ARTRA GROUP INC, 10-Q, 1995-05-19

ARTRA GROUP INC
10-Q, 1995-05-19
COSTUME JEWELRY & NOVELTIES

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 30, 1995

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES 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)

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

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

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

Not Applicable
------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report

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
--- ---

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 April 30, 1995
------------------------------- -----------------------------
Common stock, without par value 6,722,420

<PAGE>

ARTRA GROUP INCORPORATED

INDEX

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

PART I FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets
March 30, 1995 and December 29, 1994 2

Condensed Consolidated Statements of Operations
Three Months Ended March 30, 1995 and March 31, 1994 4

Condensed Consolidated Statement of Changes
in Shareholders' Equity (Deficit)
Three Months Ended March 30, 1995 5

Condensed Consolidated Statements of Cash Flows
Three Months Ended March 30, 1995 and March 31, 1994 6

Notes to Consolidated Financial Statements 7

Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 24

PART II OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K 34

SIGNATURES 35
</TABLE>

<PAGE>

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

<TABLE>

ARTRA GROUP INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited in thousands)

March 30, December 29,
1995 1994
-------- --------
<S> <C> <C>

ASSETS
Current assets:
Cash and equivalents .................................................. $ 329 $ 2,070
Restricted cash and equivalents ....................................... 511 1,324
Receivables, less allowance for doubtful accounts
and markdowns of $1,402 in 1995 and $1,654 in 1994 ................. 12,183 13,707
Inventories ........................................................... 24,633 20,268
Other ................................................................. 1,290 1,148
-------- --------
Total current assets ...................................... 38,946 38,517
-------- --------

Property, plant and equipment ............................................ 48,820 48,150
Less accumulated depreciation and amortization ........................... 18,124 17,110
-------- --------
30,696 31,040
-------- --------
Other assets:
Excess of cost over net assets acquired,
net of accumulated amortization of $8,330 in 1995 and $7,934 in 1994 18,246 19,076
Other ................................................................. 5,051 4,796
-------- --------
23,297 23,872
-------- --------
$ 92,939 $ 93,429
======== ========

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

ARTRA GROUP INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited in thousands, except share data)

March 30, December 29,
1995 1994
-------- --------
<S> <C> <C>

LIABILITIES
Current liabilities:
Notes payable, including amounts due to related parties
of $6,628 in 1995 and $5,669 in 1994 ................................ $ 29,413 $ 28,053
Current maturities of long-term debt .................................... 36,380 37,521
Accounts payable ........................................................ 20,772 16,788
Accrued expenses ........................................................ 17,429 16,533
Income taxes ............................................................ 311 94
--------- ---------
Total current liabilities ................................... 104,305 98,989
--------- ---------

Long-term debt ............................................................. 17,233 19,673
Debt subsequently discharged ............................................... 9,750

Other noncurrent liabilities ............................................... 1,502 1,463
Commitments and contingencies

Redeemable common stock,
issued 379,679 shares in 1995 and 279,679 shares in 1994 ................ 4,723 4,144
ARTRA redeemable preferred stock payable to a related party,
$1,000 par value; Series A, 6% cumulative payment-in-kind,
including accumulated dividends, net of unamortized discount of
of $1,780 in 1995 and $1,842 in 1994; redeemable March 1, 2000
at $1,000 per share plus accrued dividends;
authorized 2,000,000 shares all series; issued 3,750 shares ............. 3,264 3,129
Bagcraft redeemable preferred stock payable to a related party, cumulative $.01
par value, 13.5%; including accumulated dividends; redeemable in 1997 with a
liquidation preference equal to $100 per share;
50,000 shares authorized and issued ..................................... 10,288 10,119
BCA Holdings preferred stock payable to a related party, $1.00 par value,
Series A, 6% cumulative; including accumulated dividends;
liquidation preference of $1,000 per share;
10,000 shares authorized; issued 3,675 shares ........................... 3,977 3,922

SHAREHOLDERS' EQUITY (DEFICIT)
Common stock, no par value; authorized 7,500,000 shares;
issued 6,399,779 shares in 1995 and 6,455,602 shares in 1994 ........... 5,085 5,052
Additional paid-in capital ................................................. 36,289 36,613
Receivable from related party, including accrued interest .................. (4,212) (4,100)
Accumulated deficit ........................................................ (88,710) (94,520)
--------- ---------
(51,548) (56,955)
Less treasury stock (57,038 shares), at cost ............................... 805 805
--------- ---------
(52,353) (57,760)
--------- ---------
$ 92,939 $ 93,429
========= =========
<FN>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
</FN>
</TABLE>

ARTRA GROUP INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

Three Months Ended
-----------------------
March 30, March 31,
1995 1994
-------- --------
<S> <C> <C>

Net sales .......................................................... $ 35,075 $ 36,040
-------- --------

