ARTRA GROUP INC, 10-K, 1997-04-03

ARTRA GROUP INC
10-K, 1997-04-03
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934 For the fiscal year ended December 26, 1996

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

Commission file number 1-3916

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

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

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

Registrant's telephone number, including area code: (847) 441-6650

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

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

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

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

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

State the aggregate market value of the voting stock held by nonaffiliates of
the registrant at February 28, 1997: $35,767,000.

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

Class Outstanding at February 28, 1997
- ------------------------------- --------------------------------
Common stock, without par value 7,885,420

Documents Incorporated by Reference: None

<PAGE>

PART I

Item 1. Business

ARTRA Group Incorporated, (hereinafter "ARTRA" or the "Company"), is a
Pennsylvania corporation incorporated in 1933. Through its wholly-owned
subsidiary, Bagcraft Corporation of America ("Bagcraft"), ARTRA currently
operates in one industry segment as a manufacturer of packaging products
principally serving the food industry. Prior to September 28, 1995, ARTRA's then
majority owned subsidiary, COMFORCE Corporation ("COMFORCE", formerly The Lori
Corporation "Lori"), operated as a designer and distributor of popular-priced
fashion costume jewelry and accessories. In September 1995 COMFORCE adopted a
plan to discontinue its jewelry business.

On October 17, 1995, COMFORCE acquired all of the capital stock of COMFORCE
Telecom Inc. ("COMFORCE Telecom"), formerly Spectrum Global Services, Inc. d/b/a
YIELD Global. COMFORCE Telecom provides telecommunications and computer
technical staffing services worldwide to Fortune 500 companies and maintains an
extensive, global database of technical specialists with an emphasis on wireless
communications capability. At December 26, 1996 ARTRA's interest in COMFORCE
common stock was reduced to approximately 14%. See Notes 3 and 6 to the
Company's consolidated financial statements for a further discussion of ARTRA's
investment in COMFORCE.

Packaging Products Business

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

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

Sales orders are processed, and manufacturing and delivery schedules are
determined primarily at Bagcraft's headquarters and production facility in
Chicago. In September, 1994, Bagcraft completed the construction of a 265,000
sq. ft. production facility in Baxter Springs, Kansas. The new Kansas facility,
which has added production capacity in Bagcraft's growing food service products
business, has replaced Bagcraft's production facility in Joplin, Missouri (which
was conveyed to a contractor involved in constructing the Baxter Springs
facility in partial consideration of such contractor's fees), its facility in
Carteret, New Jersey (which was sold in 1994) and its facility in Forest Park,
Georgia (which was converted into a distribution facility until it was closed in
June 1996).

Bagcraft's products are sold throughout the United States by a sales force of
approximately 15 full-time salespersons who sell direct or to wholesale
distributors. Bagcraft also utilizes a number of independent brokers who sell
Bagcraft products to large food processors and food chains. Bagcraft presently
sells its products to more than 2,000 customers. Although some of these are the
largest and most recognizable companies in the food industry, no single customer
accounted for more than 10% of ARTRA's consolidated net sales in 1996.

<PAGE>

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

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

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

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

Paper Division

Bagcraft believes it is the industry leader in specialty paper bags, which
represented approximately 31% of Bagcraft's 1996 sales. Bakeries account for
approximately 63% of the paper division's 1996 sales which also include
supermarkets and various retail food chains. A number of the paper division's
products, including Dubl-Wax(TM), Dubl-Panel(TM), Dubl-Clear(TM) and
Sealing-Strip(TM) represent significant manufacturing innovations which have
contributed to Bagcraft's position as the industry leader. Major customers
include Walgreen's, Albertson's, Dunkin' Donuts, Boston Market and Publix.
Bagcraft believes the outlook for the future indicates stability and growth.

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

Food Service Division

The Food Service Division, which represented approximately 46% of Bagcraft's
1996 sales, is a leader among its competitors. Bagcraft's products sold to the
food service industry include foil and paper bags and sheets for sandwiches,
french fries, chicken and other prepared foods. Major customers in this industry
include Wendy's, Burger King, Taco Bell, Dairy Queen and McDonald's.

The development of the Honeycomb sheet helped propel Bagcraft to its industry
leading position. The Honeycomb sheet incorporates a moisture absorbing layer
which prevents buns from becoming soggy and tends to keep food warm for a longer
period of time. When used to replace rigid packaging, it represents significant
source reduction to the solid waste system. Additionally, Bagcraft was the first
manufacturer to print 6-color sheets.

<PAGE>

Specialty Bag Division

The Specialty Bag Division represented approximately 17% of Bagcraft's 1996
sales. Many of the division's products represent unique additions to Bagcraft's
standard products. The Cue-Pon Bag(TM) has a "tear out" coupon affixed near the
window on the bag which offers the shopper the immediate benefit of the coupon
upon purchase. The Cue-Pon Pocket Bag(TM) has a pouch on the front of the bag
which can be filled with novelty items by the retailer.

The division features products for the packaging of bakery goods, such as
cookies and donuts, coffee, pre-popped popcorn and specialized promotional
items. This division provides bags with transparent windows, metal tin tie
attachments and convenient self-opening bottoms. Customers for the division
include Bake-Line Products and Interstate Brands.

This division also produces theater popcorn bags, which provide the theater
chains with a more economical package that is easy to dispose of and
substantially reduces the amount of space needed to inventory the product. These
double wall bags provide many of the properties of rigid containers such as tubs
and cartons with the environmental and storage advantages of bags. Bagcraft is
the leading supplier of popcorn bags to theater chains such as General Cinema
Corporation, Carmike and Mann Theaters.

As discussed in Note 20 to the consolidated financial statements effective
January 2, 1997, Bagcraft purchased the business assets, subject to buyer's
assumption of certain liabilities, of AB Specialty Holding Company, Inc. ("AB").
The acquisition of AB, is expected to enhance Bagcraft's specialty bag business.

Microwave Popcorn Division

The Microwave Popcorn Division, which represented approximately 6% of Bagcraft's
1996 sales, represents an example of Bagcraft's high technology advancements.
Bagcraft supplies microwave popcorn packaging to several industry leaders,
including Yoki, an international customer.

