ARTRA GROUP INC, 424B1, 1997-11-07

ARTRA GROUP INC
424B1, 1997-11-07
CONVERTED PAPER & PAPERBOARD PRODS (NO CONTANERS/BOXES)

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ARTRA GROUP Incorporated
Supplement dated November 7, 1997 to
Prospectus dated October 23, 1997

Set forth in this Supplement is certain information included in the Quarterly
Report on Form 10-Q for the quarter ended September 25, 1997 of ARTRA GROUP
Incorporated ("ARTRA" or the "Company"), including (i) Management's Discussion
and Analysis of Financial Condition and Results of Operation (page 2), and (ii)
financial statements for the Company as listed on page 15. Capitalized terms not
defined herein shall have the meanings set forth in the Prospectus, as
supplemented to date.

<PAGE>

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:

Results of Operations

The Company, through its wholly-owned Bagcraft subsidiary, currently operates in
one industry segment as a manufacturer of packaging products principally serving
the food industry. Bagcraft sells all of its products directly to its customers.
On a very limited basis certain customers may be offered extended payment terms
beyond 30 days depending upon prevailing trade practices and financial strength.

The following table presents, as a percentage of net sales, operating expenses
and other income (expense) included the Company's earnings (loss) from
continuing operations for the three and nine month periods ended September 25,
1997 and September 26, 1996.
<TABLE>
<CAPTION>

Three Months Ended Nine Months Ended
------------------ -----------------
Sept. 25, Sept. 26, Sept. 25, Sept. 26,
1997 1996 1997 1996
----- ----- ----- -----

<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
----- ----- ----- -----
Costs and expenses:
Cost of goods sold,
exclusive of depreciation and amortization 81.6% 77.7% 80.5% 79.5%
Selling, general and administrative 12.9% 10.2% 13.2% 12.2%
Depreciation and amortization 3.4% 3.4% 3.5% 3.3%
----- ----- ----- -----
97.9% 91.3% 97.2% 95.0%
----- ----- ----- -----

Operating earnings 2.1% 8.7% 2.8% 5.0%
----- ----- ----- -----
Other income (expense):
Interest expense -7.8% -5.8% -7.2% -5.7%
Amortization of debt discount -2.1% -.6% -2.2% -.3%
Realized gain on disposal of
available-for-sale securities .4% 1.1% .4% 5.3%
Other income (expense), net .2% -- .3% -.2%
----- ----- ----- -----
-9.3% -5.3% -8.7% -.9%
----- ----- ----- -----

Earnings (loss) before income taxes,
minority interest and extraordinary credit -7.2% 3.4% -5.9% 4.1%
(Provision) credit for income taxes .6% -.1% .2% -.1%
Minority interest -.2% -1.2% -.8% -.2%
----- ----- ----- -----
Earnings (loss) before extraordinary credit -6.8% 2.1% -6.5% 3.8%
===== ===== ===== =====

</TABLE>

2
<PAGE>

Three Months Ended September 25, 1997 vs. Three Months Ended September 26, 1996

Net sales of $32,325,000 for the three months ended September 25, 1997 were
$2,928,000, or 10.0%, higher than net sales for the three months ended September
26, 1996. The 1997 net sales increase is attributable to certain promotions
deferred by customers until the third quarter of 1997 and to Bagcraft's January
1997 acquisition of the business assets of AB Specialty, partially offset by
1996 sales to a former food service customer.

The Company's cost of sales of $26,385,000 for the three months ended September
25, 1997 increased $3,531,000 as compared to the three months ended September
26, 1996. Cost of sales for the three months ended September 25, 1997 was 81.6%
of net sales compared to a cost of sales percentage of 77.7% for the three
months ended September 26, 1996. The increase in cost of sales percentage is
primarily attributable to competitive market conditions and a slightly less
favorable product mix in 1997.

Selling, general and administrative expenses were $4,173,000 for the three
months ended September 25, 1997 as compared to $2,995,000 for the three months
ended September 26, 1996. Selling, general and administrative expenses were
12.9% of net sales for the three months ended September 25, 1997 as compared to
10.2% of net sales for the three months ended September 26, 1996. During the
three months ended September 26, 1996, the Company favorably settled certain
obligations accrued in prior years and reversed the excess of the estimated
costs to settle such obligations over actual costs incurred.

Depreciation and amortization expense was $1,110,000 for the three months ended
September 25, 1997 as compared to $995,000 for the three months ended September
26, 1996. Depreciation and amortization expense was 3.4% of net sales for the
three month periods ended September 25, 1997 and September 26, 1996. The 1997
increase in depreciation and amortization is primarily attributable to
Bagcraft's January 1997 acquisition of the business assets of AB Specialty.

The Company had operating earnings in the three months ended September 25, 1997
of $657,000 as compared to operating earnings of $2,553,000 in the three months
ended September 26, 1996. The 1997 decrease in operating earnings is
attributable to decreased operating margins and increased selling, general and
administrative expenses as noted above.

Interest expense for the three months ended September 25, 1997 increased
$818,000 as compared to the three months ended September 26, 1996. The 1997
increase is principally attributable to an increased level of borrowings and
related loan fees incurred.

Amortization of debt discount was $675,000 for the three months ended September
25, 1997 as compared to $173,000 for the three months ended September 26, 1996.
The 1997 increase is attributable to the December 1996 amendment and restatement
of Bagcraft's Credit Agreement.

Nine Months Ended September 25, 1997 vs. Nine Months Ended September 26, 1996

Net sales of $92,599,000 for the nine months ended September 25, 1997 were
$2,437,000, or 2.7%, higher than net sales for the nine months ended September
26, 1996. The 1997 net sales increase is attributable to Bagcraft's January 1997
acquisition of the business assets of AB Specialty, partially offset by 1996
sales to a former food service customer.

The Company's cost of sales of $74,498,000 for the nine months ended September
25, 1997 increased $2,788,000 as compared to the nine months ended September 26,
1996. Cost of sales for the nine months ended September 25, 1997 was 80.5% of
net sales compared to a cost of sales percentage of 79.5% for the nine months
ended September 26, 1996. The increase in cost of sales percentage is primarily
attributable to competitive market conditions and a slightly less favorable
product mix in 1997.

3
<PAGE>

Selling, general and administrative expenses were $12,205,000 for the nine
months ended September 25, 1997 as compared to $10,967,000 for the nine months
ended September 26, 1996. Selling, general and administrative expenses were
13.2% of net sales for the nine months ended September 25, 1997 as compared to
12.2% of net sales for the nine months ended September 26, 1996. During the the
nine months ended September 26, 1996, the Company favorably settled certain
obligations accrued in prior years and reversed the excess of the estimated
costs to settle such obligations over actual costs incurred.

Depreciation and amortization expense was $3,262,000 for the nine months ended
September 25, 1997 as compared to $2,954,000 for the nine months ended September
26, 1996. Depreciation and amortization expense was 3.5 % of net sales for the
nine months ended September 25, 1997 as compared to 3.3% of net sales for the
nine months ended September 26, 1996. The 1997 increase in depreciation and
amortization is primarily attributable to Bagcraft's January 1997 acquisition of
the business assets of AB Specialty.

The Company had operating earnings in the nine months ended September 25, 1997
of $2,634,000 as compared to operating earnings of $4,531,000 in the nine months
ended September 26, 1996. The 1997 decrease in operating earnings is
attributable to slightly decreased operating margins and increased selling,
general and administrative expenses as noted above.

Interest expense for the nine months ended September 25, 1997 increased
$1,557,000 as compared to the nine months ended September 26, 1996. The 1997
increase is principally attributable to an increased level of borrowings and
related loan fees incurred.

Amortization of debt discount was $2,026,000 for the nine months ended September
25, 1997 as compared to $253,000 for the nine months ended September 26, 1996.
The 1997 increase is attributable to the December 1996 amendment and restatement
of Bagcraft's Credit Agreement.