Costs and expenses:
Cost of goods sold, exclusive of depreciation and amortization .. 27,539 26,663
Selling, general and administrative ............................. 6,892 8,280
Depreciation and amortization ................................... 1,309 1,454
-------- --------
35,740 36,397
-------- --------

Operating loss ..................................................... (665) (357)
-------- --------

Other income (expense):
Interest expense ................................................ (2,195) (2,499)
Other income, net ............................................... 4 38
-------- --------
(2,191) (2,461)
-------- --------

Loss from operations before income taxes and minority interest ..... (2,856) (2,818)
Provision for income taxes ......................................... (10) (21)
Minority interest .................................................. (224) (218)
-------- --------
Loss before extraordinary credit ................................... (3,090) (3,057)
Extraordinary credit, net discharge of indebtedness ................ 9,113
-------- --------
Net earnings (loss) ................................................ 6,023 (3,057)
Dividends applicable to redeemable preferred stock ................. (135) (123)
Reduction of retained earnings applicable to redeemable common stock (78) (43)
-------- --------
Earnings (loss) applicable to common shares ........................ $ 5,810 ($ 3,223)
======== ========

Earnings (loss) per share:
Loss before extraordinary credit ................................ ($ .49) ($ .62)
Extraordinary credit ............................................ 1.35
-------- --------
Net earnings ........................................ $ .86 ($ .62)
======== ========
(loss)

Weighted average number of shares of common stock and
common stock equivalents outstanding ............................ 6,741 5,186
======== ========

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

</FN>
</TABLE>

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

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

Balance at December 29, 1994 .......... 6,455,602 $ 5,052 $ 36,613 ($4,100) ($94,520) 57,038 ($805) ($57,760)
Net earnings ....................... 6,023 6,023
Reclassification of
redeemable common stock .......... (100,000) (500) (500)
Common stock issued to
pay liabilities .................. 37,279 28 146 174
Net (increase) decrease in
receivable from related party,
including accrued interest ....... (112) (112)
Redeemable common stock accretion .. (78) (78)
Redeemable preferred stock dividends (135) (135)
Common stock issued as compensation 6,898 5 30 35
--------- ------- -------- ------- -------- ------ ----- --------
Balance at March 30, 1995 ............. 6,399,779 $ 5,085 $ 36,289 ($4,212) ($88,710) 57,038 ($805) ($52,353)
========= ======= ======== ======= ======== ====== ===== ========

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

<TABLE>

ARTRA GROUP INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited in thousands)

Three Months Ended
-----------------------
March 30, March 31,
1995 1994
-------- --------
<S> <C> <C>

Net cash flows from (used by) operating activities, ......... $ 455 ($ 2,472)
-------- --------

Cash flows from investing activities:
Additions to property, plant and equipment ............... (647) (1,048)
Retail fixtures .......................................... (338) (97)
Payment of liabilites with restricted cash ............... 550
(Increase) decrease in unexpended plant construction funds 263 (6,800)
-------- --------
Net cash flows used by investing activities ................. (172) (7,945)
-------- --------

Cash flows from financing activities:
Net increase (decrease) in short-term debt ............... 1,460 (492)
Proceeds from long-term borrowings ....................... 31,746 41,273
Reduction of long-term debt .............................. (35,406) (31,264)
Other .................................................... 176 52
-------- --------
Net cash flows from (used by) financing activities .......... (2,024) 9,569
-------- --------

Increase (decrease) in cash and cash equivalents ............ (1,741) (848)
Cash and equivalents, beginning of period ................... 2,070 1,935
-------- --------
Cash and equivalents, end of period ......................... $ 329 $ 1,087
======== ========

Supplemental cash flow information: Cash paid during the period for:
Interest .................................................. $ 1,487 $ 1,117
Income taxes paid, net .................................... 5 21

Supplemental schedule of noncash investing and financing activities:
Issue common stock and redeemable common stock
to pay down current liabilities ...................... 174 118