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

In recent years, Bagcraft has experienced a decline in its domestic microwave
popcorn business due to the acquisition of one of its major customers by a
company with its own packaging ability. Accordingly, at December 28, 1995,
Bagcraft incurred a charge to operations of approximately $1,500,000 to
write-down the carrying value of idle machinery and equipment dedicated to the
production of microwave popcorn products.

Employees

At December 26, 1996, the Company employed approximately 900 persons. The
Company considers its relationships with its employees to be good.

<PAGE>

Item 2. Properties

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

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

Northfield, IL (1) Headquarters facility of Leased, expiring in 1997
approximately 7,000 sq. ft

Bagcraft:

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

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

Baxter Springs, KS(5) Manufacturing, warehouse and office facility
of approximately 265,000 sq. ft. Owned

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

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

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

</TABLE>

- --------------------------------------------------------------------------------

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

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

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

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

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

<PAGE>

Item 3. Legal Proceedings

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

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

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

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

In January, 1985 the United States Environmental Protection Agency ("EPA")
notified the Company's Bagcraft subsidiary that it was a potentially responsible
party ("PRP") under the Comprehensive Environmental Responsibility Compensation
and Liability Act ("CERCLA") for alleged release of hazardous substances at the
Cross Brothers site near Kankakee, Illinois. Although Bagcraft has denied
liability for the site, it has entered into a settlement agreement with the EPA,
along with the other third party defendants, to resolve all claims associated
with the site except for state claims. In May, 1994 Bagcraft paid $850,000 to
formally extinguish the EPA claim. In September 1989, Bagcraft was served with a
complaint filed by the State of Illinois against seventeen parties for alleged
involvement with the Cross Brothers site. The complaint alleges Bagcraft is
responsible for the costs of cleanup incurred and to be incurred. Bagcraft
denies the material allegations an is participating in settlement discussions
with the State and thirteen other potential responsible parties to resolve all
claims associated with the State. An agreement has been reached in principal to
settle the State claim, pending resolution of the terms of an appropriate
consent order. Bagcraft's share of the proposed settlement is approximately
$150,000.

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

<PAGE>

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

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

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

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

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

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

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

ARTRA was named as a defendant in United States v. Chevron Chemical Company
brought in the United States District Court for the Central District of
California respecting Operating Industries, Inc. site in Monterey Park,
California. This site is included on the EPA's National Priorities List. ARTRA's
involvement stemmed from the alleged disposal of hazardous substances by The
Synkoloid Company ("Synkoloid") subsidiary of Baltimore Paint and Chemical
Company, which was

<PAGE>

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.

On August 7, 1995, a Second Amended Verified Complaint was filed in the Supreme
Court of N.Y. by Philip Elghanian against ARTRA, its officers and directors (the
"ARTRA Defendants") and others alleging that the defendants engaged in a scheme
to defraud plaintiff of approximately $5 million of the value of his investment
in shares of ARTRA. The plaintiff seeks damages and interest in excess of $38
million and punitive and exemplary damages in excess of $100 million. On January
19, 1996, the ARTRA Defendants filed a motion to dismiss the Second Amended
Complaint. As of June 7, 1996 that motion is still pending. Since New York
permits interlocutory appeals, the decision, if adverse, may be appealed. In
February 1997, the Second Amended Complaint was dismissed, with the right to
replead.

On June 14, 1995 Tartan Resources brought suit in the United States District
Court for the Northern District of Illinois against A.G. Holding Corporation,
The Lori Corporation and Bagcraft. Bagcraft was voluntarily dismissed from the
lawsuit by the plaintiff. Tartan Resources alleges that under the alter-ego
theory, A.G. Holding is liable for a judgment entered against ARTRA and ARTRA
Resources Corp. The plaintiff seeks $151,215.46 plus interest, costs and
attorneys fees. A.G. Holding's motion for summary judgment was granted on
September 19, 1996.

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

<PAGE>

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

In 1994, ARTRA entered into a settlement agreement in connection with a lawsuit
filed by Hosiery Manufacturing Company. Under the terms of the settlement, ARTRA
was to pay $500,000. ARTRA was unable to satisfy its obligations under the
settlement agreement and subsequently entered into a new settlement agreement
reducing the liability to $125,000. This liability was paid in September 1996.

Item 4. Submission of Matters to a Vote of Security Holders.

None.

<PAGE>

PART II

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

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

The high and low sales prices for ARTRA's common stock, as reported in the NYSE
Quarterly Market Statistics reports, during the past two fiscal years were as
follows:

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

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

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

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

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

No dividends were paid in 1996 or 1995 nor are any anticipated in 1997. The
Company was prohibited from paying dividends to its stockholders pursuant to the
terms of its bank loan agreement that was discharged in February 1996. In
addition, the Company's operating subsidiaries historically have been prohibited
from or restricted in paying dividends or making distributions under their
respective debt agreements (except for limited overhead allocations or payments
in accordance with tax sharing agreements with the parent entity). Accordingly,
current restrictions or limitations on the Company's Bagcraft subsidiary in
upstreaming payments in 1997 and beyond would make the payment of dividends by
ARTRA unlikely. See Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for a discussion of the loan agreements of
the Company and its Bagcraft subsidiary.

<PAGE>

Item 6. Selected Financial Data.

Following is a consolidated summary of selected financial data of the Company
for each of the five fiscal years in the period ended December 26, 1996. The
information for the year ended December 29, 1994 reflects the operations of
Arcar Graphics, Inc. in discontinued operations. The sale of Arcar (acquired
effective April 9, 1994) was completed on October 26, 1995. Certain selected
financial data for each of the four fiscal years in the period ended December
28, 1995 reflects the discontinuance of the Company's jewelry business,
effective September 28, 1995, conducted by the former majority-owned subsidiary
COMFORCE Corporation, formerly The Lori Corporation. In October 1995, due to
issuances of COMFORCE common stock, the Company's ownership interest in COMFORCE
common stock was reduced to approximately 25% and the investment in COMFORCE was
accounted for under the equity method during the fourth quarter of 1995.
Effective December 28, 1995, the Company adopted SFAS No. 115 "Accounting for
Certain Investments in Debt and Equity Securities." Under this statement, at
December 26, 1996 and December 28, 1995, the Company's investment in COMFORCE is
classified as available for sale and is stated at fair value. See Notes 3 and 6
to the Company's consolidated financial statements for a further discussion of
the Company's investment in COMFORCE.

