Mor  Holding,  Inc., ARTRA GROUP
                                    Incorporated  and IBJ Schroder  Bank & Trust
                                    Company, dated as of August 18,1994 filed as
                                    an exhibit to Registrant's Form 10-Q for the
                                    quarterly  period ended June 30, 1994, dated
                                    August 19, 1994.

                           10.4     Pledge and  Security  Agreement  between The
                                    Lori  Corporation  and IBJ  Schroder  Bank &
                                    Trust  Company  dated as of August 18,  1994
                                    filed as an  exhibit  to  Registrant's  Form
                                    10-Q for the quarterly period ended June 30,
                                    1994, dated August 19, 1994.

                           10.5     Pledge  and   Security   Agreement   between
                                    Lawrence Jewelry Co. and IBJ Schroder Bank &
                                    Trust  Company  dated as of August 18,  1994
                                    filed as an  exhibit  to  Registrant's  Form
                                    10-Q for the quarterly period ended June 30,
                                    1994, dated August 19, 1994.

                           10.6     Pledge  and   Security   Agreement   between
                                    Lawrence   Jewelry   Corporation   and   IBJ
                                    Schroder  Bank & Trust  Company  dated as of
                                    August  18,  1994  filed  as an  exhibit  to
                                    Registrant's  Form  10-Q  for the  quarterly
                                    period ended June 30, 1994, dated August 19,
                                    1994.

                           10.7     Pledge and  Security  Agreement  between New
                                    Dimensions Accessories, Ltd and IBJ Schroder
                                    Bank & Trust  Company dated as of August 18,
                                    1994  filed as an  exhibit  to  Registrant's
                                    Form  10-Q for the  quarterly  period  ended
                                    June 30, 1994, dated August 19, 1994.

<PAGE>

                           10.8     Pledge  and   Security   Agreement   between
                                    Rosecraft,  Inc.  and  IBJ  Schroder  Bank &
                                    Trust  Company  dated as of August 18,  1994
                                    filed as an  exhibit  to  Registrant's  Form
                                    10-Q for the quarterly period ended June 30,
                                    1994, dated August 19, 1994.

                           10.9     Pledge  and   Security   Agreement   between
                                    Fill-Mor Holding, Inc. and IBJ Schroder Bank
                                    & Trust  Company dated as of August 18, 1994
                                    filed as an  exhibit  to  Registrant's  Form
                                    10-Q for the quarterly period ended June 30,
                                    1994, dated August 19, 1994.

                           10.10    Credit  Agreement  dated as of December  17,
                                    1993 by and between Bagcraft  Corporation of
                                    America as  Borrower  and  General  Electric
                                    Capital  Corporation  as  agent  and  lender
                                    filed as an  exhibit  to  Registrant's  Form
                                    10-K for the year ended  December  30, 1993,
                                    dated April 11, 1994.
     .
                           10.11    Warrant to Purchase Common Stock of Bagcraft
                                    Corporation  of America  dated  December 17,
                                    1993  (1,055.6  shares)  issued  to  General
                                    Electric  Capital  Corporation  filed  as an
                                    exhibit  to  Registrant's  Form 10-K for the
                                    year ended  December 30,  1993,  dated April
                                    11, 1994.

                           10.12    Letter Agreement dated as of March 31, 1994
                                    between Registrant and Continental Bank
                                    N. A. filed as an exhibit to Registrant's
                                    Form 10-K for the year ended December 30,
                                    1993, dated April 11, 1994.

                                    10.13 Amended and Restated  Promissory  Note
                                    dated as of March 21,  1989 in the amount of
                                    $2,500,000  from  Registrant to  Continental
                                    Bank,   N.A.   filed   as  an   exhibit   to
                                    Registrant's  Form  10-K for the year  ended
                                    December 30, 1993, dated April 11, 1994.

                           10.14    Amended and Restated  Promissory  Note dated
                                    as of  March  21,  1989  in  the  amount  of
                                    $2,5000,000   from   Registrant   to   Kenny
                                    Construction  Company filed as an exhibit to
                                    Registrant's  Form  10-K for the year  ended
                                    December 30, 1993, dated April 11, 1994.

                           10.15    Amended and Restated  Promissory  Note dated
                                    as  of  June  22,  1990  in  the  amount  of
                                    $7,063,639.59 from Registrant to Continental
                                    Bank,   N.A.   filed   as  an   exhibit   to
                                    Registrant's  Form  10-K for the year  ended
                                    December 30, 1993, dated April 11, 1994.

                           10.16    Amended and Restated  Promissory  Note dated
                                    as of July 6, 1988 in the original amount of
                                    $5,000,000  from  Registrant to  Continental
                                    Bank,   N.A.   filed   as  an   exhibit   to
                                    Registrant's  Form  10-K for the year  ended
                                    December 30, 1993, dated April 11, 1994..

                           10.17    Letter  Agreement  dated as of April 1, 1994
                                    between    Kenny    Construction    Company,
                                    Registrant   and  Bagcraft   Corporation  of
                                    America filed as an exhibit to  Registrant's
                                    Form 10-K for the year  ended  December  30,
                                    1993, dated April 11, 1994.

                           10.18    Kenny  Construction  Company  Option to Sell
                                    Common   Stock   filed  as  an   exhibit  to
                                    Registrant's  Form  10-K for the year  ended
                                    December 30, 1993 dated April 11, 1994.

                           10.19    Loan  Agreement  dated  December 27, 1993 in
                                    the amount of  $5,000,000  between  Bagcraft
                                    Corporation  of  America  and  the  City  of
                                    Baxter  Springs,  Kansas filed as an exhibit
                                    to Registrant's Form 10-K for the year ended
                                    December 30, 1993, dated April 11, 1994.
<PAGE>

                           10.20    Construction  Loan  Agreement  dated  as  of
                                    February   15,   1994  in  the   amount   of
                                    $7,000,000   between   the  City  of  Baxter
                                    Springs,  Kansas and Bagcraft Corporation of
                                    America filed as an exhibit to  Registrant's
                                    Form 10-K for the year  ended  December  30,
                                    1993, dated April 11, 1994.

                           10.21    Loan Agreement dated January 19, 1994 in the
                                    amount   of   $250,000    between   Bagcraft
                                    Corporation  of  America  and  the  City  of
                                    Baxter  Springs,  Kansas filed as an exhibit
                                    to Registrant's Form 10-K for the year ended
                                    December 30, 1993, dated April 11, 1994.

                           10.22    Loan Agreement dated January 20, 1994 in the
                                    amount   of   $250,000    between   Bagcraft
                                    Corporation  of  America  and  the  City  of
                                    Baxter  Springs,  Kansas filed as an exhibit
                                    to Registrant's Form 10-K for the year ended
                                    December 30, 1993, dated April 11, 1994.

                           10.23    Asset Purchase  Agreement  dated as March 1,
                                    1994  by  and  between  AGI  Acq.   Inc.,  a
                                    subsidiary   of  Bagcraft   Corporation   of
                                    America,  and Arcar Graphics,  Inc. filed as
                                    an exhibit to Registrant's Form 10-K for the
                                    year ended  December 30,  1993,  dated April
                                    11, 1994.
     .
                           10.24    Warrant to Purchase  Common  Stock of
                                    Registrant dated April 8, 1994 (177,778
                                    shares)  issued to TAMBS,  INC.  (formerly
                                    Arcar Graphics, Inc.) filed as an exhibit to
                                    Registrant's Form 10-K for the year ended
                                    December 30, 1993, dated April 11, 1994.

                           10.25    Guarantee of Bagcraft Corporation of America
                                    dated April 8, 1994 in favor of TAMBS,  INC.
                                    (formerly  known  as Arcar  Graphics,  Inc.)
                                    filed as an  exhibit  to  Registrant's  Form
                                    10-K for the year ended  December  30, 1993,
                                    dated April 11, 1994.

                           10.26    Pledge  Agreement  dated  April 8, 1994 from
                                    Bagcraft  Corporation of America in favor of
                                    TAMBS,   INC.   (formerly   known  as  Arcar
                                    Graphics,  Inc.)  filed  as  an  exhibit  to
                                    Registrant's  Form  10-K for the year  ended
                                    December 30, 1993, dated April 11, 1994.

                           10.27    Subordinated  Promissory Note dated April 8,
                                    1994 in the amount of $2,500,000 from AGI
                                    Acq. Inc. to TAMBS, INC. (formerly known as
                                    Arcar Graphics,  Inc.) due March 15, 1995
                                    filed as an exhibit to Registrant's Form
                                    10-K for the year ended December 30, 1993,
                                    dated April 11, 1994.

                           10.28    Subordinated  Promissory Note dated April 8,
                                    1994 in the amount of $2,500,000 from AGI
                                    Acq. Inc. to TAMBS, INC.  (formerly known as
                                    Arcar Graphics,  Inc.) due March 15, 1996
                                    filed as an exhibit to Registrant's Form
                                    10-K for the year ended December 30, 1993,
                                    dated April 11, 1994.