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

<PAGE>

ARTRA GROUP INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. FINANCIAL RESTRUCTURING AND BASIS OF PRESENTATION

ARTRA Group Incorporated 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 and
accessories. The packaging products business is conducted by the Company's
wholly-owned subsidiary, Bagcraft Corporation of America ("Bagcraft"). The
jewelry business in 1995 is conducted by the 64.3% owned subsidiary, The Lori
Corporation ("Lori"), through its two wholly-owned subsidiaries Lawrence Jewelry
Corporation ("Lawrence") and Rosecraft, Inc. ("Rosecraft"). The Company's
condensed consolidated financial statements are presented on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. In the opinion of the Company, the
accompanying condensed consolidated financial statements reflect all normal
recurring adjustments necessary to present fairly the financial position as of
March 30, 1995, and the results of operations and changes in cash flows for the
three month periods ended March 30, 1995 and March 31, 1994. 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 6,
Notes Payable, and Note 7, Long Term Debt, for further discussion of the status
of credit arrangements and restrictions on the ability of operating subsidiaries
to fund ARTRA corporate obligations. Due to its limited ability to receive
operating funds from its 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 5, on August 18, 1994, as amended December 23, 1994, ARTRA,
Lori, Lori's parent, Fill-Mor Holding, Inc. ("Fill-Mor"), a wholly-owned
subsidiary of the Company, and Lori's operating subsidiaries, (including New
Dimensions Accessories, Ltd., "New Dimensions", which ceased operations
effective December 27, 1994, see Note 5) 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 resulting in a
partial discharge of indebtedness to Lori and its operating subsidiaries in
December, 1994. In March, 1995, the remaining indebtedness of Lori and Fill-Mor
was discharged, resulting in an additional extraordinary gain to Lori and
Fill-Mor recognized in 1995. 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, Lori 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. Additionally, Lori's business
plan for 1995 is based on the continued dependence upon certain major customers.
ARTRA intends to continue to negotiate with its bank and other creditors to
extend due dates and allow ARTRA to maximize value from possible sale of assets.
See Note 6 regarding the bank lender's suit against ARTRA filed October 25,
1994. 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.
<PAGE>

ARTRA GROUP INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

These condensed consolidated financial statements are presented in accordance
with the requirements of Form 10-Q and consequently do not include all the
disclosures required in the Company's annual report on Form 10-K. Accordingly,
the Company's annual report on Form 10-K for the fiscal year ended December 29,
1994, as filed with the Securities and Exchange Commission, should be read in
conjunction with the accompanying consolidated financial statements. The
condensed consolidated balance sheet as of December 29, 1994 was derived from
the audited consolidated financial statements in the Company's annual report on
Form 10-K. Reported interim results of operations are based in part on estimates
which may be subject to year-end adjustments. In addition, these quarterly
results of operations are not necessarily indicative of those expected for the
year. 2. 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,
was accounted for by the purchase method and, accordingly, the assets and
liabilities of Arcar were included in ARTRA's financial statements at their
estimated fair market value at the date of acquisition. The purchase price was
allocated to the assets and liabilities of Arcar based on their estimated
respective fair values. The purchase price and expenses associated with the
acquisition exceeded 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.

3. INVENTORIES
<TABLE>

Inventories (in thousands) consist of:
<CAPTION>

March 30, December 29,
1995 1994
------- -------
<S> <C> <C>

Raw materials and supplies $ 7,268 $ 7,041
Work in process .......... 506 877
Finished goods ........... 16,859 12,350
------- -------
$24,633 $20,268
======= =======
</TABLE>

<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

4. 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 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 13 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 Defendants"), 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. On April 7, 1995, the Company's
appeal of the Bankruptcy Court's retention of claims was denied. On November 23,
1994, the Company filed a Second Amended Complaint against the Salomon
Defendants and the Kelly Defendants. 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>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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. On April 13, 1995, the
Salomon Defendants and the Kelly Defendants brought motions to dismiss the
Company's Third Amended Complaint. The case is in its early stages and discovery
is just beginning. ARTRA cannot predict, with any certainty, the outcome of the
suit.

5. DEBT RESTRUCTURING

Effective August 18, 1994, as amended December 23, 1994, Lori and Lori's
operating subsidiaries (collectively, the "Borrowers"), ARTRA and Lori's parent,
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. 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:

A) A cash payment to the bank of $1,900,000, which was made in December,
1994.

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.

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. The installment payment was made in January,
1995.

<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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. 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>

<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 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. In March, 1995 the
$750,000 note due the bank was paid and the remaining indebtedness of Lori and
Fill-Mor was discharged, resulting in an additional extraordinary gain to Lori
and Fill-Mor of $9,113,000 ($1.35 per share) in the first quarter of 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%. As consideration for assisting
in the debt restructuring, 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. The first quarter 1995 extraordinary gain was calculated (in
thousands) as follows:

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

<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

6. NOTES PAYABLE

<TABLE>
Notes payable (in thousands) consist of:
<CAPTION>

March 30, Dec 29,
1995 1994
------- -------
<S> <C> <C>

ARTRA bank notes payable, at various interest rates ..... $18,507 $18,507
Amounts due to related parties, interest from 8.5% to 12% 6,628 5,669
Other, interest from 8% to 20% .......................... 4,278 3,877
------- -------
$29,413 $28,053
======= =======
</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, the bank notes are collateralized by a $5,500,000 personal
guaranty of a private investor and, prior to March 31, 1994 as discussed below,
the bank notes were collateralized by a $2,500,000 guaranty of a private
corporation. A major shareholder and executive officer of the private
corporation is an ARTRA director. As additional compensation, the private
investor is receiving 1,833 shares of ARTRA common stock for each month the
guaranty is outstanding and the private corporation received 833 shares of ARTRA
common stock for each month the guaranty was outstanding. Among other things,
the bank notes prohibit the payment of cash dividends by ARTRA. On 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% at March
30, 1995 and December 29, 1994) 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 4. 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 CONDENSED 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 ($17.25 per share at March 30, 1995). 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 subsidiary, entered into a loan agreement with
a bank providing for borrowings of up to $2,500,000 with interest at the prime
rate plus 2%, of which $2,200,000 was outstanding at December 29, 1994. The loan
was collateralized by ARTRA's interest in Lori common stock and preferred stock,
by the proceeds of a tax sharing agreement between ARTRA and its Bagcraft
subsidiary and by ARTRA's interest in Fill-Mor's common stock. At December 29,
1994, borrowings on this note were reclassified as amounts due under the debt
restructuring agreement discussed in Note 5. In March, 1995, borrowings due
under this loan agreement were discharged. 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 at March 30, 1995 and December 29, 1994 is guaranteed by a private
company. Interest on the note is at the prime rate plus 2% (10.5% at March 30,
1995 and December 29, 1994).

Amounts Due To Related Parties

In January, 1995, John Harvey loaned ARTRA $100,000 evidenced by an unsecured 60
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. Terms of the
note provide for the issuance of additional warrants to purchase ARTRA common
shares at $4.75 per share, as determined by the number of days the loan is
outstanding. At March 30, 1995 and December 29, 1994, total outstanding
borrowings from John Harvey were $142,000 and $42,000, respectively. At March
30, 1995, amounts due to related parties included a $850,000 short-term loan
from a director of Lori. The loan provides for interest at the prime rate plus
1%. Proceeds from this loan were used to fund the $750,000 note payment due a
bank under terms of the debt settlement agreement discussed in Note 5. As
consideration for assisting in the debt restructuring, 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. At March 30, 1995 and December
29, 1994, amounts due to related parties also included borrowings of $136,000
and $127,000, respectively, from the above mentioned director of Lori. As
additional compensation the Lori director has received, through March 30, 1995,
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.

<PAGE>

ARTRA GROUP INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

On December 31, 1993, a religious organization, currently holding approximately
5.8% of ARTRA's outstanding common stock, loaned the Company $2,000,000
evidenced by a short-term note bearing interest at 10%. The proceeds of this
loan were remitted to ARTRA's bank to pay principal and interest on ARTRA's bank
notes as discussed above. In January, 1994 the religious organization made an
additional $1,000,000 short-term loan to the Company also with interest at 10%.
As additional compensation for the above loans, the lender received warrants to
purchase an aggregate of 86,250 ARTRA common shares at prices ranging from $6.00
to $7.00 per share based upon the market of ARTRA's common stock at the date of
issuance. The warrants expire in 1998, five years from the date of issuance. In
July, 1994 ARTRA made a $2,000,000 payment against the amounts outstanding on
the above loans and the religious organization subsequently loaned ARTRA an
additional $2,000,000. At March 30, 1995 and December 29, 1994 borrowings due
the religious organization totaled $3,000,000.

Other

In conjunction with the debt settlement agreement discussed in Note 5, 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.
<PAGE>

ARTRA GROUP INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

7. LONG-TERM DEBT
<TABLE>
<CAPTION>

Long-term debt (in thousands) consists of:
March 30, December 29,
1995 1994
-------- --------
<S> <C> <C>
Bagcraft Credit Agreement,
Term loans,
interest at the prime rate plus 1.75% to 3% .......................... $ 17,000 $ 17,000
Revolving credit loan,
interest at the prime rate plus 1.5% ................................. 15,622 16,672
Unamortized discount ..................................................... (236) (315)
Bagcraft, City of Baxter Springs, Kansas loan agreements,
interest, at varying rates ............................................... 12,440 12,310
Arcar subordinated promissory notes due to seller,
interest, at the prime rate .............................................. 5,500 8,000
Arcar bank term loan,
interest at the prime rate plus .75% ..................................... 2,750 2,750
Arcar revolving credit loan,
interest at the prime rate plus .5% ...................................... 517
Amounts due a bank term under terms of
a debt settlement agreement .............................................. 10,500
Other, at various interest rates,
due in varying amounts through 1995 ...................................... 20 27
53,613 66,944
Current scheduled maturities ................................................. (36,380) (37,521)
Debt subsequently discharged ................................................. (9,750)
-------- --------
$ 17,233 $ 19,673
======== ========
</TABLE>

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 March 30, 1995 and 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 March 30, 1995 and 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 March 30, 1995 and December 29, 1994, approximately $2,700,000

<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

and $450,000,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 March 30, 1995 and December
29, 1994, the interest rate on the revolving credit loan was 10%. Borrowings
under the Credit Agreement are collateralized by substantially all of the assets
of Bagcraft. The Credit Agreement 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 March 30, 1995 Bagcraft
was not in compliance with certain 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 March 30, 1995 and 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 March 30, 1995
and December 29, 1994, Bagcraft had outstanding borrowings of
$4,940,000 and $4,810,000, respectively, 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 March 30, 1995 and 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 March 30, 1995 and 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 March 30, 1995 and December
29, 1994, approximately $500,000 and $800,000, respectively, of borrowings from
the above loan agreements is reflected in the condensed 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.