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

Liquidity and Capital Resources

Cash and Cash Equivalents and Working Capital

Cash and cash equivalents increased $120,000 during the nine months ended
September 25, 1997. Cash flows from operating activities of $932,000 and cash
flows from financing activities of $10,751,000 exceeded cash flows used by
investing activities of $11,563,000. Cash flows from operating activities were
principally attributable to the excess of non-cash expenses (principally
depreciation and amortization) over and above the Company's net loss for the
period. Cash flows from financing activities were principally attributable to a
net increase in long-term borrowings. Cash flows used by investing activities
principally represent funds an increased in a receivable from a related party as
discussed in Note 13 to the condensed consolidated financial statements, funds
expended to complete Bagcraft's acquisition of the business assets of AB
Specialty and capital expenditures.

The Company's consolidated working capital deficiency increased $14,461,000 to
$17,853,000 during the nine months ended September 25, 1997. The increase in
working capital deficiency is principally attributable to unrealized
depreciation of available-for-sale securities (COMFORCE common stock) and to
additional short-term borrowings.

4
<PAGE>

Status of Debt Agreements and Operating Plan

ARTRA Corporate

As of September 25, 1997, the Company's corporate entity had outstanding
short-term indebtedness of $18,069,000 as discussed below.

Secured Promissory Notes

1997 Private Placements

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

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

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

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

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

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

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

5
<PAGE>

1996 Private Placement

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

Amounts Due To Related Parties

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

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

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

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

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

In July 1997, borrowings from this lender were reduced to $3,000,000 with
proceeds advanced to ARTRA from a Bagcraft term loan. As of September 25, 1997,
ARTRA had total outstanding borrowings of $3,000,000 from this director
collaterallized by a 75% interest in the common stock of ARTRA's BCA subsidiary
(the parent of Bagcraft).

6
<PAGE>

At December 26, 1996, ARTRA had outstanding borrowings of $3,000,000 from an
unaffiliated company currently holding approximately 7% of ARTRA's outstanding
common stock. The loans are evidenced by unsecured short-term notes bearing
interest at 10%. As additional compensation for the above loans, the lender
received five year warrants expiring in 1998 to purchase an aggregate of 86,250
ARTRA common shares at prices ranging from $6.00 to $7.00 per share. The
proceeds of this loan were used to pay down various ARTRA short-term loans and
other debt obligations. In December 1995 the unaffiliated company received
126,222 shares of ARTRA common in payment of past due interest through October
31, 1995. Interest on the loans has been paid through March, 1997. Payment on
the loans was due March 31, 1994, however, the lender has not demanded payment.
In February 1997, the lender received a warrant to purchase an additional
100,000 ARTRA common shares at $5.625 per share as consideration for not
demanding payment of this obligation. In April 1997, the lender received a
warrant to purchase an additional 100,000 ARTRA common shares at $5.00 per share
as consideration for not demanding payment of this obligation. In June 1997
outstanding borrowings to the unaffiliated company were reduced to $300,000 with
the proceeds from other short-term borrowings. In July 1997 ARTRA repaid all
remaining obligations under these loans.

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

Other

At December 26, 1996, ARTRA was the obligor under two demand notes, issued to an
unaffiliated company, in the principal amount of $2,266,000, including accrued
interest. The notes were issued in October, 1990 with interest at 15%. In July
1997, ARTRA paid all outstanding interest on these demand notes and reduced the
principal amount outstanding under the demand notes to $1,518,000. In October
1997, the lender agreed to accept 357,720 ARTRA common shares in payment of the
principal amount due on these notes.

At September 25, 1997 and December 26, 1996, ARTRA also had outstanding
short-term borrowings from other unrelated parties aggregating $1,101,000 and
$1,990,000. The notes, issued at various times during the period June 1994 to
June 1997, with interest rates varying between 8 % and 15% mature at various
times in 1997 and 1998.

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

In October 1996 the Company and its Fill-Mor subsidiary entered into a margin
loan agreement with a financial institution which provided for borrowings of
$600,000, with interest approximating the prime rate. Borrowings under the loan
agreement were collateralized by 215,000 shares of COMFORCE common stock owned
by the Company's Fill-Mor subsidiary. The proceeds of the loan were used for
working capital. In January 1997, the loan was repaid with proceeds from other
short-term borrowings.

Bank Notes Payable

On August 15, 1996, ARTRA and its 100% owned Fill-Mor subsidiary entered into a
$2,500,000 term loan agreement with a bank. The loan, which provided for
interest payable monthly at the bank's reference rate, was guaranteed by ARTRA
and was collateralized by 1,265,000 shares of COMFORCE common stock. Proceeds of
the loan were used for working capital. In March 1997, the loan was repaid with
proceeds from other short-term borrowings.

7
<PAGE>

At December 28, 1995, $12,063,000 in ARTRA notes, plus accrued interest and
fees, were payable to a bank. The notes provided for interest at the prime rate.
In February 1996, a bank agreed to discharge all amounts under its ARTRA notes
($12,063,000 plus accrued interest and fees) and certain obligations of ARTRA's
president, Peter R. Harvey for consideration consisting of ARTRA's cash payment
of $5,050,000, Mr. Harvey's cash payment of $100,000 and Mr. Harvey's $3,000,000
note payable to the bank (the "Harvey Note"). The bank assigned ARTRA a
$2,150,000 interest in the Harvey Note, subordinated to the bank's $850,000
interest in the Harvey Note, and ARTRA discharged $2,150,000 of Mr. Harvey's
prior advances. ARTRA recognized a gain on the discharge of this indebtedness of
$9,424,000 ($1.23 per share) in the first quarter of 1996 and recorded a
receivable for Mr. Harvey's prorata share ($1,089,000) of the debt discharge
funded by the Company. The cash payment due the bank was funded principally with
proceeds received from the Bagcraft subsidiary in conjunction with the issuance
of BCA (the parent of Bagcraft) preferred stock (see Note 9 to the Company's
condensed consolidated financial statements) along with proceeds received from a
short-term loan agreement with an unaffiliated company.

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

Peter R. Harvey Advances

As discussed in Note 13 to the Company's condensed consolidated financial
statements, ARTRA has total advances due from its president, Peter R. Harvey, of
which $17,315,000 and $7,998,000, including accrued interest, remained
outstanding at September 25, 1997 and December 26, 1996, respectively. A
$7,500,000 July 1997 advance, as discussed below, bears intertest at 12%. The
remaining advances of $9,815,000 and $7,998,000 at September 25, 1997 and
December 26, 1996, respectively, bear interest at the prime rate plus 2% (10.5%
at September 25, 1997 and 10.25% December 26, 1996, respectively). This
receivable from Peter R. Harvey has been classified as a reduction of common
shareholders' equity.

Commencing January 1, 1993 to date, interest on the advances to Peter R. Harvey
has been accrued and fully reserved. Interest accrued and fully reserved on the
advances to Peter R. Harvey for the nine months ended September 25, 1997 and
September 26, 1996 totaled $711,000 and $320,000, respectively.

In July 1997, ARTRA advanced an additional $7,500,000 to Peter R. Harvey. Mr.
Harvey provided ARTRA with additional collateral for his advances consisting of
652.285 shares of ARTRA redeemable preferred stock (currently a 18.2% interest),
1,784.02 shares of BCA Series A redeemable preferred stock (currently a 51.6%
interest) and 6,488.8 shares of BCA Series B redeemable preferred stock
(currently a 82.7% interest). These ARTRA and BCA redeemable preferred shares
were pledged by ARTRA as partial collateral for the July 1997 private placement
of ARTRA promissory notes that funded the advance to Mr. Harvey. As of September
25, 1997, this additional collateral had a carrying value in ARTRA's condensed
consolidated balance sheet of approximately $11,000,000. The advances were
funded with the proceeds from the July 1997 private placement of ARTRA notes as
discussed in Note 6 to the Company's condensed consolidated financial
statements..

As collateral for amounts due from Peter R. Harvey, in prior years the Company
had received the pledge of 1,523 shares of ARTRA redeemable preferred stock
(with a liquidation value of $1,523,000, plus accrued dividends) which are owned
by Mr. Harvey. In addition, Mr. Harvey has pledged a 25% interest in Industrial
Communication Company (a private company). Such interest is valued by Mr. Harvey
at $800,000 to $1,000,000. During 1995, Peter R. Harvey entered into a pledge
agreement with ARTRA whereby Mr. Harvey pledged additional collateral consisting
of 42,067 shares of ARTRA common stock and 707,281 shares of Pure Tech
International, Inc., a publicly traded corporation. Per terms of a February 1996
discharge of bank indebtedness (see Note 5), ARTRA received additional
collateral from Mr. Harvey consisting of a $2,150,000 security interest in
certain real estate, subordinated to the bank's $850,000 security interest in
this real estate. In March 1997, the bank sold its interest in Mr. Harvey's note
and the related collateral to a private investor. ARTRA retained its $2,150,000
security interest the real estate, subordinated to the noteholder's $850,000
security interest in this real estate.