                           10.29    Subordinated Promissory Note dated April 8,
                                    1994 in the amount of $2,500,000 from AGI
                                    Acq. Inc. to TAMBS, INC. (formerly known as
                                    Arcar Graphics,  Inc.) due March 15, 1997
                                    filed as an exhibit to Registrant's Form
                                    10-K for the year ended December 30, 1993,
                                    dated April 11, 1994.

                           10.30    Subordinated Promissory Note dated April 8,
                                    1994 in the amount of $500,000 from AGI Acq.
                                    Inc. to TAMBS,  INC.  (formerly known as
                                    Arcar Graphics, Inc.) due March 15, 1998
                                    filed as an exhibit to Registrant's Form
                                    10-K for the year ended December 30, 1993,
                                    dated April 11, 1994.
<PAGE>

                           10.31    Loan and Security Agreement dated as of
                                    April 8, 1994  between AGI Acq.  Inc. and
                                    American National Bank and Trust Company of
                                    Chicago filed as an exhibit to Registrant's
                                    Form 10-K for the year ended December 30,
                                    1993, dated April 11, 1994.

                           10.32    Revolving Note dated as of April 8, 1994 in
                                    the amount of $1,500,000 from AGI Acq. Inc.
                                    to  American  National  Bank and Trust
                                    Company of Chicago filed as an exhibit to
                                    Registrant's Form 10-K for the year ended
                                    December 30, 1993, dated April 11, 1994.

                           10.33    Term Note dated as of April 8, 1994 in the
                                    amount of $2,750,000 from AGI Acq. Inc. to
                                    American  National Bank and Trust Company
                                    filed as an exhibit to Registrant's Form
                                    10-K for the year ended December 30, 1993,
                                    dated April 11, 1994.

                           10.34    Term Loan Agreement  dated as of May 3, 1993
                                    between New Dimensions Accessories, Ltd. and
                                    IBJ Schroder  Bank & Trust  Company filed as
                                    an exhibit to Registrant's Form 10-K for the
                                    year ended December 31, 1992, dated July 23,
                                    1993.

                           10.35    Credit  Agreement  dated  as of May 3,  1993
                                    between New Dimensions Accessories, Ltd. and
                                    IBJ Schroder  Bank & Trust  Company filed as
                                    an exhibit to Registrant's Form 10-K for the
                                    year ended December 31, 1992, dated July 23,
                                    1993.

                           10.36    Term  Loan  Agreement  dated as of March 31,
                                    1993   between   Rosecraft,   Inc.  and  IBJ
                                    Schroder  Bank & Trust  Company  filed as an
                                    exhibit  to  Registrant's  Form 10-K for the
                                    year ended December 31, 1992, dated July 23,
                                    1993.

                           10.37    Credit  Agreement dated as of March 31, 1993
                                    between  Rosecraft,  Inc.  and IBJ  Schroder
                                    Bank & Trust  Company filed as an exhibit to
                                    Registrant's  Form  10-K for the year  ended
                                    December 31, 1992, dated July 23, 1993.

                           10.38    Management  Agreement  dated  as of April 9,
                                    1993  between  The  Lori   Corporation   and
                                    Nitsua,   Ltd.   filed  as  an   exhibit  to
                                    Registrant's  Form  10-K for the year  ended
                                    December 31, 1992, dated July 23, 1993.

                           10.39    Management  Agreement  dated  as of April 9,
                                    1993  between  The  Lori   Corporation   and
                                    Anthony  J.  Giglio  filed as an  exhibit to
                                    Registrant's  Form  10-K for the year  ended
                                    December 31, 1992, dated July 23, 1993.

                           10.40    Amended  and  Restated  Guarantee  Agreement
                                    dated  as of  March  31,  1993  by The  Lori
                                    Corporation  in favor  IBJ  Schroder  Bank &
                                    Trust   Company   filed  as  an  exhibit  to
                                    Registrant's  Form  10-K for the year  ended
                                    December 31, 1992, dated July 23, 1993.

                           10.41    Letter  Agreement  dated  as June  30,  1993
                                    between  Registrant  and  Continental  Bank,
                                    N.A.  filed as an  exhibit  to  Registrant's
                                    Form 10-K for the year  ended  December  31,
                                    1992, dated July 23, 1993.

<PAGE>

                           10.42    Amended and Restated  Promissory  Note dated
                                    as of March 21, 1989 in the original  amount
                                    of $5,000,000 from Registrant to Continental
                                    Bank,   N.A.   filed   as  an   exhibit   to
                                    Registrant's  Form  10-K for the year  ended
                                    December 31, 1992, dated July 23, 1993.

                           10.43    Amended and Restated  Promissory  Note dated
                                    as  of  June  22,  1990  in  the  amount  of
                                    $8,452,399.65 from Registrant to Continental
                                    Bank,   N.A.   filed   as  an   exhibit   to
                                    Registrant's  Form  10-K for the year  ended
                                    December 31, 1992, dated July 23, 1993.

                           10.44    Amended and Restated  Promissory  Note dated
                                    as of July 6, 1988 in the original amount of
                                    $5,000,000  from  Registrant to  Continental
                                    Bank,   N.A.   filed   as  an   exhibit   to
                                    Registrant's  Form  10-K for the year  ended
                                    December 31, 1992, dated July 23, 1993.

                           10.45    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.

                           10.46    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.

                           10.47    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.

                           10.48    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.

                           10.49    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.

                           10.50    Amended and Restated License Agreement Dated
                                    as of July 20, 1988 between Lifestyle
                                    Brands, Ltd. and New Dimensions Accessories,
                                    Ltd. filed as an exhibit to Registrant's
                                    Form 8-K, dated May 17, 1993.

                           10.51    Amended  Disclosure  Statement  dated  as of
                                    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.

                           10.52    Credit  Agreement  dated as February 5, 1993
                                    between   Lawrence   Jewelry   Co.  and  IBJ
                                    Schroder  Bank & Trust  Company  filed as an
                                    exhibit  to  Registrant's  Form  8-K,  dated
                                    February 18, 1993.

                           10.53    Letter  Agreement dated as of February 11,
                                    1992 between  Registrant and Continental
                                    Bank, N.A. filed as an Exhibit to
                                    Registrant's Form 8-K, dated
                                    February 27, 1992.

                           10.54    Exhibit pages from The Lori Corporation Form
                                    10-K for the year ended  December  31, 1994,
                                    on   file   with   the    Commission,    are
                                    herebyincorporated by reference hereto.





                                  EXHIBIT 10.1


                              ASSIGNMENT AGREEMENT

                  ASSIGNMENT  AGREEMENT,  dated  and  effective  as of March 31,
1995, by and among IBJ Schroder  Bank & Trust  Company  ("the  Bank"),  The Lori
Corporation  ("Lori"),   Lawrence  Jewelry  Co.,  Lawrence  Jewelry  Corp.,  New
Dimensions   Accessories,    Ltd.("NDAL"),    Rosecraft,    Inc.   ("Rosecraft")
(collectively the "Borrowers"), Fill-Mor Holding, Inc. ("Fill-Mor"), ARTRA Group
Inc. ("ARTRA") and Alexander Verde ("Verde"). W I T N E S S E T H:

                  WHEREAS,  the  Bank,  the  Borrowers,  Fill-Mor  and ARTRA are
parties to that certain Amended Settlement Agreement by and among Lori, Lawrence
Jewelry Co., Lawrence Jewelry Corp., NDAL,  Rosecraft,  Fill-Mor and ARTRA dated
as of December 23, 1994 ("Amended Settlement Agreement");

                  WHEREAS, the Bank has made loans and otherwise extended credit
to the Borrowers pursuant to certain notes, agreements and guarantees more fully
described in Exhibit 1 to the Amended Settlement Agreement ("Agreements");

                  WHEREAS,   the  Bank  entered  into  the  Amended   Settlement
Agreement with each Borrower,  Fill-Mor and ARTRA after each Borrower,  Fill-Mor
and ARTRA was in default under certain notes,  agreements and guarantees and the
Settlement Agreement dated as of August 18, 1994, as more fully described in the
Amended Settlement Agreement;

                  WHEREAS, concurrently with the date hereof, the Bank and ARTRA
have executed a Registration and Settlement Agreement dated as of March 31, 1995
("Registration Agreement") and ARTRA has executed a Confession of Judgment;

                  WHEREAS, on the terms and conditions set forth below, the Bank
and Verde have  agreed that the Bank will sell,  transfer,  assign and convey to
Verde  certain  of the Bank's  rights,  title and  interest  in, to or under the
Amended  Settlement  Agreement and the Agreements -- other than certain  rights,
title and interest in certain  obligations of ARTRA under the Amended Settlement
Agreement -- as described below;

                  WHEREAS,  the Borrowers and Fill-Mor have agreed,  in exchange
for the Bank's  agreement  to assign  certain of its  rights  under the  Amended
Settlement  Agreements  as  described  more  fully  below and for other good and
valuable  consideration,  to maintain  certain  relationships  with the Bank and
compensate the Bank as specified below; and

                  WHEREAS, in addition to other good and valuable  consideration
provided for herein,  Verde will, on the terms and  conditions set forth herein,
pay to the Bank for the Assigned Rights in immediately available funds an amount
in United States dollars of $750,000.00 (the "Purchase Price").