<TABLE>
<CAPTION>
Fiscal Year Ended (E)
-----------------------------------------------------------

1996 1995 1994 1993 1992
------ ------ ------ ------ ------
(in thousands except per share data)
<S> <C> <C> <C> <C> <C>

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

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

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

</TABLE>

<PAGE>

(A) Earnings from continuing operations for the year ended December 26,
1996 includes realized gains of $5,818,000 from dispositions of
COMFORCE common stock and a gain of $838,000 from an exchange of
redeemable preferred stock of its Bagcraft subsidiary.

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

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

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

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

<PAGE>

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

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

Changes in Business

Arcar

As discussed in Note 3 to the Company's consolidated financial statements,
effective April 8, 1994, Bagcraft purchased the business assets, subject to
buyer's assumption of certain liabilities, of Arcar, a manufacturer and
distributor of waterbase inks. Effective October 26, 1995, Bagcraft sold the
business assets, subject to the buyer's assumption of certain liabilities, of
Arcar for cash of approximately $20,300,000, resulting in a net gain of
$8,483,000. The net proceeds, after extinguishment of certain Arcar debt
obligations, of approximately $10,400,000, were used to reduce Bagcraft debt
obligations. The sale of Arcar resulted from an unsolicited offer from an
unrelated entity for an amount that management believed would exceed the
long-term appreciation of Arcar's assets.

COMFORCE

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

Effective October 17, 1995, COMFORCE acquired all of the capital stock of
COMFORCE Telecom Inc. ("COMFORCE Telecom"), formerly Spectrum Global Services,
Inc. d/b/a YIELD Global, for consideration of approximately $6.4 million, net of
cash acquired. This consideration consisted of cash to the seller of
approximately $5.1 million, fees of approximately $700,000, including a fee of
$500,000 to a related party, and 500,000 shares of COMFORCE common stock valued
at $843,000 (at a price per share of $1.68) issued as consideration for various
fees and guarantees associated with the transaction. The 500,000 shares of
COMFORCE common stock consisted of (I) 100,000 shares issued to an unrelated
party for guaranteeing the purchase price to the seller, (ii) 100,000 shares
issued to ARTRA, then the majority stockholder of the Company, in consideration
of its guaranteeing the purchase price to the seller and agreeing to enter into
the Assumption Agreement, as discussed below, (iii) 150,000 issued to two
unrelated parties for advisory services in connection with the acquisition, and
(iv) 150,000 shares issued to Peter R. Harvey, then a Vice President and
director of COMFORCE for guaranteeing the payment of the $6.4 million purchase
price to the seller. Additionally, in conjunction with the COMFORCE Telecom
acquisition, ARTRA entered into an Assumption Agreement whereby it agreed to
assume substantially all pre-existing Lori liabilities and indemnify COMFORCE in
the event any future liabilities arise concerning pre-existing environmental
matters and business related litigation. Accordingly, at December 26, 1996 and
December 28, 1995, $348,000 and $4,500,000, respectively, of such pre-existing
Lori liabilities were classified in ARTRA's consolidated balance as current
liabilities of discontinued operations. These Lori liabilities consist
principally of notes and accounts payable incurred by COMFORCE's discontinued
jewelry operations. The Assumption Agreement also provided for ARTRA to exchange
its interest in 100% of Lori's Series C cumulative preferred stock for 100,000
newly issued shares of COMFORCE common stock.

COMFORCE Telecom provides telecommunications and computer technical staffing
services worldwide to Fortune 500 companies and maintains an extensive, global
database of technical specialists, with an emphasis on wireless communications
capability. The acquisition of COMFORCE Telecom was funded principally by
private placements of approximately 1,950,000 shares of COMFORCE common stock at
$3.00 per share (total proceeds of approximately $5,800,000) plus five-year
detachable warrants to purchase approximately 970,000 shares of COMFORCE common
stock at $3.375 per share.

<PAGE>

business. COMFORCE recognized a non-recurring charge of $3,425,000 related to
this stock since these stock awards were 100% vested when issued, and were
neither conditioned upon these individuals' service to the Company as employees
nor the consummation of the COMFORCE Telecom acquisition. Accordingly, this
compensation charge was fully recognized in 1995. The shares of COMFORCE common
stock issued in accordance with the above agreements were valued at $.93 per
share. COMFORCE's management valued COMFORCE based on its discussions with
market makers and other advisors, taking into account (i) that the jewelry
business, which was discontinued in the third quarter of 1995, had a negligible
value, and (ii) the value of COMFORCE was principally related to the potential
effect that a purchase of COMFORCE Telecom, if successfully concluded, would
have on the market value of COMFORCE common stock. COMFORCE's management
believes this value of $.93 per share to be a fair and appropriate value based
upon COMFORCE's financial condition as of the date COMFORCE became obligated to
issue these shares. After the issuance of the COMFORCE common shares, plus the
effects of other transactions, ARTRA's ownership interest in COMFORCE common
stock was reduced to approximately 14% and 25% at December 26, 1996 and December
28, 1995, respectively. Accordingly, in October 1995, the accounts of COMFORCE
and its majority-owned subsidiaries were deconsolidated from ARTRA's
consolidated financial statements. See Note 6 to the Company's consolidated
financial statements for a further discussion of the accounting treatment of
ARTRA's investment in COMFORCE.

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

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

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

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

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

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

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

Results of Operations

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

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

<PAGE>

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 years in the period ended December 26, 1996.
<TABLE>
<CAPTION>

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

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

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

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

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

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

</TABLE>

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

Continuing Operations

Net sales from continuing operations of $120,699,000 for the year ended December
26, were $1,180,000, or 1.0%, lower than net sales from continuing operations
for the year ended December 28, 1995. The 1996 sales decrease is attributable to
an overall volume decrease partially offset by increased selling prices. The
1996 volume decrease is principally attributable to a 1995 promotion by a major
fast food customer. The increased 1996 selling prices were in response to the
significant increases in paper costs in 1995.