8
<PAGE>

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

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

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

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

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 at a premium over the initial sales price. The increment in
the option price over the initial sales price of redeemable common stock is
reflected in the Company's financial statements by a charge to retained
earnings. At September 25, 1997, options were outstanding that, if exercised,
would require ARTRA to repurchase 72,984 shares of its common stock for an
aggregate amount of $3,277,000. 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.

Redeemable Preferred Stock

As discussed in Note 9 to the condensed consolidated financial statements,
ARTRA, Bagcraft and Bagcraft's parent BCA have various redeemable preferred
stock issues with an aggregate carrying value of $20,546,000 at September 25,
1997. Redeemable preferred stock issues with an aggregate carrying value of
$11,668,000 at September 25, 1997, mature in 1997. The Bagcraft redeemable
preferred stock, with a carrying value of $2,095,000 at September 25, 1997, was
payable in June 1997. The BCA Series B redeemable preferred stock, with a
carrying value of $9,573,000 at September 25, 1997, was also payable in June
1997. ARTRA does not have available funds to satisfy this obligation in its
entirety. The Company is currently negotiating with the redeemable preferred
shareholders to restructure or extend the maturity date of this obligation
beyond 1997. In August and September 1997 ARTRA repurchased certain ARTRA and
BCA redeemable preferred stock with a carrying value of approximately $800,000
for cash of approximately $430,000. The redeemable preferred stock purchases
were funded with proceeds of short-term borrowings.

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 1997. Due to its limited ability to receive operating funds from
its operating subsidiaries, ARTRA historically has met its operating
expenditures with funds generated

9
<PAGE>

by such alternative sources as private placements of ARTRA common stock and
notes, sales of ARTRA common stock with put options, loans from
officers/directors and private investors, as well as through sales of assets
and/or other equity infusions. ARTRA plans to continue to seek such alternative
sources of funds to meet its future operating expenditures.

ARTRA does not currently have available funds to repay amounts due under various
loan arrangements, principally with private investors, some of which are
currently past due. ARTRA is currently negotiating with several potential
lenders to refinance certain outstanding debt obligations. However, there can be
no assurance that ARTRA will be able to successfully refinance the above
referenced indebtedness. The Company will continue to have significant 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
debt. ARTRA also continues to negotiate with its creditors to extend due dates
to allow ARTRA to maximize value from possible sale of assets and to explore
various other sources of funding to meet its future operating expenditures. If
ARTRA is unable to negotiate extensions with its creditors and complete the
above mentioned transactions, ARTRA could suffer severe adverse consequences,
and as a result, ARTRA may be forced to liquidate its assets or file for
protection under the Bankruptcy Code.

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

Bagcraft

Bagcraft entered into a credit agreement, dated as of December 17, 1993 (the
"Credit Agreement") that initially provided for a revolving credit loan with
interest at the lender's index rate plus 1.5% and two separate term loans. The
term loans were separate facilities initially totaling $12,000,000 (Term Loan A)
and $8,000,000 (Term Loan B), bearing interest at the lender's index rate plus
1.75% and 3%, respectively. The Credit Agreement, as amended, had been extended
to mature on September 30, 1997.

In December 1996, the Credit Agreement was amended and restated whereby, among
other things, the maturity date of the Credit Agreement was extended to
September 30, 2002 and certain loan covenants were amended. Term Loan A and Term
Loan B, as previously defined in the Credit Agreement were consolidated into a
new $20,000,000 term loan with interest at the lender's index rate plus .25%
(8.75% at September 25, 1997 and 8.5% at December 26, 1996). Principal payments
under the term loan were modified to provide for annual principal payments
(payable in quarterly installments) in the amount of $2,000,000 in 1997 through
1999; $3,000,000 in 2000 and 2001; and $8,000,000 in 2002. The amended and
restated Credit Agreement reduced the interest on the revolving credit loan to
the lender's index rate and also provided for a $3,000,000 capital expenditures
line of credit with interest at the lender's index rate plus .25%.

The amount available to Bagcraft under the revolving credit loan is subject to a
borrowing base, as defined in the Credit Agreement, up to a maximum of
$18,000,000. At September 25, 1997 and December 26, 1996, approximately
$6,300,000 and $6,200,000, respectively, was available and unused by Bagcraft
under the revolving credit loan. Borrowings under the revolving credit loan are
payable upon maturity of the Credit Agreement, unless accelerated under terms of
the Credit Agreement. At September 25, 1997 and December 26, 1996, the interest
rate on the revolving credit loan was 8.5% and 8.25%, respectively.

Borrowings under the Credit Agreement are collateralized by the common stock and
substantially all of the assets of Bagcraft. The Credit Agreement, as amended,
contains various restrictive covenants, that among other restrictions, require
Bagcraft to maintain minimum levels of tangible net worth and liquidity levels,
and limit future capital expenditures and restricts additional loans, dividend
payments and payments to related parties. In addition, the Credit Agreement
prohibits changes in ownership of Bagcraft. At September 25, 1997 Bagcraft was
in compliance with the provisions of its Credit Agreement.

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

10
<PAGE>

Effective July 17, 1997, the Credit Agreement was amended to provide for a
$7,500,000 term loan (Term Loan C) with interest at the lender's index rate plus
1%. Term Loan C is payable on July 15, 2000, unless accelerated under terms of
the Credit Agreement. The proceeds of Term Loan C were advanced to ARTRA under
terms of an intercompany note payable to Bagcraft on July 15, 1998. ARTRA used
the proceeds of this loan to repay certain ARTRA debt obligations.

As additional compensation for borrowings under the Credit Agreement, in
December 1993, the lender received a detachable warrant ("Warrant"), expiring in
December 1998, allowing the holder to purchase up to 10% of the fully diluted
common equity of Bagcraft at a nominal value. Under certain conditions Bagcraft
is required to repurchase the Warrant from the lender. The determination of the
repurchase price of the Warrant is to be based on the Warrant's pro rata share
of the highest of book value, appraised value or market value of Bagcraft. In
connection with the February 1, 1996 amendment to the Credit Agreement, the
warrant agreement was amended to permit the holder to purchase 13% of the fully
diluted common equity of Bagcraft at the original nominal purchase price and to
extend the expiration date to December 17, 1999. In January 1997, in accordance
with the December 1996 amendment to the Credit Agreement, Bagcraft repurchased
50% of the Warrant (6.5% of the fully diluted common equity of Bagcraft) for
$1,500,000. Bagcraft can repurchase the remaining 50% of the Warrant on or after
December 17, 1997 for an amount based upon the Warrant's pro rata share of the
highest of book value, appraised value or market value of Bagcraft as noted
above. In accordance with the May 5, 1997 and July 17, 1997 amendments to the
Credit Agreement the Warrant was amended. In the event there is a change in
Bagcraft's ownership through July 15, 2000, the lender is entitled to receive an
amount equal to 6.5% of the fully diluted common equity of Bagcraft, based upon
the fair value of Bagcraft at the date of a change of ownership, less the
$1,500,000 the lender received in January 1997 when Bagcraft repurchased 50% of
the Warrant.

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

A $7,000,000 promissory note payable in ten installments of $700,000
due annually on July 21 of each year beginning in 1995 through maturity
on July 21, 2004. Interest, at varying rates from 4.6% to 6.6%, is
payable semi-annually. At September 25, 1997 and December 26, 1996,
Bagcraft had outstanding borrowings of $4,900,000 and $5,600,000,
respectively, under this loan agreement.

A $5,000,000 subordinated promissory note payable as follows:
$2,425,000 due in 1998; and $2,425,000 due in 1999. The subordinated
promissory note is non-interest bearing, subject to certain repayment
provisions as defined in the agreement (as amended). At September 25,
1997 and December 26, 1996, Bagcraft had outstanding borrowings of
$4,850,000 under this loan agreement.