                  NOW,  THEREFORE,  in consideration  of the promises  contained
herein,  and intending to be legally bound hereby,  the parties  hereto agree as
follows:

                  1. Sale and Purchase.  Subject to the terms and  conditions of
this Assignment ----------------- Agreement:

                  (a) For good  and  valuable  consideration,  the  receipt  and
sufficiency  of which is hereby  acknowledged,  subject to the Bank's receipt of
the Purchase Price  pursuant to Section 1(b), the Bank hereby sells,  transfers,
assigns  and conveys to Verde and Verde  purchases,  assumes  and  accepts,  the
following  without  representation,  recourse  or warranty of any kind or nature
except as expressly provided herein:


<PAGE>



            (i)            any  rights or  claims,  if any,  the Bank has now or
                           hereafter   acquires  into  or  under  any  guaranty,
                           security interest,  lien,  mortgage,  pledge, deed of
                           trust,  deposit  account  or other  setoff,  or other
                           collateral   (and  any   substitutions   therefor  or
                           additions    thereto)   relating   to   or   securing
                           obligations  under the  Agreements  and all documents
                           relating  to any  of the  foregoing  other  than  the
                           Retained  Rights as described as described in Section
                           2 below (the "Related Documents");

           (ii)            any rights or claims,  if any,  against the Borrowers
                           or  Fill-Mor,  its  affiliates,  and any third  party
                           from,  under or with  respect  to the  Agreements  or
                           Related Documents, including, without limitation, any
                           rights  against any party arising in connection  with
                           the making of the Agreements; and

            (iii)          any and all proceeds of the foregoing ("Proceeds");

all the foregoing are collectively referred to herein as the "Assigned Rights";

                       (b) In consideration  for the Assigned Rights being sold,
transferred,  assigned  and  conveyed  by the  Bank  to  Verde  pursuant  to the
preceding  Section  1(a),  Verde  will on the  Closing  Date  pay to the Bank in
immediately available funds the Purchase Price.

                       (c) The closing of the  transaction  contemplated  herein
shall  take place on or before  April 7, 1995 or such other date as the  parties
hereto agree upon in writing (the "Closing Date") by:

                          (i)  Verde's  delivery  to the  Bank of a copy of this
Assignment  Agreement  executed  by  Verde,  which  delivery  shall  be  made by
facsimile transmission and by overnight courier;

                          (ii) the Bank's delivery by facsimile transmission and
by  overnight  courier  to Verde  of a copy of this  Assignment  Agreement  duly
contemplated and executed by the Bank; and

                          (iii) the Borrowers',  Fill-Mor's and ARTRA's delivery
by facsimile transmission and by overnight courier to each of the Bank and Verde
of copies of this  Assignment  Agreement duly  contemplated  and executed by the
Borrowers, Fill-Mor and ARTRA; and

                       (d) This  Assignment  Agreement  shall  not be  effective
until the  Registration  Agreement  and  Confession  of Judgment have been fully
executed by all parties thereto and are in full force and effect.

                       (e)  Verde  and the Bank  agree  that  from and after the
Closing  Date,  other  than as to the  Retained  Rights  and  other  rights  and
obligations  under the  Agreements,  Amended  Settlement  Agreement  and Related
Documents  specifically  excluded from this Assignment  Agreement as provided in
Section  2,:  (i)  Verde  shall be deemed a party to and  beneficiary  under the
Agreements,  Amended Settlement  Agreement and the Related  Documents;  and (ii)
Verde  shall be entitled  to (x) the  benefits of all of the terms,  conditions,
representations,   warranties,   covenants  and  agreements  set  forth  in  the
Agreements,  Amended  Settlement  Agreement  and the Related  Documents  and (y)
exercise  and  enforce  such  rights of the Bank under the  Agreements,  Amended
Settlement  Agreement and Related Documents as Verde would have been entitled to
exercise  if he had  been  the  party  to  the  Agreements,  Amended  Settlement
Agreement and Related Documents when originally executed and delivered.


<PAGE>



                  2.          Retained Rights.

                       (a) The Bank,  Verde,  the Borrowers,  Fill-Mor and ARTRA
agree  that the Bank shall  retain  all  rights,  title and  interest  in to the
following provisions in the Amended Settlement Agreement:

                                    (i)    Paragraph 2.2 Settlement Amount; NDAL
                                           Assets;      Additional      Payment;
                                           Application  of  Proceeds,  provided,
                                           however,  the Bank  shall  retain the
                                           rights  under  Paragraph  2.2(g) only
                                           through March 31, 1995;

                                    (ii)   Paragraph 2.3(a)  The Bank's
                                           Retention of ARTRA Shares.

                                    (iii)  Paragraph 2.3(b)  Registration of
                                           ARTRA Shares.

                                    (iv)   Paragraph 2.3(c)  Sale of ARTRA
                                           Shares by Bank.

                                    (v)    Paragraph 3.2  Real Estate.

                                    (vi)   Paragraph 3.4  No Rent on Woonsocket.

                                    (vii)  Paragraph  3.11  No  Contact  with
                                           Customers,  Creditors  or
                                           Vendors of NDAL/Trilko.

                       (b) The Bank,  Verde,  the Borrowers,  Fill-Mor and ARTRA
agree that the Bank shall exclusively  retain all rights,  title and interest in
ARTRA's obligations under and be entitled to rely upon and enforce the following
provisions of the Amended Settlement Agreement;  provided,  however, ARTRA shall
no longer be  jointly  and  severally  liable for the other  obligations  of the
Borrowers and Fill-Mor under the Amended Settlement Agreement:

                                    (i)    Paragraph 3.10  Commitment to Take
                                              Further Action.

                       (ii)  Article  IV.   Representations  and  Warranties  of
Borrowers,Fill-Mor and ARTRA; provided, ------------------------------- --------
however,  the  representations  and warranties ------- provided by the Borrowers
and Fill-Mor to the Bank under the Amended  Settlement  Agreement  shall survive
through the date of execution of this Assignment  Agreement.  The Representation
and  Warranties  provided  by ARTRA to the Bank  under  the  Amended  Settlement
Agreement shall survive execution of this Assignment Agreement.  (iii) Paragraph
5.1(c) - (i).

                                    (iv)   Paragraph 5.2(b).


<PAGE>
                                    (v)    Paragraph 5.3.  Remedies
                                              Cumulative; No Waiver.

                                    (vi)   Paragraph 5.4.  Discontinuance of
                                              Proceedings.

                                    (vii)  Article VI.  Additional
                                              Undertakings.

                                    (viii) Article VII.  Miscellaneous.
                       (c)  Nothing  in this  Assignment  Agreement  impairs  or
supersedes  any  rights  orobligations  that  ARTRA has  under the  Registration
Agreement  or  Confession  of  Judgment.  In the  event  ARTRA  defaults  on its
obligations under the Registration Agreement, in addition to any rights the Bank
has under the Registration  Agreement,  including but not limited to enforcement
of ARTRA's  Confession  of Judgment,  the Bank may exercise all rights under the
Amended  Settlement  Agreement  retained  by  it  pursuant  to  this  Assignment
Agreement.

                       (d) Nothing in this Assignment Agreement shall effect any
rights other than those specifically set forth in this Assignment Agreement. All
other rights held by the Bank including,  but not limited to, warrants and other
equity  interests,  the Bank's rights against NDAL under the Amended  Settlement
Agreement and otherwise are hereby specifically preserved.

                       (e) In the event a registration is declared  effective on
or before July 31, 1995  whereby the ARTRA Shares are being  registered  and all
necessary authorities and agencies have approved such registration enabling such
shares to be freely tradeable,  without restriction of any kind immediately upon
effectiveness  of such  registration,  the Bank shall have no further  rights or
remedies against ARTRA.
                       (f) Neither nor his  successors or assigns has any claim,
right or
interest of any kind,  nature or description at law or in equity in the Retained
Rights (as described in this Assignment Agreement),  including,  but not limited
to, in the ARTRA Shares Put, the ARTRA shares, and all other rights and interest
under the Registration Agreement or the Confession of Judgment.

                       (g)  All  of the  foregoing  shall  constitute  "Retained
Rights" and may be referred to as such throughout this Assignment Agreement

                  3. Demand  Deposit  Account  88383000.  Lori's Demand  Deposit
Account  No.  88383000  is not being  transferred  pursuant  to this  Assignment
Agreement and there are no claims for any amounts due thereunder by any party.

                  4. Cash Dominion Accounts.  Notwithstanding  the provisions of
paragraph  7.2(b)  of  the  Amended  Settlement  Agreement,   Verde  irrevocably
authorizes  the Bank to release  all monies in cash  dominion  accounts  for the
general purposes of Lawrence Jewelry Co. and Rosecraft. Verde will hold the Bank
harmless from any and all liabilities,  obligations, losses, damages, penalties,
actions,  judgments,   suits,  costs,  expenses  and  disbursements,   including
reasonable  attorney's  fees and  disbursements  which the Bank  shall  incur or
suffer as a result of or arising  from or  relating  to the release of such cash
dominion  accounts.  Lawrence  Jewelry  Co.  and  Rosecraft  shall  execute  all
documents  necessary  to modify  existing  cash  management  services  as deemed
appropriate  by the Bank.  The Borrowers and Fill-Mor  further agree to promptly
take action to eliminate all their cash management  facilities maintained at the
Bank.