<PAGE>

ARTRA GROUP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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 ($5,500,000 and $8,000,000 outstanding at
March 30, 1995 and December 29, 1994, respectively). The subordinated promissory
notes provide for interest payable quarterly at the prime rate (as defined in
the agreement). At March 30, 1995, the remaining outstanding promissory notes
mature as follows: $2,500,000 payable March 15, 1996; $2,500,000 payable March
15, 1997; $500,000 payable March 15, 1998. The seller also received a warrant to
purchase 177,778 ARTRA common shares at a price of $5.625 per share, the market
value at the date of grant. Exercise of the warrant 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 March 30, 1995 and 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 originally
became due and payable March 31, 1995, unless accelerated under terms of the
Agreement. The revolving credit loan, renewable solely at the discretion of the
lender for additional one year periods until maturity of the Agreement (March
31, 1999), has been renewed until March 31, 1996. At March 30, 1995
approximately $1,000,000 was available and unused by Arcar 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 5, 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 as of December 23, 1994 (of which $7,855,000 pertained to
Lori's obligation to the bank and $2,645,000 pertained to Fill-Mor's obligation
to the bank). As partial consideration for the Amended Settlement Agreement the
bank received a $750,000 Lori note payable due March 31, 1995.

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 March 30, 1995 and December 29, 1994, substantially
all cash and equivalents on the Company's consolidated balance sheet are
restricted to use by and for the Company's operating subsidiaries.

<PAGE>

ARTRA GROUP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

8. REDEEMABLE COMMON STOCK

ARTRA has entered into various agreements under which it has sold its common
shares along with options that require ARTRA to repurchase these shares at the
option of the holder, principally one year after the date of each agreement. The
difference between the option price and the net proceeds received is amortized
over the life of the options by a charge to retained earnings. Additionally, as
discussed in Note 5, ARTRA has agreed to register the 100,000 ARTRA common
shares issued to a bank in as partial consideration for a debt settlement
agreement 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 common shares
back to ARTRA for an exercise price of $500,000. At March 30, 1995 and December
29, 1994 options are outstanding that, if exercised, would require ARTRA to
repurchase 379,679 and 279,679 shares of its common stock for an aggregate
amount of $4,723,000 and $4,144,000, respectively.

9. 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 $1,294,000 and $1,221,000 were
accrued at March 30, 1995 and December 29, 1994, 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 condensed 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 $5,288,000 and $5,119,000 were accrued at March 30,
1995 and December 29, 1994, respectively.

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 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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

10. INCOME TAXES

No income tax benefit was recognized in connection with the Company's 1994
pre-tax loss due to the Company's tax loss carryforwards.

In recent years, the Company has issued shares of it 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.

11. EMPLOYEE BENEFIT PLANS

Effective June 1, 1990, the Company adopted an Employee Stock Ownership Plan
("ESOP") which covers substantially all employees of ARTRA and its Bagcraft
subsidiary. Employer contributions to the Plan are at the discretion of ARTRA's
Board of Directors. Employee contributions are not permitted. ARTRA's
contribution for the plan year ended December 31, 1994, 15,000 ARTRA common
shares, has been accrued in the Company's condensed consolidated balance sheet
in current liabilities at their fair market value of $77,000 ($5.125 per share)
as of December 29, 1994. A contribution to the Plan for 1995, if any, has yet to
be determined.

12. EARNINGS PER SHARE

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

13. LITIGATION

The Company and its subsidiaries are the defendants in various business-related
litigation and environmental matters. At March 30, 1995 and December 29, 1994,
the Company had accrued $1,400,000 and $1,500,000, 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. ARTRA could suffer severe adverse consequences in the event
of an unfavorable judgment in any of these matters.

<PAGE>

ARTRA GROUP INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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. On April 7, 1995, the Company's appeal of the Bankruptcy Court's
retention of claims was denied.

On November 23, 1994, the Company filed a Second Amended Complaint against the
Salomon Defendants and the Kelly Defendants. 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.

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 condensed consolidated balance
sheet at March 30, 1995 and December 29, 1994 in other assets at $2,625,000. The
subordinated security, due in 1997, was originally scheduled to be non-interest
bearing for a 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 condensed consolidated
balance sheet at March 30, 1995 and December 29, 1994 in other assets at
$1,375,000, net of a discount of $1,125,000.