Two separate $250,000 subordinated promissory notes payable in varying
installments through January 20, 2025. The subordinated promissory
notes are non-interest bearing, subject to certain repayment provisions
as defined in the agreement. At September 25, 1997 and December 26,
1996, Bagcraft had outstanding borrowings of $221,000 and $231,000,
respectively, under this loan agreement.

Borrowings under the above loan agreements are collateralized by a
first lien on the land and building at the Baxter Springs, Kansas production
facility and by a second lien on certain machinery and equipment. Under certain
circumstances, repayment of the borrowings under the above loan agreements is
subordinated to the repayment of obligations under Bagcraft's Credit Agreement.

Bagcraft has historically funded its capital requirements with cash flow from
operations and funds available under its revolving credit loan. These sources
should provide sufficient cash flow to fund Bagcraft's short-term capital
requirements. As discussed above, it is anticipated that Bagcraft's recently
amended Credit Agreement will provide Bagcraft with the ability to fund its
long-term capital requirements.

Bagcraft anticipates that its 1997 capital expenditures, principally for
manufacturing equipment, will be approximately $2,500,000 and will be funded
principally from the above mentioned credit facilities and also from operations.

11
<PAGE>

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

The common stock and virtually all the assets of the Company and its Bagcraft
subsidiary have been pledged as collateral for borrowings under various loan
agreements. Under certain debt agreements the Company is limited in the amounts
it can withdraw from its operating subsidiaries.

Investment In COMFORCE Corporation

ARTRA, along with its wholly owned Fill-Mor subsidiary, owns a significant
minority interest in COMFORCE, consisting of 1,727,000 shares or approximately
13% of the outstanding common stock of COMFORCE as of September 25, 1997 with an
aggregate value as of that date of $12,845,000.

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

Rule 144(k) of the Act permits the sale without registration under the Act of
restricted shares of an issuer that have been held in excess of three years (two
years as of April 29, 1997) by persons who have not been "affiliates" of the
issuer for the preceding three months. Since December 28, 1995, ARTRA, Fill-Mor
and their respective officers, directors, affiliates and employees have held no
managerial or executive positions with COMFORCE nor have any of the above served
in the capacity of directors, nor have any of them had the right under any
agreement or otherwise to serve in such capacity since December 28, 1995.
Likewise, neither ARTRA, Fill-Mor nor any of the above had the right under any
agreement or otherwise to serve in such capacity since December 28, 1995.
Finally, since that time, neither ARTRA, Fill-Mor nor any of their respective
officers, directors, affiliates and employees have had any material involvement
in, nor have they been able to exercise any control over, COMFORCE, either
individually or together with any other person or entity. Because of this, the
Company and COMFORCE believe that ARTRA and Fill-Mor are not "affiliates" of
COMFORCE and, since they have held their shares in excess of three years,
qualify for the exemption under Rule 144(k) set forth above.

There can be no assurance that the Securities and Exchange Commission would
concur with the Company's position. Notwithstanding this, ARTRA does not believe
that its ability to sell COMFORCE shares, or eventually to realize on the value
of its COMFORCE shares, will be affected in a material adverse way, although it
may not be able to sell its COMFORCE shares as quickly as it could if it were to
use Rule 144(k), and in any event, an attempt to sell a large number of its
COMFORCE shares over a limited period could be expected to result in a reduction
in the value of such shares. Effective December 19, 1996, ARTRA and COMFORCE
entered into a Settlement Agreement pursuant to which COMFORCE agreed to include
in a proposed underwritten public offering 380,000 shares of COMFORCE common
stock held by ARTRA and its Fill-Mor subsidiary and ARTRA agreed to a Lock-up
agreement which limits its ability to sell its remaining COMFORCE common shares
for a period of 360 days after the effective date of COMFORCE's proposed
underwritten public offering. COMFORCE did not retain an underwriter for the
proposed underwritten public offering and, accordingly, effective April 30, 1997
ARTRA was released from the provisions of the Lock-up Agreement.

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

12
<PAGE>

notes, collateralized by the 200,000 COMFORCE common shares sold, are not
payable until the earlier of the registration of these shares under the
Securities Act of 1993 or the expiration of the applicable resale waiting period
under Securities Act Rule 144. Additionally, the noteholders have the right to
put their COMFORCE shares back to ARTRA in full payment of the balance of their
notes. Based upon the preceding factors, the Company has concluded that, for
reporting purposes, it has effectively sold options to certain officers,
directors and key employees to acquire 200,000 of ARTRA's COMFORCE common
shares. Accordingly, these 200,000 COMFORCE common shares have been removed from
the Company's portfolio of "Available-for-sale securities" and are classified in
the Company's condensed consolidated balance sheet at September 25, 1997 and
December 26, 1996 as other receivables with an aggregate value of $400,000,
based upon the value of proceeds to be received upon future exercise of the
options. The disposition of these 200,000 COMFORCE common shares will result in
a gain which has been deferred and will not be recognized in the Company's
financial statements until the options to purchase these 200,000 COMFORCE common
shares are exercised. As of September 25, 1997, no options to acquire any of the
200,000 COMFORCE common shares had been exercised. In October 1997, an executive
officer of ARTRA exercised the right to acquire 40,500 of these COMFORCE common
shares. In the fourth quarter of 1997, ARTRA will recognize a gain of
approximately $150,000 on the sale of these 40,500 COMFORCE common shares.

During the three months ended September 25, 1997, ARTRA sold 12,703 COMFORCE
shares in the market for proceeds of approximately $93,000. The disposition of
these 12,703 COMFORCE shares resulted in a realized gain of $115,000, with cost
determined by average cost.

In June 1997, ARTRA sold 5,000 COMFORCE shares in the market for proceeds of
approximately $33,000. The disposition of these 5,000 COMFORCE shares during the
quarter ended September 26, 1996 resulted in a realized gain of $42,000, with
cost determined by average cost.

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

As additional consideration for a February 1996 short-term loan a lender
received 25,000 COMFORCE common shares held by ARTRA. In March 1996, ARTRA sold
93,000 COMFORCE shares in the market, with the proceeds of approximately
$630,000 used for working capital. The disposition of these 118,000 COMFORCE
shares during the quarter ended March 28, 1996 resulted in realized gains of
$1,043,000, with cost determined by average cost.

In June 1996, ARTRA sold 100,000 COMFORCE shares in the market, with the
proceeds of approximately $3,100,000 used principally to pay down debt
obligations. As additional consideration for two short-term loans, in April 1996
the lenders received 20,000 COMFORCE common shares held by ARTRA. The
disposition of these 120,000 COMFORCE shares during the quarter ended September
26, 1996 resulted in additional realized gains of $3,452,000, with cost
determined by average cost.

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

At September 25, 1997 ARTRA's remaining investment in COMFORCE (1,727,000
shares, currently a common stock ownership interest of approximately 13%) was
classified in the Company's consolidated balance sheet in current assets as
"Available-for-sale securities." At September 25, 1997 the gross unrealized gain
relating to ARTRA's investment in COMFORCE, reflected as a separate component of
shareholders' equity, was $15,924,000.

Litigation

The Company and its subsidiaries are the defendants in various business-related
litigation and environmental matters. See Note 12 to the Company's condensed
consolidated financial statements. At September 25, 1997 and December 26, 1996,
the Company had accrued $1,900,000 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.

13
<PAGE>

Net Operating Loss Carryforwards

At September 25, 1997, the Company and its subsidiaries had Federal income tax
loss carryforwards of approximately $36,000,000, expiring principally in 2002 -
2010, available to be applied against future taxable income, if any. In recent
years, the Company has issued shares of its common stock to repay various debt
obligations, as consideration for acquisitions, to fund working capital
obligations and as consideration for various other transactions. Section 382 of
the Internal Revenue Code of 1986 limits a corporation's utilization of its
Federal income tax loss carryforwards when certain changes in the ownership of a
corporation's common stock occurs. In the opinion of management, the Company is
not currently subject to such limitations regarding the utilization of its
Federal income tax loss carryforwards. Should the Company continue to issue a
significant number of shares of its common stock, it could trigger a limitation
that would prevent it from utilizing a substantial portion of its Federal income
tax loss carryforwards.