<PAGE>



                  5.          Obligations of the Borrowers and Fill-Mor.

                  (a) The Borrowers  shall  continue to maintain  Demand Deposit
Account No.  70978605  ("DDA") at the Bank with a balance of  $43,018.84 as cash
collateral  for stand-by  Letter of Credit  C45186  ("LOC") in favor of the Walt
Disney  Company.  If the LOC is returned  undrawn,  the balance in the DDA shall
revert  to  Rosecraft.  At any  time the LOC is drawn  down to any  extent,  the
balance in the DDA will revert to the Bank as to the amount  drawn down plus all
of the Bank's charges in connection with such drawing;

                  (b) The Borrowers shall maintain  deposit balances at the Bank
sufficient  to satisfy  any unpaid  fees,  interest,  including  interest on the
$750,000.00  owed to the  Bank  under  the  Amended  Settlement  Agreement,  and
expenses  incurred in connection  with the Amended  Settlement  Agreement,  this
Assignment Agreement and the Registration Agreement;

                  (c) Commencing April 3, 1995, the Borrowers shall pay the Bank
a non-refundable  $1,000.00 per week,  payable in advance,  for banking services
provided by the Bank in addition to any and all account  analysis or maintenance
charges due to the Bank from the Borrowers and Fill-Mor;

                  (d) There shall be no  overdrafts  by any of the  Borrowers or
Fill-Mor,  nor shall any of the Borrowers or Fill-Mor  request  payments against
uncollected funds.

                  6. Representations and Warranties of the Bank. The Bank hereby
represents and ------------------------------------------- warrants to Verde:

                  (a)  The  Assigned   Rights  are  not  subject  to  any  prior
assignment,  conveyance,  transfer  or  participation  or  agreement  to assign,
convey, transfer or participate, in whole or in part.

                  (b) The Bank has all requisite  power and authority to execute
and  deliver,  and to  perform  all of its  obligations  under  this  Assignment
Agreement (including, without limitation, the assignment hereunder).

                  (c) The execution, delivery and performance of this Assignment
Agreement  (including,  without limitation,  the assignment  hereunder) has been
duly authorized and does not and will not (i) require any consent or approval of
the Bank's shareholders,  (ii) violate any law, rule, regulation, order, writ or
judgment  presently in effect having  applicability to the Bank or any provision
of the Bank's  charter  or  bylaws,  (iii)  result in a breach or  constitute  a
default  under any  indenture  or loan or  credit  agreement  or other  material
agreement to which the Bank is a party or by which it is bound, (iv) require the
Bank to obtain any authorizations,  consents or approvals,  licenses, exemptions
from or  filings  or  registrations  with  any  person,  party,  entity,  court,
executive or  legislative  body,  governmental  department,  commission,  board,
bureau,  agency or instrumentality,  domestic or foreign,  that the Bank has not
already  obtained,  or (v)  result in the  creation  of any  lien,  encumbrance,
security interest, claim, setoff or charge upon the Assigned Rights.

                  (d) This  Assignment  Agreement and all other  instruments and
documents executed and delivered by the Bank in connection  herewith  constitute
legal,  valid and  binding  obligations  of the Bank  enforceable  against it in
accordance with their respective terms.

                  (e) Except  with regard to the  Retained  Rights and all other
rights and interests  retained by the Bank herein, the Bank has not subordinated
or agreed to subordinate  all or any portion of the Assigned Rights to any other
obligation of the Borrowers or Fill-Mor.


<PAGE>




                  7.  Representations  and  Warranties  of Verde.  Verde  hereby
represents and warrants to the Bank:

                  (a) In  entering  into  this  Assignment  Agreement,  Verde is
acting solely in his individual capacity,  without partners or otherwise.  Verde
has all requisite power and authority to execute and deliver, and to perform all
of his obligations under, this Assignment Agreement.

                  (b) The execution,  delivery and  performance by Verde of this
Assignment  Agreement  and all other  instruments  and  documents  executed  and
delivered by Verde in connection  herewith have been duly  authorized and do not
and will not (i) require  any consent or approval of any other  person or entity
which have not been  obtained,  (ii) violate any law, rule,  regulation,  order,
writ or judgment presently in effect having applicability to any other agreement
to which  Verde is a party,  (iii)  result in a breach or  constitute  a default
under any indenture or loan or credit  agreement or other material  agreement to
which Verde is a party or (iv) require any authorizations, consents or approvals
with any court or governmental department.

                  (c) This Assignment  Agreement,  and all other instruments and
documents  executed and  delivered by Verde in connection  herewith,  constitute
legal,  valid and binding  obligations  of Verde  enforceable  against  Verde in
accordance with their respective terms.

                  (d) Without  implying that the Assigned  Rights or any portion
thereof is a "security"  within the meaning of any  applicable  federal or state
law relating to securities,  (i) Verde is acquiring the Assigned  Rights and any
Distributions  received in respect  thereof for his own account,  and not with a
view to any distribution thereof which would violate applicable securities laws;
(ii) Verde  agrees that he will not at any time sell or otherwise  transfer,  or
permit  the  sale  of  or  other  transfer  of,  the  Assigned   Rights  or  any
Distributions  received  in respect  hereof  other than in  compliance  with the
Securities Act of 1933 as amended (the "Securities  Act"); and (iii) Verde is an
"accredited investor" as defined in Rule 501(a) promulgated under the Securities
Act.

                  (e) Verde  acknowledges  that Verde is a  sophisticated  buyer
with respect to the Assigned Rights and has adequate information  concerning the
business and financial condition of the Borrowers, Fill-Mor and ARTRA to make an
informed  decision  regarding  the  purchase  of the  Assigned  Rights  and  has
independently and without reliance upon the Bank whatsoever (except with respect
to the representations, warranties and covenants expressly contained herein) and
based on such information  that Verde has deemed  appropriate in his independent
judgment,  made his own  analysis  and  decision  to enter into this  Assignment
Agreement.  Without limiting the representations,  warranties and indemnities of
the Bank  hereunder,  Verde further  acknowledges  (i) that certain  information
which may be  pertinent to Verde's  decision to purchase the Assigned  Rights is
available to Verde and can be obtained  from a variety of public  sources,  (ii)
that the  consideration  paid herein for the purchase of the Assigned Rights may
differ  both in kind and amount  from any  distributions  made  pursuant  to any
repayment  by the  Borrowers  or  Fill-Mor  of the  Agreements  (and  that  such
distributions   may  consist  solely  of  securities  or  other   non-negotiable
instruments),  (iii) that the  transfer  of the  Assigned  Rights by the Bank to
Verde is  irrevocable  and is  without  representation,  recourse  or  warranty,
whether  express or  implied,  of any kind or  character  by the Bank  except as
expressly  provided  in this  Assignment  Agreement  and (iv)  that the Bank has
confidential  information  with respect to the  Assigned  Rights that it has not
delivered,  and is not  obligated  to deliver,  to Verde.  Without  limiting the
Bank's  representations and warranties  hereunder,  Verde expressly releases the
Bank from any and all liabilities  arising from Verde's  inability or failure to
review  such  confidential  information  or any  information  that  is  publicly
available and from any other matter referred to in this Section 5(e).


<PAGE>




                  (f)  Verde is not  purchasing  the  Assigned  Rights  with any
monies  invested  by  persons or  entities  protected  under the  United  States
Employee Retirement Income Security Act of 1974, as amended.

                  (g)  Verde  acknowledges  and  agrees  that he has no right or
interest  in and to the  Retained  Rights  and that the  Bank  may  enforce  its
Retained  Rights  and  remedies  against  ARTRA  under  the  Amended  Settlement
Agreement  independently of and without any notice or obligation to Verde or any
other person or entity.

                  8.  Representations and Warranties of the Borrowers,  Fill-Mor
and ARTRA. The Borrowers, Fill-Mor and ARTRA hereby represent and warrant to the
Bank:

                  (a) The Borrowers, Fill-Mor and ARTRA have all requisite power
and  authority to execute and deliver,  and to perform all of their  obligations
under this Assignment Agreement and all instruments and other documents executed
and delivered by the Borrowers, Fill-Mor and ARTRA in connection herewith.

                  (b) The execution,  delivery and performance by the Borrowers,
Fill-Mor and ARTRA of this Assignment Agreement and the execution,  delivery and
performance  by ARTRA of the  Registration  Agreement and Confession of Judgment
and all other instruments and documents executed and delivered by the Borrowers,
Fill-Mor and ARTRA in connection  herewith have been duly  authorized and do not
and will not (i) require any consent or approval of the  Borrowers',  Fill-Mor's
or ARTRA's  partners or  shareholders,  as the case may be,  which have not been
obtained,  (ii)  violate  any law,  rule,  regulation,  order,  writ or judgment
presently in effect having applicability to the Borrowers,  Fill-Mor or ARTRA or
any  provision  of  (x)  any  partnership  agreement  to  which  the  any of the
Borrowers, Fill-Mor or ARTRA is a party or (y) any of the Borrowers', Fill-Mor's
or ARTRA's  charter or bylaws,  (iii) result in a breach or constitute a default
under any indenture or loan or credit  agreement or other material  agreement to
which any of the Borrowers, Fill-Mor or ARTRA is a party or by which any of them
is bound or (iv)  require any  authorizations,  consents or  approvals  with any
court or governmental department.