The Company's cost of sales from continuing operations of $94,613,000 for the
year ended December 26, 1996 decreased $7,895,000 as compared to the year ended
December 28, 1995. Cost of sales from continuing operations in the year ended
December 26, 1996 was 78.4% of net sales compared to a cost of sales percentage
of 84.1% for the year ended December 28, 1995. The decrease in cost of sales is
primarily attributable to lower paper costs and the decreased 1996 sales volume
as noted above. The decrease in cost of sales percentage is primarily
attributable to lower paper costs and improved production efficiencies in 1996.

Selling, general and administrative expenses from continuing operations were
$15,638,000 in the year ended December 26, 1996 as compared to $19,131,000 in
the year ended December 28, 1995. Selling, general and administrative expenses

<PAGE>

were 13.0% of net sales in the year ended December 26, 1996 as compared to 15.7%
of net sales in the year ended December 28, 1995. The 1996 decrease in selling,
general and administrative expenses is primarily attributable to a third quarter
1995 compensation charge related to the issuance of a 35% common stock interest
in COMFORCE as additional consideration for certain individuals to enter into
employment or consulting services agreements to manage COMFORCE's entry into and
development of the telecommunications and computer technical staffing services
business.

Depreciation and amortization expense from continuing operations was $3,927,000
in the year ended December 26, 1996 as compared to $4,330,000 in the year ended
December 28, 1995. Depreciation and amortization expense was 3.3 % of net sales
in the year ended December 26, 1996 as compared to 3.6% of net sales in the year
ended December 28, 1995. The 1996 decrease in depreciation and amortization
expense is primarily attributable to the December, 1995 write-down of idle
machinery and equipment dedicated to the production of microwave popcorn
products.

In recent years, Bagcraft had experienced a decline in its domestic microwave
popcorn business due to the acquisition of one of its major customers by a
company with its own packaging ability. Accordingly, at December 28, 1995,
Bagcraft incurred a charge to operations of $1,503,000 to write-down the
carrying value of idle machinery and equipment dedicated to the production of
microwave popcorn products.

The Company had operating earnings in the year ended December 26, 1996 of
$6,521,000 as compared to operating loss of $5,593,000 in the year ended
December 28, 1995. The 1996 increase in operating earnings is attributable to
improved operating margins and to the decrease in selling, general and
administrative expenses as noted above.

Interest expense from continuing operations in the year ended December 26, 1996
decreased $1,777,000 as compared to the year ended December 28, 1995. The 1996
decrease is principally due to discharges of bank indebtedness in the fourth
quarter of 1995 and the first quarter of 1996.

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

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

Discontinued Operations

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

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

Continuing Operations

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

<PAGE>

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

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

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

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

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

Discontinued Operations

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

<PAGE>

Liquidity and Capital Resources

Cash and Cash Equivalents and Working Capital

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

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

Status of Debt Agreements and Operating Plan

At December 28, 1995 the Company's corporate entity was in default of provisions
of certain of its credit agreements. Under certain debt agreements ARTRA is
limited in the amounts it can withdraw from its Bagcraft operating subsidiary.
In February, 1996, a bank lender agreed to discharge amounts due under bank
notes of the corporate entity ($12,063,000 plus accrued interest and fees) and
certain obligations of the Company's president, Peter R. Harvey. In December
1996, Bagcraft's credit agreement was extended until September 30, 2002. See
Notes 7, 8 and 9 to the Company's consolidated financial statements and
discussion below.

ARTRA Corporate

As of December 26, 1996, the Company's corporate entity had outstanding
short-term indebtedness of approximately $18,600,000, of which $3,150,000 was
past due.

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. In 1996 and 1997 the unaffiliated company received cash payments of
approximately $390,000 representing interest due through December, 1996. Payment
on the loans was due March 31, 1994, however, the lender has not demanded
payment. In February 1997, the lender received a warrant to purchase an
additional 100,000 ARTRA common shares at $5.625 per share as consideration for
not demanding payment of this obligation.

In 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, 1997, at a price of $2.00 per share. The cost of
this obligation ($837,500 if all warrants are put back to the Company) is being
accrued in the Company's financial statements as a charge to interest expense
over the period April 15, 1996 (the commencement date of the private placement)
through April 15, 1997 (the maturity date of the notes as well as the date the
warrantholders have the right to put their warrants back to ARTRA). These
promissory notes are collateralized by ARTRA's interest in all of the common
stock of BCA (the parent of Bagcraft). The proceeds from the private placement,
completed in July 1996, were used principally to pay down other debt
obligations.

<PAGE>

On August 15, 1996, ARTRA and its 100% owned Fill-Mor subsidiary entered into a
$2,500,000 term loan agreement with a bank. The loan, which provided for
interest payable monthly at the bank's reference rate (8.25% at December 26,
1996) was guaranteed by ARTRA and was collateralized by 1,265,000 shares of
COMFORCE common stock. Proceeds of the loan were used for working capital. In
March 1997, the loan was repaid with proceeds from other short-term borrowings
as discussed below.

In August, 1996, ARTRA borrowed $500,000 from a private investor, evidenced by a
short-term note, due December 23, 1996, bearing interest at 10%. The loan is
collateralized by 125,000 shares of COMFORCE common stock owned by the Company's
Fill-Mor subsidiary. As additional compensation for the loan, the private
investor received a warrant, expiring in 2001, to purchase 25,000 ARTRA common
shares at a price of $5.00 per share. The proceeds of the loan were used for
working capital. At the Company's annual meeting of shareholders, held August
29, 1996, the private investor was elected to the Company's board of directors.
In December 1996, the loan was extended until April 23, 1997 and the lender
received, as additional compensation, a warrant , expiring in 2001, to purchase
25,000 ARTRA common shares at a price of $5.875 per share. In January, 1997,
ARTRA borrowed an additional $300,000 from this lender evidenced by an
short-term note, due December 23, 1997, bearing interest at 8%. The loan is
collateralized by 100,000 shares of COMFORCE common stock owned by the Company's
Fill-Mor subsidiary. As additional compensation for the loan, the lender
received a warrant, expiring in 2002, to purchase 25,000 ARTRA common shares at
a price of $5.75 per share. In March 1997, ARTRA borrowed an additional
$1,000,000 from this lender evidenced by an short-term note, due May 26, 1997,
bearing interest at 12%. The loan is collateralized by 585,000 shares of
COMFORCE common stock owned by the Company's Fill-Mor subsidiary. As additional
compensation, the lender received an option to purchase 25,000 shares of
COMFORCE common stock owned by the Company's Fill-Mor subsidiary at a price of
$4.00 per share. If the note is not paid at maturity, the option price is
reduced to $2.00 per share and, for every 30 days the note is outstanding past
June 26, 1997, the lender will receive an option to purchase an additional 5,000
COMFORCE common shares at a price of $2.00 per share. The proceeds from this
loan were used in part to repay the ARTRA/Fill-Mor $2,500,000 bank term loan
described above. As of March 31, 1997, ARTRA had total outstanding borrowings of
$1,800,000 from this lender collateralized by 810,000 shares of COMFORCE common
stock.