Impact of Inflation and Changing Prices

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.

Recently Issued Accounting Pronouncements

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

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

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

14
<PAGE>

ARTRA GROUP INCORPORATED
Index to Financial Statements

Page
Number
------

Financial Statements (Unaudited):

Condensed Consolidated Balance Sheets
September 25, 1997 and December 26, 1996 16

Condensed Consolidated Statements of Operations
Three Months and Nine Months Ended
September 25, 1997 and September 26, 1996 18

Condensed Consolidated Statement of Changes
in Shareholders' Equity (Deficit)
Nine Months Ended September 25, 1997 19

Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 25, 1997
and September 26, 1996 20

Notes to Condensed Consolidated Financial Statements 21

15
<PAGE>
PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

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

September 25, December 26,
1997 1996
------- -------
ASSETS

Current assets:
Cash and equivalents $ 291 $ 171
Receivables, less allowance for doubtful
accounts of $227 in 1997 and $512 in 1996 10,606 8,267
Inventories 16,270 14,967
Available-for-sale securities 12,845 22,564
Other 2,509 931
------- -------
Total current assets 42,521 46,900
------- -------

Property, plant and equipment 48,859 45,414
Less accumulated depreciation and amortization 23,493 20,480
------- -------
25,366 24,934
------- -------

Other assets:
Excess of cost over net assets acquired,
net of accumulated amortization
of $2,312 in 1997 and $2,083 in 1996 2,861 2,995
Other 1,280 2,550
------- -------
4,141 5,545
------- -------
$72,028 $77,379
======= =======

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

16
<PAGE>

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

September 25, December 26,
1997 1996
------- -------

LIABILITIES

Current liabilities:
Notes payable, including amounts
due to related parties of
$3,000 in 1997 and $3,600 in 1996 $18,069 $18,631
Current maturities of long-term debt 10,137 2,712
Accounts payable 8,528 5,129
Accrued expenses 11,508 10,394
Income taxes 244 478
Bagcraft detachable put warrant -- 1,500
Redeemable preferred stock 11,668 11,100
Liabilities of discontinued operations 220 348
------- -------
Total current liabilities 60,374 50,292
------- -------

Long-term debt 39,937 34,207
Bagcraft detachable put warrant 3,439 1,450
Other noncurrent liabilities 1,630 685
Commitments and contingencies

Redeemable common stock,
issued 72,984 shares in 1997
and 98,734 shares in 1996 3,277 3,657

Redeemable preferred stock 8,878 8,678

SHAREHOLDERS' EQUITY (DEFICIT)
Common stock, no par value;
authorized 20,000,000 shares;
issued 7,867,556 shares in 1997
and 7,624,766 shares in 1996 5,955 5,793
Additional paid-in capital 41,416 40,211
Unrealized appreciation of investments 15,924 25,719
Receivable from related party,
including accrued interest (15,074) (6,468)
Accumulated deficit (93,676) (86,793)
------- -------
(45,455) (21,538)
Less treasury stock, 7,628 shares, at cost 52 52
------- -------
(45,507) (21,590)
------- -------
$72,028 $77,379
======= =======

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

17
<PAGE>

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

Three Months Ended Nine Months Ended
-------------------- --------------------
Sept 25, Sept 26, Sept 25, Sept 26,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 32,325 $ 29,397 $ 92,599 $ 90,162
-------- -------- -------- --------

Costs and expenses:
Cost of goods sold,
exclusive of depreciation and amortization 26,385 22,854 74,498 71,710
Selling, general and administrative 4,173 2,995 12,205 10,967
Depreciation and amortization 1,110 995 3,262 2,954
-------- -------- -------- --------
31,668 26,844 89,965 85,631
-------- -------- -------- --------

Operating earnings 657 2,553 2,634 4,531
-------- -------- -------- --------

Other income (expense):
Interest expense (2,531) (1,713) (6,674) (5,117)
Amortization of debt discount (675) (173) (2,026) (253)
Realized gain on disposal of
available-for-sale securities 115 328 370 4,823
Other income (expense), net 63 5 241 (205)
-------- -------- -------- --------
(3,028) (1,553) (8,089) (752)
-------- -------- -------- --------

Earnings (loss) before income taxes,
minority interest and extraordinary credit (2,371) 1,000 (5,455) 3,779
Provision (credit) for income taxes 194 (37) 153 (87)
Minority interest (52) (359) (769) (169)
-------- -------- -------- --------
Earnings (loss) before extraordinary credit (2,229) 604 (6,071) 3,523
Extraordinary credit, net discharge of indebtedness -- -- -- 9,424
-------- -------- -------- --------
Net earnings (loss) (2,229) 604 (6,071) 12,947
Dividends applicable to redeemable preferred stock (178) (157) (514) (463)
Reduction of retained earnings applicable
to redeemable common stock (102) (92) (298) (297)
-------- -------- -------- --------
Earnings (loss) applicable to common shares ($ 2,509) $ 355 ($ 6,883) $ 12,187
======== ======== ======== ========

Earnings (loss) per share:
Earnings (loss) before extraordinary credit ($ 0.31) $ 0.04 ($ 0.87) $ 0.32
Extraordinary credit -- -- -- 1.23
-------- -------- -------- --------
Net earnings (loss) ($ 0.31) $ 0.04 ($ 0.87) $ 1.55
======== ======== ======== ========

Weighted average number of shares of common stock and
common stock equivalents outstanding 7,921 7,949 7,882 7,870
======== ======== ======== ========

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

</TABLE>

18
<PAGE>

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

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

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 26, 1996 7,624,766 $5,793 $40,211 $25,719 ($6,468) ($86,793) 7,628 ($52) ($ 21,590)
Net earnings -- -- -- -- -- (6,071) -- -- (6,071)
Common stock issued
to pay liabilities 87,447 65 356 -- -- -- -- -- 421
Increase in receivable
from related party,
including accrued interest -- -- -- -- (8,606) -- -- -- (8,606)
Decrease in unrealized
appreciation of investments -- -- -- (9,795) -- -- -- -- (9,795)
Exercise of stock options
and warrants 39,800 30 148 -- -- -- -- -- 178
Redeemable common stock
obligation paid by the
issuance of
additional common shares 115,543 67 612 -- -- -- -- -- 679
Purchase of
redeemable preferred stock -- -- 89 -- -- -- -- -- 89
Redeemable preferred
stock dividends -- -- -- -- -- (514) -- -- (514)
Redeemable common
stock accretion -- -- -- -- -- (298) -- -- (298)
--------- --------- --------- --------- --------- --------- ------ -------- ---------
Balance at September 25, 1997 7,867,556 $5,955 $41,416 $15,924 ($15,074) ($93,676) 7,628 ($52) ($ 45,507)
========= ========= ========= ========= ========= ========= ====== ======== =========

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

</TABLE>

19
<PAGE>

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

<TABLE>
<CAPTION>
Nine Months Ended
----------------------------
September 25, September 26,
1997 1996
--------- ---------
<S> <C> <C>
Net cash flows from (used by) operating activities $ 932 ($ 4,062)
--------- ---------

Cash flows from investing activities:
Additions to property, plant and equipment (2,192) (1,797)
Acquisition of AB Specialty, net of deposit (1,131) --
Increase in receivable from related party (8,365) (454)
Proceeds from sale of COMFORCE common stock 125 3,717
Proceeds from collection of Welch notes -- 342
Decrease in unexpended plant construction funds -- 552
Other -- 91
--------- ---------
Net cash flows from (used by) investing activities (11,563) 2,451
--------- ---------

Cash flows from financing activities:
Net decrease in short-term debt (409) (577)
Proceeds from long-term borrowings 111,581 99,497
Reduction of long-term debt (98,463) (99,327)
Redemption of detachable put warrants (1,600) --
Exercise stock options and warrants 178 281
Purchase of redeemable preferred stock (426) --
Redeemable common stock options exercised -- (510)
Other (110) (1)
--------- ---------
Net cash flows from (used by) financing activities 10,751 (637)
--------- ---------

Increase (decrease) in cash and cash equivalents 120 (2,248)
Cash and equivalents, beginning of period 171 2,347
--------- ---------
Cash and equivalents, end of period $ 291 $ 99
========= =========

Supplemental cash flow information:
Cash paid during the period for:
Interest $ 5,679 $ 4,388
Income taxes paid, net 177 8

Supplemental schedule of noncash
investing and financing activities:
Issue common stock to pay down liabilities 421 1,274
Issue common stock to pay
redeemable common stock put obligation 679 --
Issue common stock as additional consideration
for short-term borrowings -- 661
BCA Holdings redeemable preferred stock
issued in exchange for
Bagcraft redeemable preferred stock -- 8,135

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

</TABLE>

20
<PAGE>

ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

ARTRA GROUP Incorporated ("ARTRA" or the "Company"), through its wholly-owned
subsidiary, Bagcraft Corporation of America ("Bagcraft"), currently operates in
one industry segment as a manufacturer of packaging products principally serving
the food industry.