                  (c) This Assignment  Agreement,  and all other instruments and
documents  executed  and  delivered  by the  Borrowers,  Fill-Mor  and  ARTRA in
connection  herewith,  constitute  legal,  valid and binding  obligations of the
Borrowers,  Fill-Mor  and  ARTRA  and are  enforceable  against  the  Borrowers,
Fill-Mor and ARTRA in accordance with their respective terms.

                  9.   Survival   of   Representations   and   Warranties.   The
representations,  warranties, covenants and indemnities of the parties contained
herein shall survive the consummation of the  transactions  contemplated in this
Assignment Agreement.

                  10. The Bank's Duties; Further Assurances.  (a) The Bank shall
have no duties or  responsibilities  except  those  expressly  set forth in this
Assignment Agreement.  The Bank shall not by reason of this Assignment Agreement
have a fiduciary  relationship  in respect of Verde,  the  Borrowers,  Fill-Mor,
ARTRA or any other  person  or  entity  involved  in the  transaction  described
herein. Nothing in this Assignment Agreement, express or implied, is intended to
or shall be construed so as to impose upon the Bank any obligation in respect of
this Assignment Agreement,  the Amended Settlement Agreement,  Agreements or the
Related  Documents,  except as expressly  set forth herein or therein.  The Bank
shall forward to Verde any notices it receives in  connection  with the Assigned
Rights;  provided,  however,  the Bank shall have no  liability  whatsoever  for
failure to forward any such notice.


<PAGE>



                  (b) The Bank shall deliver,  as soon as practicably  possible,
the physical  collaterals of the Borrowers and Fill-Mor in its possession  after
execution of this Assignment Agreement, Registration Agreement and Confession of
Judgment to Philip E. Ruben,  Esq.,  counsel to the Borrowers and Fill-Mor,  and
acting on behalf of Verde, at the address specified in Section 16 below.

                  (c) The Bank shall execute UCC and other necessary assignments
and terminations relating to the Assigned Rights as requested by Verde. It shall
be  Verde's  sole  obligation  to  prepare  and file all  such  assignments  and
terminations at his own cost.

                  (d) Each party shall execute and deliver all further documents
or  instruments  and take such other actions  reasonably  requested by the other
party in order to effectuate the intent of this Assignment Agreement;  provided,
however,  that  any  actions  taken by the  Bank  shall be at the sole  cost and
expense of Verde, the Borrowers, Fill-Mor or ARTRA as the case may be.

                  11.  Assignments.  The  Bank  shall  have  the  right to sell,
assign,  transfer or  participate  the  Retained  Rights  without the consent of
Verde, the Borrowers, Fill-Mor or ARTRA.

                  12.  Costs and  Expenses;  Interest  Accrued  Prior to Closing
Date.  The  Borrowers,  Fill-Mor and ARTRA shall be  responsible  for all costs,
expenses  or  disbursements  with  respect  to this  Assignment  Agreement,  the
Registration  Agreement,  the Confession of Judgment,  the Agreements or Related
Documents  attributable  to the period prior to and  following the Closing Date,
including the Bank's attorney's fees as provided in the Registration  Agreement.
The Borrowers,  Fill-Mor and ARTRA agree to pay the Bank promptly in immediately
available funds.

                  13. Governing Law. This Assignment Agreement shall be governed
by and  interpreted in accordance with the laws of the State of New York without
regard to conflicts of law principles.

                  14.  Entire   Agreement.   This  Assignment   Agreement,   the
Registration Agreement,  Confession of Judgment and the other documents executed
in connection  herewith set forth the entire agreement and  understanding of the
parties hereto,  and supersede all prior agreements and  understandings  between
the parties hereto with respect to the transactions  contemplated  hereby.  This
Assignment  Agreement  shall be  binding  on, and inure to the  benefit  of, the
parties hereto and their successors and assigns.

                  15.  Modifications.  This  Assignment  Agreement  may  not  be
changed,  waived,  discharged or terminated orally, but only by an instrument in
writing signed by the party against which  enforcement  of such change,  waiver,
discharge or termination is sought.

                  16.  Notices.  All notices between parties shall be in writing
and shall be served either  personally,  by certified mail, by overnight courier
service, or by telecopy.

                           All notices to the Bank shall be given at:

                                    IBJ Schroder Bank & Trust Co.
                                    One State Street
                                    New York, NY  10004
                                    Attention:  Daniel Casher


<PAGE>


                           With a copy to:

                                    Dewey Ballantine
                                    1301 Avenue of the Americas
                                    New York, NY 10019
                                    Attention:  Richard S. Miller, Esq.

                           All notices to Verde shall be given at:

                                    Alexander H. Verde
                                    c/o Alex H. Verde & Sons
                                    3939 N. Wilke Road
                                    Arlington Heights, IL 60004

                           All  notices  to the  Borrowers,  Fill-Mor  and ARTRA
shall be given at:

                                    ARTRA Group, Inc.
                                    500 N. Central Avenue
                                    Northfield, IL 60093

                           With copies of all notices to Verde,  the  Borrowers,
Fill-Mor and ARTRA to:

                                    Kwiatt, Silverman & Ruben, Ltd.
                                    500 N. Central Ave.
                                    Northfield, IL 60093
                                    Attention:  Philip E. Ruben, Esq.

All such notices or communication  shall be deemed to have been given on (i) the
date  received  if  delivered  personally  or  by  courier,  (ii)  the  date  of
transmission  if transmitted by telecopy (if legible and complete upon receipt),
or (iii) three (3)  business  days after the date of posting if  transmitted  by
mail.  Any  party  hereto  may  change  the  address  to which  notice  or other
communications  to it are to be  delivered  or mailed by  written  notice to the
other parties hereto.

                  17.   Severability.   If  any  provision  of  this  Assignment
Agreement  shall for any  reason be held to be invalid  or  unenforceable,  such
invalidity or unenforceability  shall not affect any other provision hereof, but
this Assignment Agreement shall be construed as if such invalid or unenforceable
provision had never been contained herein.

                  18. Counterparts. This Assignment Agreement may be executed in
counterparts  each of which when so executed shall be an original,  but all such
counterparts shall together constitute but one and the same instrument.

                  19.  Jurisdiction;  Immunities;  Waiver of Jury Trial. Each of
the Borrowers, Fill-Mor and ARTRA hereby irrevocably submits to the jurisdiction
of any New York State or United  States  Federal  Court  sitting in the Southern
District of New York over any action or proceeding arising out of or relating to
this   Assignment   Agreement   and  the   payments,   obligations,   covenants,
undertakings,  guarantees and  collateral  interests  agreed to herein,  and any
action or  proceeding  arising out of or relating to the  Assignment  Agreement,
Registration Agreement, Amended Settlement Agreement, or Related Documents. Each
of the Borrowers,  Fill-Mor and ARTRA hereby  irrevocably agrees that all claims
in respect of such actions or  proceedings  may be heard and  determined in such
New York State or  Federal  court.  Each of the  Borrowers,  Fill-Mor  and ARTRA
irrevocably  designates  and appoints CT  Corporation as its agent to receive on
its behalf  service of all  process in any such  proceedings  in any such court,
such service being hereby acknowledged by

<PAGE>


each of the Borrowers, Fill-Mor and ARTRA to be effective and binding service in
every respect. A copy of any such process so served shall be mailed by certified
mail, return receipt requested, to each of the Borrowers,  Fill-Mor and ARTRA at
the addresses specified in Section 16 above. Each of the Borrowers, Fill-Mor and
ARTRA agrees that a final  judgment in any such action or proceeding  (for which
all appeal  periods have expired) shall be conclusive and may be enforced in any
jurisdiction  by suit on the  judgment or in any other  manner  provided by law.
Each of the Borrowers,  Fill-Mor and ARTRA further waives any objection to venue
in such state on the basis of forum non conveniens.

                  The Bank agrees that any action brought  against Verde arising
out of or relating to the Assignment Agreement shall be brought only in Illinois
State or United States Federal  District Court sitting in the Northern  District
of Illinois.  Verde hereby irrevocably agrees that all claims in respect of such
actions or  proceedings  may be heard and  determined in such Illinois  State or
Federal court.  Verde  irrevocably  designates  and appoints CT Corporation  and
Philip E.  Ruben,  Esq.  as his agents to  receive on his behalf  service of all
process in any such  proceedings  in any such court,  such  service on either CT
Corporation or Philip E. Ruben,  Esq. being hereby  acknowledged  by Verde to be
effective and binding  service in every  respect.  A copy of any such process so
served shall be mailed by certified mail, return receipt requested,  to Verde at
the address specified in Section 16 above. Verde agrees that a final judgment in
any such action or proceeding  (for which all appeal periods have expired) shall
be conclusive and may be enforced in any jurisdiction by suit on the judgment or
in any other manner provided by law.