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

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

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

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

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

<PAGE>

consideration consisting of ARTRA's cash payment of $5,050,000, Mr. Harvey's
cash payment of $100,000 and Mr. Harvey's $3,000,000 note payable to the bank
(the "Harvey Note"). The bank assigned ARTRA a $2,150,000 interest in the Harvey
Note, subordinated to the bank's $850,000 interest in the Harvey Note, and ARTRA
discharged $2,150,000 of Mr. Harvey's prior advances. ARTRA recognized a gain on
the discharge of this indebtedness of $9,424,000 ($1.23 per share) in the first
quarter of 1996 and recorded a receivable for Mr. Harvey's prorata share
($1,089,000) of the debt discharge funded by the Company. The cash payment due
the bank was funded principally with proceeds received from the Bagcraft
subsidiary in conjunction with the issuance of BCA (the parent of Bagcraft)
preferred stock (see Note 11 to the Company's 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.

On March 31, 1994, ARTRA entered into a series of agreements with its bank
lender and with a private corporation that had guaranteed $2,500,000 of the
ARTRA bank notes discharged in February 1996 as noted above. A major shareholder
and executive officer of the private corporation is an ARTRA director. Per terms
of the agreements, the private corporation purchased $2,500,000 of ARTRA notes
from ARTRA's bank and the bank released the private corporation from its
$2,500,000 loan guaranty. As consideration for purchasing $2,500,000 of ARTRA
bank notes, the private corporation received a $2,500,000 note payable from
ARTRA bearing interest at the prime rate. As additional consideration, the
private corporation received an option to put back to ARTRA the 49,980 shares of
ARTRA common stock received as compensation for its former $2,500,000 ARTRA loan
guaranty at a price of $15.00 per share. The put option is exercisable on the
later of the day that the $2,500,000 note payable to the private corporation
becomes due or the date the ARTRA bank notes have been paid in full. The option
price increases by $2.25 per share annually ($21.188 per share at December 26,
1996). During the first quarter of 1996, the $2,500,000 note and related accrued
interest was paid in full principally with proceeds from additional short-term
borrowings.

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

As discussed in Note 19 to the Company's consolidated financial statements,
ARTRA has total advances due from its president, Peter R. Harvey, of which
$7,998,000 and $5,369,000, including accrued interest, remained outstanding at
December 26, 1996 and December 28, 1995 The advances bear interest at the prime
rate plus 2% (10.25% at December 26, 1996 and 10.5% at December 28, 1995,
respectively). Commencing January 1, 1993 to date, interest on all advances to
Peter R. Harvey has been accrued and fully reserved. This receivable from Peter
R. Harvey has been classified as a reduction of common shareholders' equity.

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

<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%. The amount of these advances at
March 30, 1995 was $1,540,000 (including $398,000 of accrued interest). In
April, 1995, these advances from ARTRA's Fill-Mor subsidiary to Peter R. Harvey
were transferred to ARTRA as a dividend.

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

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

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

As collateral for amounts due from Peter R. Harvey, the Company has received the
pledge of 1,523 shares of ARTRA redeemable preferred stock (with a liquidation
value of $1,523,000, plus accrued dividends) which are owned by Mr. Harvey. In
addition, Mr. Harvey has pledged a 25% interest in Industrial Communication
Company (a private company). Such interest is valued by Mr. Harvey at $800,000
to $1,000,000. During 1995, Peter R. Harvey entered into a pledge agreement with
ARTRA whereby Mr. Harvey pledged additional collateral consisting of 42,067
shares of ARTRA common stock and 707,281 shares of Pure Tech International,
Inc., a publicly traded corporation. Per terms of a February discharge of bank
indebtedness (see Note 7 to the Company's consolidated financial statements),
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.

ARTRA has entered into various agreements under which it has sold its common
shares along with options that require ARTRA to repurchase these shares at the
option of the holder, principally one year after the date of each agreement. At
December 26, 1996, options are outstanding that, if exercised, would require
ARTRA to repurchase 98,734 shares of its common stock for an aggregate amount of
$3,657,000. ARTRA does not have available funds to satisfy its obligations if
these options were exercised. However the holders of redeemable common stock
have the option to sell their shares in the market subject to the limitations of
Securities Act Rule 144. At its discretion and subject to its financial ability,
ARTRA could reimburse the optionholders for any short-fall resulting from such
sale.

As discussed in Note 11 to the consolidated financial statements, ARTRA,
Bagcraft and Bagcraft's parent BCA have various redeemable preferred stock
issues with an aggregate carrying value of $19,778,000 at December 26, 1997.
Redeemable preferred stock issues with an aggregate carrying value of
$11,100,000 at December 26, 1996, mature in 1997. The Bagcraft redeemable
preferred stock, with a carrying value of $2,007,000 at December 26, 1996, is
payable in June 1997. Bagcraft anticipates it will fund this payment with funds
available under its revolving credit loan. The BCA Series B redeemable preferred
stock, with a carrying value of $9,093,000 at December 26, 1996, is also payable
in June 1997. ARTRA does not have available funds to satisfy this obligation.
The Company is currently negotiating with the redeemable preferred shareholders
to restructure or extend the maturity date of this obligation beyond 1997.

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,

<PAGE>

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 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.