The Company's condensed consolidated financial statements are presented on a
going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. In the opinion of
the Company, the accompanying condensed consolidated financial statements
reflect all normal recurring adjustments necessary to present fairly the
financial position as of September 25, 1997, and the results of operations and
changes in cash flows for the three and nine month periods ended September 25,
1997 and September 26, 1996. In recent years, the Company has suffered recurring
losses from operations and has a net capital deficiency. As a result of these
factors, the Company has experienced difficulty in obtaining adequate financing
to replace certain credit arrangements and to fund its debt service and
liquidity requirements. These factors raise substantial doubt about the
Company's ability to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty. See Note 6, Notes Payable, and Note 7, Long-Term Debt, for further
discussion of the status of credit arrangements and restrictions on the ability
of operating subsidiaries to fund ARTRA corporate obligations. Due to its
limited ability to receive operating funds from its subsidiaries, ARTRA has
historically met its operating expenditures with funds generated by alternative
sources, such as private placements of ARTRA common stock and notes, sales of
ARTRA common stock with put options, loans from officers/directors and private
investors, as well as through sales of assets and/or other equity infusions.
ARTRA plans to continue to seek such alternative sources of funds to meet its
future operating expenditures.

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

These condensed consolidated financial statements are presented in accordance
with the requirements of Form 10-Q and consequently do not include all the
disclosures required in the Company's annual report on Form 10-K. Accordingly,
the Company's annual report on Form 10-K for the fiscal year ended December 26,
1996, as filed with the Securities and Exchange Commission, should be read in
conjunction with the accompanying consolidated financial statements. The
condensed consolidated balance sheet as of December 26, 1996 was derived from
the audited consolidated financial statements in the Company's annual report on
Form 10-K.

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

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

2. CONCENTRATION OF RISK

The accounts receivable of the Company's Bagcraft subsidiary at September 25,
1997 consist primarily of amounts due from companies in the food industry. As a
result, the collectibility of these receivables is dependent, to an extent, upon
the economic condition and financial stability of the food industry. Credit risk
is minimized as a result of the large number and diverse nature of Bagcraft's
customer base. Bagcraft's major customers include some of the largest companies
in the food industry. At September 25, 1997, Bagcraft had 10 customers with
accounts receivable balances that aggregated approximately 23% of the Company's
total trade accounts receivable. In fiscal year 1996 no single customer
accounted for 10% or more of Bagcraft's sales.

21
<PAGE>

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

3. INVENTORIES

Inventories (in thousands) consist of:

September 25, December 26,
1997 1996
------- -------

Raw materials and supplies $ 5,752 $ 5,582
Work in process 388 287
Finished goods 10,130 9,098
------- -------
$16,270 $14,967
======= =======

4. INVESTMENT IN COMFORCE CORPORATION

At September 25, 1997, ARTRA's investment in COMFORCE Corporation ("COMFORCE",
formerly the Lori Corporation, "Lori"), 1,727,000 shares held by the Company and
its Fill-Mor Holding, Inc. ("Fill-Mor") subsidiary, represented approximately
13% of COMFORCE's outstanding common shares. The investment in COMFORCE common
stock is accounted for under the provisions of SFAS No. 115 "Accounting for
Certain Investments in Debt and Equity Securities." Under this statement ARTRA's
investment in COMFORCE is classified as available for sale securities and is
stated at fair value. The Company's operating plan for the remainder of fiscal
year 1997 anticipates the sale of these marketable securities, with proceeds to
be used principally to pay down Corporate debt obligations and fund working
capital requirements. Accordingly, ARTRA's investment in COMFORCE common stock
is classified in the Company's condensed consolidated balance as a current
asset. At September 25, 1997 the gross unrealized gain relating to ARTRA's
investment in COMFORCE, reflected as a separate component of shareholders'
equity, was $15,924,000.

At September 25, 1997, 700,000 shares of COMFORCE common stock owned by the
Company and its Fill-Mor subsidiary have been pledged as collateral for various
debt obligations. Additionally, the Company and a lender are currently
negotiating the form of collateral for certain promissory notes issued in June
1997 with an aggregate principal amount of $2,975,000. The collateral is
anticipated to be substantially all of it the Company's otherwise unencumbered
COMFORCE common shares (approximately 1,000,000 shares).

In conjunction with COMFORCE's 1995 acquisition of its COMFORCE Telecom
acquisition, ARTRA entered into an Assumption Agreement whereby it agreed to
assume substantially all pre-existing Lori liabilities and indemnify COMFORCE in
the event any future liabilities arise concerning pre-existing environmental
matters and business related litigation. Accordingly, at September 25, 1997 and
December 26, 1996, $220,000 and $348,000, respectively, of such pre-existing
Lori liabilities were classified in ARTRA's consolidated balance as current
liabilities of discontinued operations. ARTRA has deposited 125,000 shares of
its COMFORCE common stock into an escrow account to collateralize its remaining
obligations under the Assumption Agreement.

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

22
<PAGE>

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

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

In January 1996, the Company's Board of Directors approved the sale of 200,000
of ARTRA's COMFORCE common shares to certain officers, directors and key
employees of ARTRA for non-interest bearing notes totaling $400,000. The notes,
collateralized by the 200,000 COMFORCE common shares sold, are not payable until
the earlier of the registration of these shares under the Securities Act of 1993
or the expiration of the applicable resale waiting period under Securities Act
Rule 144. Additionally, the noteholders have the right to put their COMFORCE
shares back to ARTRA in full payment of the balance of their notes. Based upon
the preceding factors, the Company has concluded that, for reporting purposes,
it has effectively sold options to certain officers, directors and key employees
to acquire 200,000 of ARTRA's COMFORCE common shares. Accordingly, these 200,000
COMFORCE common shares have been removed from the Company's portfolio of
"Available-for-sale securities" and are classified in the Company's condensed
consolidated balance sheet at September 25, 1997 and December 26, 1996 as other
receivables with an aggregate value of $400,000, based upon the value of
proceeds to be received upon future exercise of the options. The disposition of
these 200,000 COMFORCE common shares resulted in a gain which has been deferred
and will not be recognized in the Company's financial statements until the
options to purchase these 200,000 COMFORCE common shares are exercised. As of
September 25, 1997, no options to acquire any of the 200,000 COMFORCE common
shares had been exercised. In October 1997, an executive officer of ARTRA
exercised the right to acquire 40,500 of these COMFORCE common shares. In the
fourth quarter of 1997, ARTRA will recognize a gain of approximately $150,000 on
the sale of these 40,500 COMFORCE common shares.