                  Each of the  Borrowers,  Fill-Mor,  ARTRA  and  Verde  further
agrees that any action or proceeding  brought against the Bank arising out of or
relating to the Assignment Agreement, Registration Agreement, Amended Settlement
Agreement and any  obligation,  guarantee,  or undertaking  issued in connection
therewith shall be brought only in New York State or United States Federal Court
sitting in the Southern District of New York.

                  Nothing in this  Section 19 shall affect the right of the Bank
to serve legal process in any other manner  permitted by law or affect the right
of the Bank to bring any  action or  proceeding  against  any of the  Borrowers,
Fill-Mor,  ARTRA or Verde or any of their respective properties in the courts of
any other jurisdictions.

                  To the  extent  that  any or all of the  Borrowers,  Fill-Mor,
ARTRA or Verde has or hereafter  may acquire any immunity from  jurisdiction  of
any  court or from  any  legal  process  (whether  through  service  or  notice,
attachment  prior to  judgment,  attachment  in aid of  execution,  execution or
otherwise)  with  respect  to itself  or its  property,  each of the  Borrowers,
Fill-Mor,  ARTRA and Verde hereby irrevocably waives such immunity in respect of
its or his respective obligations, undertaking and guarantees entered into under
or in connection with this Assignment Agreement.

                  EACH OF THE  BORROWERS,  FILL-MOR,  ARTRA AND VERDE,  WITH THE
ADVICE OF COUNSEL,  WAIVES ITS RIGHT TO A JURY TRIAL IN ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS  ASSIGNMENT  AGREEMENT  AND THE  OBLIGATIONS,
UNDERTAKINGS  AND GUARANTEES  AGREED TO HEREUNDER AND ARISING OUT OF OR RELATING
TO THE REGISTRATION AGREEMENT, AMENDED SETTLEMENT AGREEMENT, AGREEMENTS, RELATED
DOCUMENTS AND OTHER LOAN DOCUMENTS AND THE FILL-MOR CREDIT AGREEMENT,  INCLUDING
BUT NOT LIMITED TO ALL NOTES, MORTGAGES,  SECURITY AGREEMENTS, PLEDGE AGREEMENTS
AND LEASEHOLD AGREEMENTS.

                  20. Confidentiality of Terms. The Purchase Price and the basis
upon which it is calculated shall remain confidential and shall not be disclosed
by any party without the written consent of the other parties hereto,  except to
the  extent  such  disclosure  is  required  by  applicable  law.  In the  event
disclosure  is ordered by a court of competent  jurisdiction,  the parties shall
request that such disclosure be made in camera and kept under seal of the court.


<PAGE>



                  21. Indemnity.  (a) Verde agrees to indemnify the Bank and its
officers,  directors,   trustees,  employees,  agents  and  controlling  persons
(collectively,  the "Bank  Indemnities")  against and hold the Bank  Indemnities
harmless from any and all liabilities,  obligations, losses, damages, penalties,
actions,  judgments,   suits,  costs,  expenses  and  disbursements,   including
reasonable attorneys fees and disbursements (collectively,  "Liabilities") which
the Bank  Indemnities  shall  incur or suffer as a result of or arising  from or
relating  to the  breach of a  representation,  warranty  or  covenant  of Verde
contained herein.

                  (b) The Bank agrees to indemnify  Verde against and hold Verde
harmless from any and all  Liabilities  which Verde shall incur or suffer solely
as a result of or arising  from or  relating  to the breach of a  representation
warranty or covenant of the Bank contained herein.

                  (c) The  Borrowers,  Fill-Mor and ARTRA agree to indemnify the
Bank Indemnities against and hold the Bank Indemnities harmless from any and all
Liabilities  which the Bank Indemnities shall incur or suffer solely as a result
of or arising  from or relating to the breach of a  representation,  warranty or
covenant of the Borrowers, Fill-Mor or ARTRA contained herein.

                  IN WITNESS  WHEREOF,  the undersigned  have duly executed this
Assignment Agreement as of the date first above written.


                               [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


<PAGE>


                          THE LORI CORPORATION

                          By:_________________________
                              Name: Austin Iodice
                                Title: President
                             An Authorized Officer


                         LAWRENCE JEWELRY CO.


                         By:___________________________
                              Name: Austin Iodice
                                Title: Chairman
                             An Authorized Officer


                          LAWRENCE JEWELRY CORPORATION


                          By:_________________________
                              Name: Austin Iodice
                                Title: Chairman
                             An Authorized Officer


                          NEW DIMENSIONS ACCESSORIES,  LTD.


                         By:___________________________
                              Name: Austin Iodice
                                Title: Chairman
                             An Authorized Officer


                                ROSECRAFT, INC.


                          By:___________________________
                              Name: Austin Iodice
                                Title: Chairman
                             An Authorized Officer


                            FILL-MOR HOLDINGS, INC.


                          By:___________________________
                             Name: Peter R. Harvey
                             Title: Vice President
                             An Authorized Officer



<PAGE>



                           ARTRA GROUP, Incorporated


                       By:___________________________
                             Name: Peter R. Harvey
                                Title: President
                             An Authorized Officer


                       IBJ SCHRODER BANK & TRUST COMPANY


                       By:___________________________
                              Name: Daniel Casher
                             Title: Vice President
                             An Authorized Officer


                             ALEXANDER H. VERDE


                       By:___________________________
                            Name: Alexander H. Verde





                                  EXHIBT 10.2


                     REGISTRATION AND SETTLEMENT AGREEMENT


                  THIS  REGISTRATION AND SETTLEMENT  AGREEMENT dated as of March
31, 1995 (the "Registration Agreement") by and between ARTRA GROUP Incorporated,
a Pennsylvania  corporation  ("ARTRA") and IBJ Schroder Bank & Trust Company,  A
New York banking  corporation  (together with its  successors  and assigns,  the
"Bank").

                  WHEREAS, ARTRA, certain of its affiliates  (collectively,  the
"ARTRA  Group")  and the Bank are  parties  to  certain  notes,  agreements  and
guarantees (hereinafter collectively referred to as the "Agreements");

                  WHEREAS, the ARTRA Group and the Bank agreed to compromise and
settle  the  Obligations  of the  ARTRA  Group  under  the  Agreements  (as such
Obligations  are  defined  within  the  Agreements)  for  an  aggregate   amount
substantially less than the amounts due and owing under the Agreements  pursuant
to the Settlement  Agreement  dated as of August 18, 1994 by and among the ARTRA
Group and the Bank (the "Settlement Agreement");

                  WHEREAS,  upon the request of the ARTRA Group, the Bank agreed
to again  forbear  from  enforcing  its  rights and  remedies  under each of the
Agreements  and  other  related  documents  pursuant  to  that  certain  Amended
Settlement Agreement dated December 23, 1994 (the "Amended Settlement
Agreement");

                  WHEREAS,  pursuant to the Amended Settlement Agreement,  ARTRA
agreed to  register  the  100,000  shares of ARTRA stock held in the name of the
Bank (as defined in the Settlement Agreement,  the "ARTRA Shares") in connection
with the Settlement Agreement;

                  WHEREAS,  pursuant to the Amended  Settlement  Agreement,  the
ARTRA Group agreed to pay to the Bank an additional Seven Hundred Fifty Thousand
Dollars ($750,000.00), plus interest at the rate of 12% per annum (calculated on
a 360 day year), no later than March 31, 1995;

                  WHEREAS,  ARTRA and the Bank desire to  discharge  any further
financial  obligations owed by the ARTRA Group to the Bank under the Agreements,
the Settlement Agreement, the Amended Settlement Agreement and all other related
documents;

                  WHEREAS,   ARTRA  and  the  Bank  desire  that  ARTRA  provide
registration  for the  ARTRA  Shares,  and to cause  such  shares  to be  freely
tradable  without  restriction of any kind in accordance  with Section 2.3(b) of
the Amended Settlement Agreement. <PAGE>

                  NOW,  THEREFORE,  in  consideration  of the  promises  and the
mutual agreements contained herein, the undersigned hereby agree as follows:

                  1.  Registration of ARTRA Shares.  On or before July 31, 1995,
ARTRA  shall  cause  the ARTRA  Shares  to be  registered  and  approved  by all
necessary  authorities  and  agencies  to  enable  all such  shares to be freely
tradable  and without  restriction  of any kind.  ARTRA shall bear all costs and
expenses  arising  out of or relating to the  registration  and  issuance of the
ARTRA  Shares.  The  Bank  shall  have  no  liability  of any  kind,  nature  or
description  concerning  preparation,  filing or  dissemination of the necessary
documents  or for the contents  thereof.  Within 5 days of  registration  of the
ARTRA Shares,  ARTRA shall forward to the Bank  $10,000.00 in readily  available
funds as  reimbursement  for costs,  fees and  expenses  incurred by the Bank in
connection with this Registration  Agreement and the Assignment  Agreement among
ARTRA, The Lori  Corporation,  Lawrence Jewelry Co., Lawrence Jewelry Corp., New
Dimensions Accessories, Ltd., Rosecraft, Inc., Fill-Mor Holding, Inc., Alexander
Verde and the Bank,  executed  concurrently  with this  Registration  Agreement.
ARTRA shall promptly  provide to the Bank any and all amendments to the Form S-1
and any and all  correspondence  between ARTRA and the  Securities  and Exchange
Commission relating to the Form S-1;

                  2. ARTRA  Shares  Put.  In the event the ARTRA  Shares are not
registered by July 31, 1995 as contemplated  in Paragraph 1 above,  the Bank, at
its sole  option,  shall have the right to require  ARTRA to purchase  the ARTRA
Shares on July 31, 1995 or at any time  thereafter at the discretion of the Bank
for an exercise price equal to $500,000.00  (the "ARTRA Shares Put").  The ARTRA
Shares Put shall be exercised  upon  issuance by the Bank of written  demand for
payment  ("Written  Demand").  ARTRA will deliver readily available funds on the
third  business  day  after  receipt  of the  Bank's  Written  Demand.  Promptly
following receipt by the Bank of payment in full by ARTRA of the amount required
to be paid under this ARTRA Shares Put, the Bank shall  deliver the ARTRA Shares
to ARTRA. Prior to the Bank's execution of the ARTRA Shares Put, nothing in this
Paragraph 2 or otherwise precludes the Bank from selling all or any of the ARTRA
Shares at any time before or after July 31,  1995,  to any person that the Bank,
in the sole exercise of its discretion and judgment,  deems to be an appropriate
purchaser for an appropriate  price.  There shall no  restrictions on the Bank's
ability to market or sell the ARTRA shares.