In December, 1991 Welch filed a lawsuit against ARTRA alleging that certain
representations, warranties and covenants made by ARTRA, which were contained in
the parties' Stock Purchase Agreement, were false. Welch 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. 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 March 30, 1995 and December 29, 1994.

<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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.

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.

<PAGE>

ARTRA GROUP INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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.

14. RELATED PARTY TRANSACTIONS

Advances to Peter R. Harvey , ARTRA's president, classified in the condensed
consolidated balance sheet as a reduction of common shareholders' equity, (in
thousands) consist of:
<TABLE>
<CAPTION>
March 30, December 29,
1995 1994
------- -------
<S> <C> <C>

ARTRA ...................... $ 3,391 $ 3,205
Fill-Mor ................... 1,540 1,510
------- -------
4,931 4,715
Less interest for the period
January 1,1993 to date,
accrued and fully reserved (719) (615)
------- -------
$ 4,212 $ 4,100
======= =======
</TABLE>

ARTRA has total advances due from its president, Peter R. Harvey, of which
$3,391,000 and $3,205,000, including accrued interest, remained outstanding at
March 30, 1995 and December 29, 1994. The advances bear interest at the prime
rate plus 2% (10.5% at March 30, 1995 and December 29, 1994). This receivable
from Peter R. Harvey has been classified as a reduction of common shareholders'
equity.

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 March 30,
1995 and December 29, 1994). At March 30, 1995 and December 29, 1994, advances
of $1,540,000 and $1,510,000, respectively, including accrued interest, were
outstanding. This receivable from Peter R. Harvey has been classified as a
reduction of common shareholders' equity. In April, 1995, these advances from
ARTRA's Fill-Mor subsidiary to Peter R. Harvey were transferred to ARTRA as a
dividend.

Commencing January 1, 1993 to date, interest on all advances to Peter R. Harvey
has been accrued and fully reserved. Interest accrued and fully reserved on the
advances to Peter R. Harvey for the three months ended March 30, 1995 and March
31, 1994 totaled $104,000 and $74,000, 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.
<PAGE>

ARTRA GROUP INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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

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

As 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 6.

15. OTHER INFORMATION

In the fourth quarter of 1993 the Company adopted a 52/53 week fiscal year
ending the last Thursday of December. Accordingly, the Company's quarterly
periods now end on the last Thursday of March, June and September.

<PAGE>

Item 2. 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 2 to the condensed 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 was 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 4 to the condensed 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.

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)

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 13 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 Defendants"), 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. On April 7, 1995, the Company's appeal of the Bankruptcy Court's
retention of claims was denied.

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. In March, 1995, the remaining
indebtedness of Lori and Fill-Mor was discharged, resulting in an additional
extraordinary gain to Lori and Fill-Mor in 1995.

Liquidity and Capital Resources

Cash and cash equivalents decreased $1,741,000 during the three months ended
March 30, 1995. Cash flows used by financing activities of $2,024,000 and cash
flows used by investing activities of $172,000 exceeded cash flows from
operating activities of $455,000. Cash flows used by financing activities were
attributable to a net reduction of long-term debt principally due to the March
15, 1995 maturity of a $2,500,000 note payable to the Arcar sellers. Cash flows
used by investing activities represent net expenditures for plant and equipment
and retail fixtures, partially offset by the payment of certain liabilities with
funds held in escrow at December 29, 1994. Cash flows from operating activities
were principally attributable to an increase in trade credit obligations,
partially offset by the Company's loss from operations.

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)

The Company's consolidated working capital deficiency increased $4,887,000 to
approximately $65,359,000 during the three months ended March 30, 1995. The
increase in working capital deficiency is principally attributable to the
company's loss from operations and a net increase in the investment in
inventories, financed with principally with trade credit.

At March 30, 1995 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 6 and 7 to the Company's condensed consolidated financial statements.

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 5
to the condensed consolidated financial statements and discussion below.

ARTRA Corporate

At December 30, 1993, $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 6 to the condensed 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 6 to the condensed 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 14 to the condensed consolidated financial statements,
Related Party Transactions, ARTRA has total advances due from its president,
Peter R. Harvey, of which $3,391,000 and $3,205,000, including accrued interest,
remained outstanding at March 30, 1995 and December 29, 1994. 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 March 30, 1995 and December 29, 1994, advances of
$1,540,000 and $1,510,000, respectively, were outstanding. Commencing January 1,
1993 to date, interest on the ARTRA and Fill-Mor advances has been accrued and
fully reserved.

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)

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
March 30, 1995, options are outstanding that, if exercised, would require ARTRA
to repurchase 379,679 shares of its common stock for an aggregate amount of
approximately $4,700,000. 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 9 to the condensed 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 $17,500,000 outstanding at March 30, 1995. 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 past due bank
notes and, as of March 30, 1995, 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.