Effective February 1, 1996, the Credit Agreement was amended whereby, among
other things, the maturity date of the Credit Agreement was extended until
September 30, 1997, certain loan covenants were amended. The principal payments
under Term Loan B were modified to include twenty-three monthly installments of
$200,000 from November 15, 1995 to September 30, 1997, with the remaining
balance payable at maturity (September 30, 1997). Additionally, in conjunction
with a preferred stock exchange agreement between BCA (the parent of Bagcraft),
Bagcraft and the holder of Bagcraft's 13.5% cumulative redeemable preferred
stock, the lender consented to an advance to Bagcraft of $4,135,000 under the
revolving credit loan to be transferred to ARTRA as a dividend (see Note 11 to
the Company's consolidated financial statements).

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

The amount available to Bagcraft under the revolving credit loan is subject to a
borrowing base, as defined in the Credit Agreement, up to a maximum of
$18,000,000. At December 26, 1996 and December 28, 1995, approximately
$6,200,000 and $6,600,000, respectively, was available and unused by Bagcraft
under the revolving credit loan. Borrowings under the revolving credit loan are
payable upon maturity of the Credit Agreement, unless accelerated under terms of
the Credit Agreement. At December 26, 1996, the interest rate on the revolving
credit loan was 8.25%.

<PAGE>

of the highest of book value, appraised value or market value of Bagcraft. In
connection with the February 1, 1996 amendment to the Credit Agreement, the
warrant agreement was amended to permit the holder to purchase 13% of the fully
diluted common equity of Bagcraft at the original nominal purchase price and to
extend the expiration date to December 17, 1999. In January 1997, in accordance
with the December 1996 amendment to the Credit Agreement, Bagcraft repurchased
50% of the Warrant (6.5% of the fully diluted common equity of Bagcraft) for
$1,500,000. Bagcraft can repurchase the remaining 50% of the Warrant on or after
December 17, 1997 for an amount based upon the Warrant's pro rata share of the
highest of book value, appraised value or market value of Bagcraft as noted
above.

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

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

A $7,000,000 promissory note payable in ten installments of $700,000
due annually on July 21 of each year beginning in 1995 through maturity
on July 21, 2004. Interest, at varying rates from 4.6% to 6.6%, is
payable semi-annually. At December 26, 1996 and December 28, 1995,
Bagcraft had outstanding borrowings of $5,600,000 and $6,300,000,
respectively, under this loan agreement.

A $5,000,000 subordinated promissory note payable as follows: $150,000
due in 1996; $2,425,000 due in 1998; and $2,425,000 due in 1999. The
subordinated promissory note is non-interest bearing, subject to
certain repayment provisions as defined in the agreement (as amended).
At December 26, 1996 and December 28, 1995, Bagcraft had outstanding
borrowings of $4,850,000 and $5,000,000, respectively, under this loan
agreement.

Two separate $250,000 subordinated promissory notes payable in varying
installments through January 20, 2025. The subordinated promissory
notes are non-interest bearing, subject to certain repayment provisions
as defined in the agreement. At December 26, 1996 and December 28,
1995, Bagcraft had outstanding borrowings of $231,000 and $494,000,
respectively, under this loan agreement.

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

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.

<PAGE>

As discussed in Note 20 to the 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 1,769,703 shares or approximately
14% of the outstanding common stock of COMFORCE as of December 26, 1996 with an
aggregate value as of that date of $22,564,000.

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. The registration statement has not occurred as of
the date of this Form 10-K. If COMFORCE does not retain an underwriter by April
30, 1997, ARTRA will released from the provisions of the Lock-up Agreement.
Currently, the sale of 1,715,000 COMFORCE common shares held by ARTRA and
Fill-Mor is restricted because the shares are collateral for various short-term
loans (54,703 shares held by ARTRA and Fill-Mor remain unencumbered).

<PAGE>

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

At December 26, 1996 ARTRA's remaining investment in COMFORCE (1,769,703 shares,
currently a common stock ownership interest of approximately 14%) was classified
in the Company's consolidated balance sheet in noncurrent assets as
"Available-for-sale securities." At December 26, 1996 the gross unrealized gain
relating to ARTRA's investment in COMFORCE, reflected as a separate component of
shareholders' equity, was $25,719,000.

Litigation

The Company and its subsidiaries are the defendants in various business-related
litigation and environmental matters. See Notes 13 and 18 to the Company's
financial statements. At December 26, 1996 and December 28, 1995, the Company
had accrued $1,900,000 and $1,800,000 respectively, for potential
business-related litigation and environmental liabilities. However, as discussed
above ARTRA may not have available funds to pay liabilities arising out of these
business-related litigation and environmental matters or, in certain instances,
to provide for its legal defense. ARTRA could suffer severe adverse consequences
in the event of an unfavorable judgment in any of these matters.

Net Operating Loss Carryforwards

At December 26, 1996, the Company and its subsidiaries had Federal income tax
loss carryforwards of approximately $36,000,000, expiring principally in 2002 -
2010, available to be applied against future taxable income, if any. In recent
years, the Company has issued shares of its common stock to repay various debt
obligations, as consideration for acquisitions, to fund working capital
obligations and as consideration for various other transactions. Section 382 of
the Internal Revenue Code of 1986 limits a corporation's utilization of its
Federal income tax loss carryforwards when certain changes in the ownership of a
corporation's common stock occurs. In the opinion of management, the Company is
not currently subject to such limitations regarding the utilization of its
Federal income tax loss carryforwards. Should the Company continue to issue a
significant number of shares of its common stock, it could trigger a limitation
that would prevent it from utilizing a substantial portion of its Federal income
tax loss carryforwards.

Impact of Inflation and Changing Prices

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

<PAGE>

Recently Issued Accounting Pronouncements

Earnings Per Share

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

Item 8. Financial Statements and Supplementary Data.

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

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

None.

<PAGE>

PART III

Item 10. Directors and Executive Officers of the Registrant

Information Regarding Directors

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

Name Age Positions and Experience
---- --- ------------------------

John Harvey (1) 64 Chairman of the Board of Directors and Chief
Executive Officer of ARTRA; Director since
1968; Chairman of the Board of Directors,
since 1985, a Director from 1982 to December
1995 and the Chief Executive Officer from
1990 to November 1995 of COMFORCE Corporation
(temporary professional employment, formerly
The Lori Corporation); an equity holding of
ARTRA representing 14% of COMFORCE
outstanding stock; a Director of Plastic
Specialties and Technologies, Inc. ("PST")
(textiles, hose and tubing); and Director of
Ozite Corporation (textiles, hose and
tubing). Director of PureTec Corporation, the
successor by merger to Ozite. Former Director
of Rymer Foods, Inc. (portion control meat
products and seafood).