                  3.  Confession  of Judgment.  If for any reason ARTRA fails to
perform its obligations under the ARTRA Shares Put, ARTRA hereby unconditionally
and irrevocably authorizes any attorney of any court of record to (a) appear for
it in such court,  in term time or vacation,  at any time after the date hereof,
(b) confess a judgment  against ARTRA,  without  process or notice to ARTRA,  in
favor of the Bank for  $500,000.00,  plus interest of $5,000.00,  and reasonable
costs of collection, including attorney's fees, of $5,000.00 plus disbursements,
(c) waive and release all errors which may intervene in any such proceedings and
consent  to  immediate  execution  upon  such  judgment.  By  execution  of this
Registration  Agreement,  ARTRA  hereby  ratifies  and  confirms  all that  said
attorney  may  do  pursuant  to  the  provisions  of  the  previous   sentences.
Notwithstanding the fact that the Complaint for enforcement of the Confession of
Judgment has not been executed  concurrently with execution of the Confession of
Judgment,  ARTRA waives any and all and releases all defenses,  claims, set-offs
or  counterclaims  whatsoever it may have to  enforcement  of the  Confession of
Judgment  or the  Registration  Agreement  and will not seek to open,  appeal or
dispute the Confession of Judgment  pursuant to Illinois  Supreme Court Rule 276
or  otherwise.  ARTRA  agrees  that  concurrently  with  the  execution  of this
Registration  Agreement,  its attorney  will execute a Confession of Judgment in
the form  substantially  the same as Exhibit "A" attached hereto and made a part
hereof (the "Confession of Judgment"). ARTRA agrees that it shall not in any way
defend  against the Bank's  enforcement  of the  Confession  of Judgment.  ARTRA
further  agrees to execute and deliver to the Bank  immediately  upon the Bank's
request any further  documents as may be necessary to effectuate and enforce the
Confession  of  Judgment.  ARTRA  hereby  irrevocably  grants  the Bank power of
attorney, coupled with an interest, to take all such action and perform all such
acts in ARTRA's  name and in its behalf as  ARTRA's  attorney  that the Bank may
deem  necessary or advisable  in its sole  discretion,  fully to all intents and
purposes  as  ARTRA  might  or  could  do if  personally  present,  enforce  the
Confession  of  Judgment,  including,  but not  limited  to, the  Confession  of
Judgment and duplicates thereof.
 <PAGE>

                  4. This  Agreement  shall be binding upon,  and shall inure to
the benefit of, ARTRA, the Bank and their respective successors and assigns.

                  5.  Representations  and  Warranties  of ARTRA.  ARTRA  hereby
represents and warrants to the Bank:

                  (a) ARTRA has all requisite power and authority to execute and
deliver,  and to  perform  all of  their  obligations  under  this  Registration
Agreement  and all  instruments  and other  documents  executed and delivered by
ARTRA in connection herewith.

                  (b) The execution,  delivery and  performance by ARTRA of this
Registration  Agreement,  Confession of Judgment and all other  instruments  and
documents executed and delivered by ARTRA in connection  herewith have been duly
authorized  and do not and will not (i)  require  any  consent  or  approval  of
ARTRA's  partners  or  shareholders,  as the  case may be,  which  have not been
obtained,  (ii)  violate  any law,  rule,  regulation,  order,  writ or judgment
presently in effect  having  applicability  to ARTRA or any provision of (x) any
partnership  agreement  to  which  ARTRA is a party or (y)  ARTRA's  charter  or
bylaws,  (iii) result in a breach or constitute a default under any indenture or
loan or credit  agreement or other material  agreement to which ARTRA is a party
or by  which  it is  bound  or (iv)  require  any  authorizations,  consents  or
approvals with any court or governmental department.

                  (c) This  Registration  Agreement and  Confession of Judgment,
and all other  instruments  and  documents  executed  and  delivered by ARTRA in
connection  herewith,  constitute legal, valid and binding  obligations of ARTRA
and are enforceable against ARTRA in accordance with their respective terms.

                  6. Assignments. The Bank shall have the right to sell, assign,
transfer or participate  the Retained  Rights without the consent of Verde,  the
Borrowers, Fill-Mor or ARTRA.

                  7.  Governing  Law.  This  Registration   Agreement  shall  be
governed by and interpreted in accordance with the laws of the State of New York
without regard to conflicts of law principles.

                  8.  Entire  Agreement.   This  Registration   Agreement,   the
Confession of Judgment and the other documents  executed in connection  herewith
set forth the entire  agreement and  understanding  of the parties  hereto,  and
supersede all prior  agreements  and  understandings  between the parties hereto
with  respect  to  the  transactions   contemplated  hereby.  This  Registration
Agreement  shall be binding on, and inure to the benefit of, the parties  hereto
and their successors and assigns.

                  9.  Modifications.  This  Registration  Agreement  may  not be
changed,  waived,  discharged or terminated orally, but only by an instrument in
writing signed by the party against which  enforcement  of such change,  waiver,
discharge or termination is sought.

                  10.  Notices.  All notices between parties shall be in writing
and shall be served either  personally,  by certified mail, by overnight courier
service, or by telecopy.

                           All notices to the Bank shall be given at:

                                    IBJ Schroder Bank & Trust Co.
                                    One State Street
                                    New York, NY  10004
                                    Attention:  Daniel Casher

                           With a copy to:

                                    Dewey Ballantine
                                    1301 Avenue of the Americas
                                    New York, NY 10019
                                    Attention:  Richard S. Miller, Esq.

                           All notices to ARTRA shall be given at:

                                    ARTRA Group, Inc.
                                    500 N. Central Ave.
                                    Northfield, IL 60093

                           With a copy to:

                                    Kwiatt, Silverman & Ruben, Ltd.
                                    500 N. Central Ave.
                                    Northfield, IL 60093
                                    Attention:  Philip E. Ruben, Esq.

                  All such notices or communication shall be deemed to have been
given on (i) the date received if delivered  personally or by courier,  (ii) the
date of  transmission  if  transmitted by telecopy (if legible and complete upon
receipt),  or (iii)  three  (3)  business  days  after  the date of  posting  if
transmitted  by mail. Any party hereto may change the address to which notice or
other  communications  to it are to be delivered or mailed by written  notice to
the other parties hereto. <PAGE>

11. Severability.  If any provision of this Registration Agreement shall for any
reason  be  held  to  be   invalid  or   unenforceable,   such   invalidity   or
unenforceability   shall  not  affect  any  other  provision  hereof,  but  this
Registration  Agreement  shall be construed as if such invalid or  unenforceable
provision had never been contained herein.

                  12. Counterparts.  This Registration Agreement may be executed
in  counterparts  each of which when so executed  shall be an original,  but all
such counterparts shall together constitute but one and the same instrument.

                  13.  Jurisdiction;  Immunities;  Waiver of Jury  Trial.  ARTRA
hereby  irrevocably  submits to the jurisdiction of any New York State or United
States  Federal  Court  sitting in the  Southern  District  of New York over any
action or proceeding arising out of or relating to this Registration  Agreement.
ARTRA  hereby  irrevocably  agrees that all claims in respect of such actions or
proceedings may be heard and determined in such New York State or Federal court.
ARTRA irrevocably designates and appoints CT Corporation as its agent to receive
on its behalf service of all process in any such  proceedings in any such court,
such service  being  hereby  acknowledged  by ARTRA to be effective  and binding
service in every  respect.  A copy of any such process so served shall be mailed
by certified mail, return receipt  requested,  to ARTRA at the address specified
in Paragraph 9 above.  ARTRA agrees that a final  judgment in any such action or
proceeding  (for which all appeal  periods have expired) shall be conclusive and
may be  enforced  in any  jurisdiction  by suit on the  judgment or in any other
manner  provided by law.  ARTRA  further  waives any  objection to venue in such
state on the basis of forum non conveniens. ARTRA further agrees that any action
or  proceeding  brought  against  the Bank  arising  out of or  relating  to the
Registration Agreement and any obligation,  guarantee,  or undertaking issued in
connection  therewith  shall be brought only in New York State or United  States
Federal Court sitting in the Southern District of New York.