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (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 March 30, 1995) 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 March 30, 1995, interest rates on Term Loan A and Term Loan
B were 10.25% and 11.5%, respectively.

The amount available to Bagcraft under the revolving credit loan is subject to a
borrowing base, as defined in the agreement, up to a maximum of $18,000,000. At
March 30, 1995 and December 29, 1994, approximately $2,700,000 and $450,000,
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 March 30, 1995 the interest rate on the
revolving credit loan was 10%.

Borrowings under the Credit Agreement are collateralized by substantially all of
the assets of Bagcraft. The Credit Agreement 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
March 30, 1995 Bagcraft was not in compliance with certain 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 March 30, 1995 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 March 30, 1995
Bagcraft had outstanding borrowings of $4,940,000 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. March 30, 1995 Bagcraft had borrowed the
maximum amount available under this loan agreement.

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (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 March 30, 1995 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 March 30, 1995, approximately
$500,000 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.

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.

As discussed in Note 2 to the condensed 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
$2,500,000 note due March 15, 1995 was funded by a combination of funds from
operations and borrowings on Arcar's revolving credit loan. 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.

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.

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)

Lori

Effective August 18, 1994, as amended December 23, 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.

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 as of December 23, 1994 (of which $7,855,000 pertained to
Lori's obligation to the bank and $2,645,000 pertained to Fill-Mor's obligation
to the bank). Upon the satisfaction of certain conditions of the Amended
Settlement Agreement in March 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:

A) A cash payment to the bank of $1,900,000, which was made in
December, 1994.

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.

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

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)

In March, 1995 the $750,000 note due the bank was paid and the remaining
indebtedness of Lori and Fill-Mor was discharged, resulting in an additional
extraordinary gain to Lori and Fill-Mor of $9,113,000 ($1.35 per share) in the
first quarter of 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%. As consideration for assisting with the debt restructuring, 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 had 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 terminating its
operations effective December 27, 1994. New Dimensions termination 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 March 30,
1995 substantially all cash and equivalents on the Company's consolidated
balance sheet were restricted to use by and for the Company's operating
subsidiaries. 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 declaration and accrual of dividends on its Lori preferred stock. The
moratorium has been extended indefinitely.

During the three months ended March 30, 1995, ARTRA made net advances of $93,000
to Lori. During 1994, ARTRA made net advances to Lori of $2,531,000. 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.

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.

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)

The Company and its subsidiaries are the defendants in various business-related
litigation and environmental matters. See Note 13 to the condensed consolidated
financial statements. At March 30, 1995 and December 29, 1994, the Company had
accrued $1,400,000 and $1,500,000, 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 March 30, 1995, the Company and its subsidiaries had Federal income tax loss
carryforwards of approximately $91,000,000 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
$48,000,000 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

Three Months Ended March 30, 1995 vs. Three Months Ended March 31, 1994

The assignment to a bank lender of all of the assets of Lori's New Dimensions
subsidiary in accordance with terms of the debt settlement agreement, resulted
in New Dimensions terminating its operations effective December 27, 1994. The
results of operations for the three months ended March 31, 1994 included New
Dimensions net sales of $3,551,000 and operating loss of $485,000. New
Dimensions ceased operations effective December 27, 1994

Net sales of $35,075,000 for the three months ended March 30, 1995 were
$965,000, or 2.7%, lower than net sales for the three months ended March 31,
1994. Jewelry segment sales decreased $4,325,000, or 46.7%, while packaging
segment sales increased approximately $3,360,000 or 12.6%. The 1995 jewelry
segment sales decrease is principally attributable the termination of New
Dimensions operations effective December 27, 1994 and a soft retail environment
in 1995. The 1995 packaging segment sales increase is primarily attributable to
1995 sales of Arcar (acquired in April, 1994) and to increased 1995 selling
prices due to the significant increase in paper costs in the second half of
1994.

The Company's cost of sales of $27,539,000 for the three months ended March 30,
1995 increased $876,000 as compared to the three months ended March 29, 1994.
Cost of sales in the three months ended March 30, 1995 was 78.5% of net sales
compared to a cost of sales percentage of 74.0% for the three months ended March
29, 1994. Jewelry segment cost of sales decreased $2,234,000 in the three months
ended March 30, 1995, as compared to three months ended March 31, 1994. Jewelry
segment cost of sales was 57.9% of net sales in the three months ended March 30,
1995, as compared to 55.0% of net sales in the three months ended March 31,
1994. The 1995 jewelry segment cost of sales decrease is principally
attributable to the decrease in sales volume due to the termination of New
Dimensions operations effective December 27, 1994. The cost of sales percentage
increase of 2.9% is primarily attributable to a soft retail environment that
resulted in depressed operating margins. Packaging segment cost of sales
increased $3,110,000 in the three months ended March 30, 1995, as compared to
the three months ended March 31, 1994. Packaging segment cost of sales was 81.9%
of net sales in the three months ended March 30, 1995, as compared to 80.6% of
net sales in the three months ended March 30, 1995. The increase in the
packaging segment cost of sales is primarily attributable to the April, 1994
acquisition of Arcar. The increase in the packaging segment cost of sales
percentage is primarily attributable to a significant increase in paper costs in
the second half of 1994, partially offset by a more favorable product mix in
1995.