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

5. EXTRAORDINARY GAINS

ARTRA Debt Restructuring

In February 1996, a bank agreed to discharge all amounts under its ARTRA notes
($12,063,000 plus accrued interest and fees) and certain obligations of ARTRA's
president, Peter R. Harvey for consideration consisting of ARTRA's cash

23
<PAGE>

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

payment of $5,050,000, Mr. Harvey's cash payment of $100,000 and Mr. Harvey's
$3,000,000 note payable to the bank (the "Harvey Note"). The bank assigned ARTRA
a $2,150,000 interest in the Harvey Note, subordinated to the bank's $850,000
interest in the Harvey Note. ARTRA then discharged $2,150,000 of Mr. Harvey's
prior advances in exchange for its $2,150,000 interest in Mr. Harvey's
$3,000,000 note payable to the bank. The amount of the $5,050,000 cash payment
to the bank applicable to Peter R. Harvey ($1,089,000) was charged to amounts
due from Peter R. Harvey. ARTRA recognized a gain on the discharge of this
indebtedness of $9,424,000 ($1.23 per share) in the first quarter of 1996. The
cash payment due the bank was funded principally with proceeds received from the
Bagcraft subsidiary in conjunction with the issuance of BCA (the parent of
Bagcraft) preferred stock (see Note 9) along with proceeds received from a
short-term loan agreement with an unaffiliated company that was subsequently
repaid in April 1996. As additional compensation for its loan and for
participating in the above discharge of indebtedness the unaffiliated company
received 150,000 shares of ARTRA common stock (with a then fair market value of
$661,000 after a discount for restricted marketability) and 25,000 shares of
COMFORCE common stock held by ARTRA (with a then fair market value of $200,000).

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

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

6. NOTES PAYABLE

Notes payable (in thousands) consist of:
September 25, December 26,
1997 1996
------- -------
ARTRA 12% secured promissory notes -
1997 private placements $12,450

ARTRA 12% secured promissory notes -
1996 private placement -- $ 7,675

Amounts due to related parties,
interest from 10% to 12% 3,000 3,600

ARTRA bank notes payable,
interest at the lender's index rate -- 2,500

Other, interest from 10% to 15% 2,619 4,856
------- -------
$18,069 $18,631
======= =======

24
<PAGE>

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

Secured Promissory Notes

1997 Private Placements

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

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

1996 Private Placement

25
<PAGE>

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

over the period April 15, 1996 (the commencement date of the private placement)
through April 15, 1997 (the maturity date of the notes as well as the date the
warrantholders have the right to put their warrants back to ARTRA). These
promissory notes were collateralized by ARTRA's interest in all of the common
stock of BCA (the parent of Bagcraft). The proceeds from the private placement,
completed in July 1996, were used principally to pay down other debt
obligations. During the second quarter of 1997, the Company repaid these secured
promissory notes with the proceeds of additional short-term borrowings and with
funds received from the Company's Bagcraft subsidiary in accordance with a May
1997 amendment to its credit agreement (see Note 7).

Amounts Due To Related Parties

26
<PAGE>

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

In July 1997, borrowings from this lender were reduced to $3,000,000 with
proceeds advanced to ARTRA from a Bagcraft term loan as discussed in Note 7. As
of September 25, 1997, ARTRA had total outstanding borrowings of $3,000,000 from
this director collaterallized by a 75% interest in the common stock of ARTRA's
BCA subsidiary (the parent of Bagcraft).

Bank Notes Payable

Other

27
<PAGE>

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

7. LONG-TERM DEBT

Long-term debt (in thousands) consists of:

September 25, December 26,
1997 1996
-------- --------
Bagcraft:
Credit Agreement:
Term Loan A, interest at the
lender's index rate plus .25% $ 18,500 $ 20,000

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

Term Loan C, interest at the
lender's index rate plus 1% 7,500 --

Revolving credit loan,
interest at the lender's index rate 10,817 7,990

Unamortized discount (1,714) (1,752)

City of Baxter Springs,
Kansas loan agreements,
interest at varying rates 9,971 10,681
------- -------
50,074 36,919

Current scheduled maturities (10,137) (2,712)
------- -------
$ 39,937 $ 34,207
======= =======

28
<PAGE>

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

29
<PAGE>

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

8. REDEEMABLE COMMON STOCK

In recent years ARTRA has entered into various agreements under which it has
sold its common shares along with options that require ARTRA to repurchase these
shares at the option of the holder at a premium over the initial sales price.
The increment in the option price over the initial sales price of redeemable
common stock is reflected in the Company's financial statements by a charge to
retained earnings. At September 25, 1997 and December 26, 1996 options were
outstanding that, if exercised, would require ARTRA to repurchase 72,984 and
98,734 shares of its common stock for an aggregate amount of $3,277,000 and
$3,657,000, respectively.

During 1987, ARTRA entered into an agreement with a private corporation under
which it sold its common shares along with a put option that required ARTRA to
repurchase these shares at the option of the holder. A major shareholder and
executive officer of the private corporation is an ARTRA director. The put
option agreement has been extended from time to time, most recently in November
1992. The private corporation received the right to sell to ARTRA 23,004 shares
of ARTRA common stock at an initial put price of $56.76 pre share. The option
price increases by an amount equal to 15% per annum for each day from March 1,
1991 to the date of payment by ARTRA, which option expires December 31, 1997. At
September 25, 1997, the option price was $92.75 per share.

As additional consideration for its guaranty of $2,500,000 of ARTRA bank notes
during the period March 1989 through March 1994, the private corporation noted
above received 49,980 ARTRA common shares. On March 31, 1994, ARTRA entered into
a series of agreements with its bank lender and with the above private
corporation. Per terms of the agreements, the private corporation purchased
$2,500,000 of ARTRA notes from ARTRA's bank and the bank released the private
corporation from its $2,500,000 loan guaranty. As consideration for purchasing
$2,500,000 of ARTRA bank notes, the private corporation received a $2,500,000
ARTRA note payable and an option to put back to ARTRA its 49,980 shares of ARTRA
common stock at a price of $15.00 per share. The option price increases by $2.25
per share annually ($22.88 per share at September 25, 1997). During the first
quarter of 1996 the ARTRA bank notes were discharged (see Note 5) and the
$2,500,000 note payable to the private corporation and related accrued interest
was paid in full principally with proceeds from additional short-term
borrowings.

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

30
<PAGE>

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

9. REDEEMABLE PREFERRED STOCK

Redeemable preferred stock (in thousands) consists of:
<TABLE>
<CAPTION>
September 25, December 26,
1997 1996
------- -------
<S> <C> <C>
Currently payable:
Bagcraft redeemable preferred stock
payable to a related party,
cumulative $.01 par value,
13.5%; including accumulated dividends;
redeemable in 1997 with a liquidation
preference equal to $100 per share;
issued 8,650 shares $ 2,095 $ 2,007

BCA Holdings preferred stock, Series B,
$1.00 par value, 6% cumulative,
including accumulated dividends;
redeemable in 1997 with a liquidation
preference of $1,000 per share;
8,135 shares authorized; issued 7,847.79
shares in 1997 and 8,135 shares in 1996 9,573 9,093
------- -------
$ 11,707 $ 11,100
======= =======

Noncurrent:
ARTRA redeemable preferred stock,
Series A, $1,000 par value,
6% cumulative payment-in-kind,
including accumulated dividends,
net of unamortized discount
of $958 in 1997 and $1,271 in 1996;
redeemable March 1, 2000 at $1,000
per share plus accrued dividends;
authorized 2,000,000 shares all series;
issued 3,583.62 shares in 1997
and 3,750 shares in 1996 $ 4,619 $ 4,315

BCA Holdings preferred stock, Series A,
$1.00 par value, 6% cumulative,
including accumulated dividends;
redeemable in 1997 with a liquidation
preference of $1,000 per share;
10,000 shares authorized;
issued 3,456.18 shares in 1997
and 3,675 shares in 1996 4,259 4,363
------- -------
$ 8,878 $ 8,678
======= =======
</TABLE>

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.

31
<PAGE>

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

In August and September 1997 ARTRA repurchased 166.38 shares of ARTRA Series A
redeemable preferred stock with a carrying value of $209,000 for cash of
$120,000. The redeemable preferred stock purchase resulted in a gain of $89,000
which was reflected in the Company's condensed consolidated financial statements
as a credit to additional paid-in capital.

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 $1,993,000 and $1,836,000 were
accrued at September 25, 1997 and December 26, 1996, respectively.

Bagcraft/BCA Holdings

In 1987, Bagcraft obtained financing from a subsidiary of Ozite through the
issuance of a $5,000,000 unsecured subordinated note, due June 1, 1997. During
1992, per agreement with the noteholder, the interest payments were remitted to
ARTRA and the noteholder received 675 shares of BCA Series A preferred stock
($1.00 par value, 6% cumulative with a liquidation preference equal to $1,000
per share) with a liquidation value of $675,000. In December, 1993, the
unsecured subordinated note and accrued interest thereon were paid in full from
proceeds of Bagcraft's Credit Agreement. Per agreement with the noteholder, the
accrued interest outstanding on the note of $3,000,000 was remitted to ARTRA and
the noteholder received an additional 3,000 shares BCA Series A preferred stock
having a liquidation value of $3,000,000. Accumulated dividends of $802,000 and
$688,000 were accrued at September 25, 1997 and December 26, 1996, respectively.