                  Nothing in this paragraph 12 shall affect (i) the right of the
Bank to serve legal  process in any other manner  permitted by law or affect the
right of the Bank to bring any action or proceeding  against ARTRA or any of its
respective properties in the courts of any other jurisdictions;  (ii) the rights
previously agreed to in any preexisting agreement,  guarantee or pledge executed
by any of ARTRA with or in favor of the Bank  regarding  the  subject  matter of
this  paragraph  12; or (iii)  the  acknowledgments,  waivers  of  defenses  and
releases  issued  by ARTRA in  favor of the Bank and the  agreement  of ARTRA to
turnover to and give  peaceful  possession of the  collateral  now or previously
granted to the Bank.

                  To the extent  that ARTRA has or  hereafter  may  acquire  any
immunity  from  jurisdiction  of any  court or from any legal  process  (whether
through service or notice,  attachment  prior to judgment,  attachment in aid of
execution, execution or otherwise) with respect to itself or its property, ARTRA
hereby   irrevocably  waives  such  immunity  in  respect  of  its  obligations,
undertaking  and  guarantees  entered  into  under or in  connection  with  this
Registration Agreement.

                  ARTRA, WITH THE ADVICE OF COUNSEL,  WAIVES ITS RIGHT TO A JURY
TRIAL  IN  ANY  ACTION  OR  PROCEEDING  ARISING  OUT  OF  OR  RELATING  TO  THIS
REGISTRATION AGREEMENT OR THE CONFESSION OF JUDGMENT.









                               [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]



<PAGE>


                  IN  WITNESS   WHEREOF,   the  parties   have   executed   this
Registration and Settlement Agreement as of the date first above written.

                            ARTRA GROUP INCORPORATED



                         By:___________________________
                             Name: Peter R. Harvey
                                Title: President
                             An Authorized Officer
                             Executed in Northfield, Illinois

Sworn to before me this
7th day of April, 1995



         Notary Public


                           IBJ SCHRODER BANK & TRUST
COMPANY


                       By:___________________________
                              Name: Daniel Casher
                             Title: Vice President
                             An Authorized Officer
                         Executed in New York, New York

Sworn to before me this
7th day of April, 1995



         Notary Public



                                                                     EXHIBIT 11
                            ARTRA GROUP INCORPORATED
                    COMPUTATION OF EARNINGS (LOSS) PER SHARE
                      AND EQUIVALENT SHARE OF COMMON STOCK
 for the years ended December 29, 1994, December 30, 1993 and December 31, 1992
                (In thousands of dollars, except per share data)

<TABLE>
<CAPTION>
                                                                           
                                                                                     Fiscal Year
                                                                          -------------------------------           
       Line                                                                 1994        1993        1992
                                                                          -------     -------     -------
       <S>                                                               <C>         <C>        <C>
       AVERAGE SHARES OUTSTANDING

        1    Weighted average number of shares of common stock
               outstanding during the period                                5,702       4,823       4,372
        2    Net additional shares assuming stock options and warrants
               exercised and proceeds used to purchase treasury shares                     85
                                                                          -------     -------     -------
        3    Weighted average number of shares and equivalent shares
               of common stock outstanding during the period                5,702       4,908       4,372
                                                                          =======     =======      ======

       EARNINGS (LOSS)

        4    Loss from continuing operations                             $(29,435)   $ (8,543)   $(38,302)
        5    Less dividends applicable to redeemable preferred stock         (516)       (471)       (431)
        6    Less redeemable common stock accretion                          (309)       (243)       (511)
                                                                          --------    --------    -------- 
        7    Amount for per share computation                            $(30,260)   $ (9,257)   $(39,244)
                                                                         ========    ========    ======== 

        8    Loss before extraordinary credit                            $(29,435)   $ (8,543)   $(37,972)
        9    Less dividends applicable to redeemable preferred stock         (516)       (471)       (431)  
       10    Less redeemable common stock accretion                          (309)       (243)       (511)
                                                                         --------    --------    --------
       11    Amount for per share computation                            $(30,260)   $ (9,257)   $(38,914)
                                                                         ========    ========    ======== 

       12    Net earnings (loss)                                         $(20,470)   $ 13,514    $(37,972)
       13    Less dividends applicable to redeemable preferred stock         (516)      (471)        (431)
       14    Less redeemable common stock accretion                          (309)      (243)        (511)
                                                                         --------    --------    --------
       15    Amount for per share computation                            $(21,295)   $ 12,800    $(38,914)
                                                                         ========    ========    ======== 

       PER SHARE AMOUNTS

             Loss from continuing operations
             (line 7 / line 3)                                           $  (5.30)   $  (1.88)   $  (8.98)         
                                                                         ========    ========    ========          
      
             Loss before extraordinary credit
             (line 11 / line 3)                                          $  (5.30)      (1.88)      (8.90)
                                                                         ========    ========    ======== 
         
             Net loss
             (line 15 / line 3)                                          $  (3.73)   $   2.61    $  (8.90)
                                                                         ========    ========    ======== 
                                                                         
</TABLE>
       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 the period.  Fully
       diluted  earnings  (loss) per share are not presented since the result is
       equivalent to primary earnings (loss) per share.


>


                                                                      EXHIBIT 22
                                  SUBSIDIARIES
                             (As of April 12, 1995)


                          ARTRA GROUP INCORPORATED (1)
                                        |
                                        |
                                        |
     A. G.            Fill-Mor        ARTRA        ARTRA            BCA
Holding Corp. (2)  Holding Inc (2)  Resources  Subsidiary Inc.  Holdings Inc.
                         100 %      Corp. (2)    100 % (3)         100 %(2)
                          |           100 %                          |
                          |                                Bagcraft Corporation
                          |                                   of America (2)
                          |                                         100 %
                       The Lori                                      |
                     Corporation (2)                        Graphics, Inc. (3)
                         64.3 %                                     100 %
                          |
                          |
                          |
       New         Rosecraft, Inc. (1)  Lawrence Jewelry
   Dimensions*          100 %            Corporation (1)
Accessories, Ltd.(4)                           100 %
      100 %




(1)  Pennsylvania Corporation      (3) lllinois Corporation
(2)  Delaware Corporation          (4) New York Corporation

 *   Effective December 27, 1994 New Dimensions ceased operations.


                                                                      EXHIBIT 24


                       CONSENT OF INDEPENDENT ACCOUNTANTS


We consent to the  incorporation by reference in the  registration  statement of
ARTRA GROUP  Incorporated  on Form S-8 (File No.  2-61375) of our report,  which
includes an explanatory  paragraph  referring to an  uncertainty  concerning the
Company's  ability to continue as a going  concern,  dated April 12, 1995 on our
audits  of  the  consolidated   financial  statements  and  financial  statement
schedules of ARTRA GROUP  Incorporated  as of December 29, 1994 and December 30,
1993,  and for each of the three fiscal  years in the period ended  December 29,
1994, which report is included in this Annual Report on Form 10-K.






COOPERS & LYBRAND L.L.P.


Chicago, Illinois
April 12, 1995


<TABLE> <S> <C>


<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM FORM 10-K FOR THE YEAR
ENDED  DECEMBER 29, 1994 AND IS  QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FORM 10-K.
</LEGEND>
<CIK>                                       0000200243
<NAME>                        ARTRA GROUP INCORPORATED
<MULTIPLIER>                                     1,000
<CURRENCY>                                     dollars
       
<S>                             <C>
<PERIOD-TYPE>                   12-mos
<FISCAL-YEAR-END>                           DEC-29-1994
<PERIOD-START>                              DEC-31-1994
<PERIOD-END>                                DEC-29-1994
<EXCHANGE-RATE>                                 1.000
<CASH>                                          2,070
<SECURITIES>                                       0
<RECEIVABLES>                                  15,361
<ALLOWANCES>                                    1,654
<INVENTORY>                                    20,268
<CURRENT-ASSETS>                               38,537
<PP&E>                                         48,150
<DEPRECIATION>                                 17,110
<TOTAL-ASSETS>                                 93,429
<CURRENT-LIABILITIES>                          98,989
<BONDS>                                             0
<COMMON>                                        5,052
                          17,170
                                         0
<OTHER-SE>                                    (68,812)
<TOTAL-LIABILITY-AND-EQUITY>                   93,429
<SALES>                                       152,115 
<TOTAL-REVENUES>                              152,115
<CGS>                                         119,081
<TOTAL-COSTS>                                 119,081
<OTHER-EXPENSES>                               51,731 
<LOSS-PROVISION>                                    0
<INTEREST-EXPENSE>                             10,655
<INCOME-PRETAX>                               (29,352)
<INCOME-TAX>                                       83
<INCOME-CONTINUING>                           (29,435)
<DISCONTINUED>                                      0
<EXTRAORDINARY>                                 8,965
<CHANGES>                                           0
<NET-INCOME>                                  (20,470)
<EPS-PRIMARY>                                   (3.73)
<EPS-DILUTED>                                       0
        



</TABLE>


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