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)

Selling, general and administrative expenses were $6,892,000 in the three months
ended March 30, 1995 as compared to $8,280,000 in the three months ended March
31, 1994. Selling, general and administrative expenses were 19.6% of net sales
in the three months ended March 30, 1995 as compared to 23.0% of net sales in
the three months ended March 31, 1994. The decrease in selling, general and
administrative expenses is principally attributable to the termination of New
Dimensions operations effective December 27, 1994 partially offset by the April,
1994 acquisition of Arcar.

Operating loss in the three months ended March 30, 1995 was $665,000 as compared
to operating loss of $357,000 in the three months ended March 31, 1994. The
jewelry segment incurred an operating loss of $186,000 as compared to operating
loss of $773,000 in the three months ended March 31, 1994. The decreased 1995
operating loss is principally attributable to New Dimensions, which terminated
operations effective December 27, 1994. Packaging segment operations broke even
in the three months ended March 30, 1995, as compared to operating earnings of
$805,000 in the three months ended March 31, 1994. The 1995 packaging segment
operating earnings decrease is principally attributable to a significant
increase in paper costs in the second half of 1994, partially offset by a more
favorable product mix in 1995.

Interest expense in the three months ended March 30, 1995 decreased $304,000 as
compared to the three months ended March 29, 1994. The 1995 decrease is
principally due to due costs and fees incurred in connection with the series of
agreements ARTRA entered into on March 31, 1994 with its primary bank lender and
with the non-affiliated corporation that guaranteed $2,500,000 of ARTRA bank
notes. See Note 6 to the condensed consolidated financial statements.

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

<PAGE>

PART II - OTHER INFORMATION

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

EXHIBIT 11

Computation of earnings per share and equivalent share of
common stock for the three months ended March 30, 1995 and
March 31, 1994.

(b) Reports on Form 8-K:

On January 3, 1995 the Company filed Form 8-K to report the
December 13, 1994 notification of certain defaults by the
Company's 64.3% 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>

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunder duly authorized.

ARTRA GROUP INCORPORATED
----------------------------
Registrant

Dated: May 18, 1995 JAMES D. DOERING
- - --------------------- ------------------------------------------
Vice President and Chief Financial Officer

EXHIBIT 11
COMPUTATION OF EARNINGS (LOSS) PER SHARE
AND EQUIVALENT SHARE OF COMMON STOCK
(In thousands except per share amounts)

Three Months Ended
--------------------
Line March 30, March 31,
1995 1994
------- -------
<S> <C> <C> <C>

AVERAGE SHARES OUTSTANDING

1 Weighted average number of shares of common stock
outstanding during the period ......................... 6,689 5,186
2 Net additional shares assuming stock options and warrants
exercised and proceeds used to purchase treasury shares 52
------- -------
3 Weighted average number of shares and equivalent shares
of common stock outstanding during the period ......... 6,741 5,186
======= =======

EARNINGS (LOSS)

4 Earnings (loss) before extraordinary credit ............. ($3,089) ($3,057)
5 Less dividends applicable to redeemable preferred stock . (135) (123)
6 Less redeemable common stock accretion .................. (78) (43)
------- -------
7 Amount for per share computation ........................ ($3,302) ($3,223)
======= =======

8 Net earnings (loss) ..................................... $ 6,023 ($3,057)
9 Less dividends applicable to redeemable preferred stock . (135) (123)
10 Less redeemable common stock accretion .................. (78) (43)
------- -------
11 Amount for per share computation ........................ $ 5,810 ($3,223)
======= =======

PER SHARE AMOUNTS

Earnings (loss) before extraordinary credit
(line 7 / line 3) ..................................... ($ 0.49) ($ 0.62)
======= =======

Net earnings (loss)
(line 11 / line 3) .................................... $ 0.86 ($ 0.62)
======= =======

<FN>
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.

</FN>
</TABLE>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM FORM 10-K FOR THE
QUARTERLY PERIOD ENDED MARCH 29, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<CIK> 0000200243
<NAME> ARTRA GROUP INCORPORATED
<MULTIPLIER> 1,000
<CURRENCY> dollars

<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> DEC-28-1995
<PERIOD-START> DEC-30-1994
<PERIOD-END> MAR-29-1995
<EXCHANGE-RATE> 1.000
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17,529
0
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</TABLE>