Peter R. Harvey (2) 61 President and Chief Operating Officer and a
Director since 1968; Director of COMFORCE
(temporary professional employment, formerly
The Lori Corporation)from 1985 to December
1995 and a vice president through January
1996, an equity holding of ARTRA representing
14% of COMFORCE outstanding common stock; a
former Director and Chief Operating Officer
of SoftNet Systems, Inc. ("SoftNet"). During
1995, Mr. Harvey resigned from all of the
Softnet offices, formerly The Vader Group
Inc. (image processing and health care cost
containment); Vice President and Director of
Ozite Corporation, the majority parent of PST
(textiles, hose and tubing). Director of
PureTec Corporation, the successor by merger
to Ozite. Former Director of Rymer Foods
Inc., (portion control meat products and
seafood).

Gerard M. Kenny (3) 44 Director since 1988; Executive Vice President
and Director since 1982 of Kenny Construction
Company since 1982 (diversified heavy
construction); General Partner of Clinton
Industries (investments), a limited
partnership, since 1972.

Edward A. Celano (4) 57 Executive Vice President of the Atlantic Bank
of New York since May 1, 1996, Senior Vice
President of National Westminster, USA from
1984 through April 1996, corporate finance.

Howard R. Conant (5) 71 Retired Chairman of the Board of Interstate
Steel Co., 1970 to 1990, and a consultant to
Interstate through 1992.

Maynard K. Louis (6) 66 Retired Chairman of the Board of Lord Label
(now known as Porter & Chatburn), a printing
company, from 1965 to 1989, Vice President,
1989 to 1993, director of ARTRA from 1993
through 1995.

Robert L. Johnson (7) 60 Chairman and Chief Executive Officer of
Johnson Bryce, Inc., flexible packaging
materials of food products since 1991, and
previously, for many years, a vice president
of Sears Roebuck & Co.

John Harvey and Peter R. Harvey are brothers. COMFORCE was a 64.3% owned
subsidiary of ARTRA until October, 1995. ARTRA now owns approximately 14% of
COMFORCE. PureTec International, Inc. ("PureTec"), and PST are affiliates of
ARTRA.
<PAGE>

Information Regarding Executive Officers

Set forth below is information concerning the executive officers and other key
employees of ARTRA who were in office as of the date of this Form 10-K.

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

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

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

John G. Hamm 57 Executive Vice President of ARTRA

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

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

John Conroy 52 Vice President - Corporate Administration of
ARTRA

Lawrence D. Levin 45 Controller of ARTRA

Edwin G. Rymek 66 Secretary of ARTRA

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

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

John G. Hamm, Executive Vice President of ARTRA. Mr. Hamm has served as
Executive Vice President, since February 1988, and Vice President - Finance,
from 1975 until 1988, of ARTRA. Mr. Hamm has also served as Vice President -
Finance, from August 1990 until July 1995, and as a Director, from 1984 until
July 1995, of Ozite Corporation. Mr. Hamm also serves as a Director of SoftNet
Systems, Inc. since 1985 and served as Director of PST from 1985 until January,
1996.

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

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

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

<PAGE>

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

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

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

<PAGE>

Item 11. Executive Compensation

Directors' Compensation

Directors who are not employees of ARTRA ("Outside Directors") are entitled to
receive an annual retainer of $4,000 and $250 per meeting attended; however, no
fees were paid to Outside Directors in 1996. Each Outside Director who sits on
an established committee of ARTRA is entitled to receive $150 per committee
meeting attended. Employees of ARTRA who also serve as directors receive no
additional compensation for such service.

Executive Officer Executive Officer Compensation

The following table shows all compensation paid by ARTRA and its subsidiaries
for the fiscal years ended December 26, 1996, December 28, 1995 and December 29,
1994, to the chief executive officer of ARTRA and each of its other most highly
compensated executive officers who were serving as executive officers of ARTRA
as of December 26, 1996 and whose compensation exceeded $100,000 in 1996.

SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation(1) Long Term Compensation(1)
---------------------- -------------------------
Securities All
Underlying(3) Other
Name and Salary Salary Options - Compen-
Principal Positions Year Paid Deferred(2) Bonus No. of Shares sation
------------------- ---- ---- ----------- ----- ------------- ------
<S> <C> <C> <C> <C> <C> <C>

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

James D. Doering, 1996 133,600 -0- -0- 57,500 6,000(4)
Vice President and 1995 49,900 83,500 -0- -0- 3,470(5)
Chief Financial Officer 1994 111,133 22,267 -0- -0- 3,000(5)

John G. Hamm, 1996 133,600 -0- -0- 101,250 6,000(4)
Executive 1995 49,900 83,500 -0- -0- 3,470(5)
Vice President 1994 111,133 22,267 -0- -0- 3,000(5)

Robert S. Gruber, 1996 110,400 -0- -0- 97,750 6,000(4)
Vice President 1995 92,000 69,000 -0- -0- 2,868(5)
Corporate Relations 1994 -0- 18,400 -0- -0- 3,000(5)

</TABLE>
<PAGE>

- -----------------------

(1) No additional annual compensation was paid, no restrictive stock awards
or stock appreciation rights were granted, and no long term incentive
plan payouts were made to any of the officers listed in the table. Only
compensation earned in 1996 (irrespective of the year in which paid) is
considered in determining inclusion in this table.

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

(3) All of the options shown in this column were granted under the
Company's 1996 Stock Option Plan at an exercise price of $5.25 per
share, being the closing price of the Company's common stock on the New
York Stock Exchange on the date of grant (October 4, 1996). These
options expire October 4, 2006.

(4) These amounts include the Company's contributions to the 401(k) plan
during 1996 and 1995 and amounts contributed to the ARTRA GROUP
Incorporated Employee Stock Ownership Plan (the "ESOP") during 1995.
See note (5) below for a further discussion of the ESOP.