In 1987, Bagcraft issued to a subsidiary of Ozite $5,000,000 of preferred stock
(50,000 shares of 13.5% cumulative, redeemable preferred stock with a
liquidation preference equal to $100 per share) redeemable by Bagcraft in 1997
at a price of $100 per share plus accrued dividends. Dividends, which accrue and
are payable semiannually on June 1 and December 1 of each year, are reflected in
the Company's consolidated statement of operations as minority interest. The
holder has agreed to forego dividend payments as long as such payments are
prohibited by Bagcraft's lenders. Accumulated dividends of $1,230,000 and
$1,142,000 were accrued at September 25, 1997 and December 26, 1996,
respectively.

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

The BCA Series B preferred stock is redeemable on June 1, 1997. Accumulated
dividends of $1,725,000 and $958,000 were accrued at September 25, 1997 and
December 26, 1996, respectively.

In August and September 1997 ARTRA repurchased 218.82 shares of BCA Series A
redeemable preferred stock and 287.21 shares of BCA Series B redeemable
preferred stock with a combined carrying value of $611,000 for cash of $306,000.
The BCA redeemable preferred stock purchase resulted in a gain of $305,000 which
was reflected in the Company's consolidated statement of operations as minority
interest.

In conjunction with the preferred stock exchange agreement, Bagcraft's lender
consented to an advance of $4,135,000 under Bagcraft's revolving credit loan to
be transferred to ARTRA as a dividend. ARTRA used the funds from this dividend
plus funds from a short-term loan agreement to fund a payment to its bank lender
in accordance with provisions of its debt discharge agreement as discussed in
Note 5.

32
<PAGE>

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

10. INCOME TAXES

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

11. EARNINGS PER SHARE

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

12. LITIGATION

The Company and its subsidiaries are the defendants in various business-related
litigation and environmental matters. At September 25, 1997 and December 26,
1996, the Company had accrued current liabilities of $1,900,000 for potential
business-related litigation and environmental liabilities. While these
litigation and environmental matters involve wide ranges of potential liability,
management does not believe the outcome of these matters will have a material
adverse effect on the Company's financial statements. However, ARTRA may not
have available funds to pay liabilities arising out of these business-related
litigation and environmental matters or, in certain instances, to provide for
its legal defense.

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

33
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ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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

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

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

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

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

In January, 1985 the United States Environmental Protection Agency ("EPA")
notified the Company's Bagcraft subsidiary that it was a potentially responsible
party ("PRP") under the Comprehensive Environmental Responsibility Compensation
and Liability Act ("CERCLA") for alleged release of hazardous substances at the
Cross Brothers site near Kankakee, Illinois. Although Bagcraft has denied
liability for the site, it has entered into a settlement agreement with the EPA,
along with the other third party defendants, to resolve all claims associated
with the site except for state claims. In May, 1994 Bagcraft paid $850,000 to
formally extinguish the EPA claim. In September 1989, Bagcraft was served with a
complaint filed by the State of Illinois against seventeen parties for alleged
involvement with the Cross Brothers site. The complaint alleged Bagcraft was
responsible for the costs of cleanup incurred and to be incurred. Although
Bagcraft has denied liability for the site, it has entered into a settlement
agreement with the State, along with the other potential responsible parties, to
resolve all claims associated with the site. In July, 1997 Bagcraft paid
approximately $150,000 to formally extinguish the state claim.

Bagcraft has been notified by the EPA that it is a potentially responsible party
for the disposal of hazardous substances at the Ninth Avenue site in Gary,
Indiana. This site is listed on the EPA's National Priorities list. A group of
defendant PRPs, known as the Ninth Avenue Remedial Group, settled with the USEPA
and agreed to remediate the site. This Group subsequently sued numerous third
party defendants, including Bagcraft, alleged also to be responsible parties at
the site. The plaintiffs have produced only limited testamentary evidence, and
no documentary evidence, linking Bagcraft to this site, and the Company has
neither discovered any records which indicate, nor located any current or former

34
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ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

employees who have advised, that Bagcraft deposited hazardous substances at the
site. Based on the foregoing, management of the Company does not believe that it
is probable that the Company will have any liability for the costs of the
clean-up of this site. The Company intends to vigorously defend itself in this
case.

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

In November of 1995, the EPA issued a Notice of Violation ("NOV") against
Bagcraft's Chicago facility alleging numerous violations of the Clean Air Act
and related regulations. The NOV alleges that the facility installed and
operated emission sources without permits, that it failed to operate air
pollution control equipment at required efficiencies and that there were
releases of VOMs above permitted limits. In April 1997, the EPA filed an
administrative complaint and has proposed a $250,000 civil penalty. Bagcraft has
filed a response to the complaint and is attempting to negotiate a settlement.

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

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

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

In a case titled Sherwin-Williams Company v. ARTRA GROUP Incorporated, filed in
1991 in the United States District Court for Maryland, Sherwin-Williams Company
("Sherwin-Williams") brought suit against ARTRA and other former owners of a
paint manufacturing facility in Baltimore, Maryland for recovery of costs of
investigation and clean-up of hazardous substances which were stored, disposed
of or otherwise released at this manufacturing facility. This facility was owned
by Baltimore Paint and Chemical Company, formerly a subsidiary of ARTRA from
1968 to 1980. Sherwin-William's current projection of the cost of clean-up is
approximately $5 to $6 million. The Company has filed counterclaims against
Sherwin-Williams and cross claims against other former owners of the property.
The Company also is vigorously defending this action and has raised numerous
defenses. Currently, the case is in its early stages of discovery and the
Company cannot determine what, if any, its liability may be in this matter.

ARTRA was named as a defendant in United States v. Chevron Chemical Company
brought in the United States District Court for the Central District of
California respecting Operating Industries, Inc. site in Monterey Park,

35
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ARTRA GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)

California. This site is included on the EPA's National Priorities List. ARTRA's
involvement stemmed from the alleged disposal of hazardous substances by The
Synkoloid Company ("Synkoloid") subsidiary of Baltimore Paint and Chemical
Company, which was formerly owned by ARTRA. Synkoloid manufactured spackling
paste, wall coatings and related products, certain of which generated hazardous
substances as a by-product of the manufacturing process.

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

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

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

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

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

36
<PAGE>

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

13. 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:

September 25, December 26,
1997 1996
-------- --------

Total advances, including accrued interest $ 17,315 $ 7,998

Less interest for the period January 1,
1993 to date, accrued and fully reserved (2,241) (1,530)
-------- --------

Net advances $ 15,074 $ 6,468
======== ========

ARTRA has total advances due from its president, Peter R. Harvey, of which
$17,315,000 and $7,998,000, including accrued interest, remained outstanding at
September 25, 1997 and December 26, 1996, respectively. A $7,500,000 July 1997
advance, as discussed below, bears intertest at 12%. The remaining advances of
$9,815,000 and $7,998,000 at September 25, 1997 and December 26, 1996,
respectively, bear interest at the prime rate plus 2% (10.5% at September 25,
1997 and 10.25% December 26, 1996, respectively). This receivable from Peter R.
Harvey has been classified as a reduction of common shareholders' equity.

37
<PAGE>

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

ARTRA's Fill-Mor subsidiary to Peter R. Harvey totaling $1,540,000 (including
$398,000 of accrued interest) were transferred to ARTRA as a dividend.

In conjunction with COMFORCE's October 1995 acquisition of COMFORCE Telecom,
ARTRA agreed to assume substantially all pre-existing COMFORCE liabilities and
indemnify COMFORCE in the event any future liabilities arise concerning
pre-existing environmental matters and business related litigation. Accordingly,
at September 25, 1997 and December 26, 1996, respectively, $220,000 and $348,000
of such pre-existing Lori liabilities were classified in ARTRA's consolidated
balance sheet at as current liabilities of discontinued operations.

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

14. OTHER INFORMATION

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