(5) These amounts represent the closing price on the New York Stock
Exchange of Common Stock as of the date the named officers became
entitled to receive the stock pursuant to the ESOP. Annual
contributions were made to the ESOP at the discretion of the Board of
Directors. ARTRA contributed 15,000 common shares to the Plan with a
fair market value of $71,250 ($4.75 per share) for the plan year ending
December 29, 1994. Effective August 1, 1995, the Company terminated the
ESOP and subsequently distributed the related Employee accounts to
participants.

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

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

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

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

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

</TABLE>
<PAGE>

The following table sets forth information concerning the aggregate number and
values of options held by the Chief Executive Officer and the other executive
officers of the Company listed in the Summary Compensation Table as of December
26, 1996 which were granted to such officers in consideration of their services
as officers or directors of the Company. No other options held by the Chief
Executive Officer or any other executive officers of the Company listed in the
Summary Compensation Table were exercised in 1996.

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

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

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

Robert S. Gruber 0 0 118,750/ 136,000/None

</TABLE>
0
- -------------------------------

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

(2) The listed options were issued at per share exercise prices of from
$3.65 per share to $5.25 per share. The market price of Common Stock as
of the close of trading on December 26, 1996 on the New York Stock
Exchange was $6.125 per share.

<PAGE>

Compensation Committee Interlocks And Insider Participation

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

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

Item 12. Security Ownership of Certain Beneficial Owners and Management

Securities Ownership of Certain Beneficial Owners

As of March 31, 1997, there were 7,885,420 shares of Common Stock issued and
outstanding. The following table sets forth the number and percentage of Common
Stock known by management of ARTRA to be beneficially owned as of March 31, 1997
by (i) all stockholders known by management of ARTRA to own 5% or more of
ARTRA's Common Stock, (ii) all directors of ARTRA, (iii) each executive officer
included in the Summary Compensation Table and (iv) all directors, executive
officers and other key employees of ARTRA as a group (9 persons). Unless stated
otherwise, each person so named exercises sole voting and investment power as to
the shares of Common Stock so indicated.

As of March 31, 1997, 3,750 shares of Series A Preferred Stock of ARTRA, par
value $1,000 per share, were issued and outstanding. Each share of this Series A
Preferred Stock entitles the holder to one vote on an equal basis with each
share of Common Stock. Accordingly, for purposes of showing ownership of Common
Stock in the table below, the Series A Preferred Stock is treated as Common
Stock.

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

Research Center of Kabbalah(1) 547,250 6.8%
Peter R. Harvey(2) Common 440,243 5.6%
Preferred 1,523 40.6%
John Harvey(3) 423,796 5.2%
Gerard M. Kenny(4) 240,048 3.0%
Maynard K. Louis(5) 121,000 1.5%
Howard R. Connant(6) 205,000 2.6%
Edward A. Celano 18,182 *
Robert L. Johnson 2,873 *
John G. Hamm(7) 143,498 1.8%
Robert S. Gruber(8) 141,104 1.8%
James D. Doering(9) 124,311 1.6%
All directors and executive officers
as a group (12 persons) 2,086,749 23.1%

* Less than 1% of the outstanding shares.

<PAGE>

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

- --------------------------

(1) The address of Research Center of Kabbalah ("RCK") is 83-84 115th Street,
Richmond Hill, New York 11418. The shares beneficially owned by RCK
consist of 361,000 shares of Common Stock owned directly, 21,250 shares of
Common Stock issuable under a warrant which expires October 29, 1998 at an
exercise price of $6.00 per share, 65,000 shares of Common Stock issuable
under a warrant which expires December 31, 1998 at an exercise price of
$7.00 per share and 100,000 shares of Common Stock issuable under a
warrant which expires February 14, 2002 at an exercise price of $5.625 per
share.

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

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

(4) The shares beneficially owned by Mr. Kenny consist of 2,000 shares of
ARTRA's common stock issuable upon the exercise of an option at $10.00 per
share expiring November 28, 1996, 75,652 shares held by (or issuable to)
Kenny Construction Company, 14,411 shares held by Clinton Industries, and
75,001 shares issuable under a warrant held by Clinton Industries which
expires November 10, 1997 at an exercise price of $5.00 per share. Kenny
Construction Company holds put options to sell to ARTRA (i) 23,004 shares
of Common Stock for a put price of $83.45 per share plus an amount equal
to 15% per annum for each day from March 1, 1991 to the date of payment by
ARTRA, which put option expires December 31, 1997, and (ii) 49,980 shares
of Common Stock for a put price of $21.19 per share, subject to an annual
increase of $2.25, which put option is exercisable on the later of the
date ARTRA's obligations to Bank of America are repaid or the $2,500,000
note of ARTRA payable to Kenny Construction Company (as described in
paragraph 5 under "Transactions with Management and Others." If the stock
subject to the put is sold at a price less than the put price, the Company
would remain liable to the holder of the put for the amount by which the
put price of the shares exceeds the selling price. Mr. Kenny is Executive
Vice President, Director and beneficial owner of 16.66% of the issued and
outstanding stock of Kenny Construction Company. He is also the General
Partner and a 14.28% beneficial owner of Clinton Industries, a limited
partnership. See paragraphs 4 and 5 under "Transactions with Management
and Others."

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

(6) Mr. Conant holds 140,000 ARTRA common shares directly, Mrs. Conant holds
5,000 ARTRA common shares and Mr. Conant holds warrants to acquire 60,000
shares of ARTRA common stock at prices of $5.00 to $5.75 per share which
warrants expire on various dates in 2001 and 2002.

<PAGE>

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

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

(9) The shares of Common Stock beneficially owned by Mr. Doering consist of
10,500 shares held by him in joint tenancy with his wife, 1,693 shares
held in his 401(k) plan, 1,118 shares held in his individual retirement
account, 22,500 shares issuable under an option which expires December 19,
2000 at an exercise price of $3.65 per share, 31,000 shares issuable under
an option which expires January 8, 2003 at an exercise price of $3.75 per
share and 57,500 shares issuable under an option which expires October 4,
2006, at an exercise price of $5.25 per share.

Item 13. Certain Relationships And Related Transactions

Effective October 17, 1995, COMFORCE, formerly a 64% owned subsidiary of ARTRA,
acquired all of the capital stock of COMFORCE Telecom Inc. ("COMFORCE Telecom"),
formerly Spectrum Global Services, Inc. d/b/a YIELD Global, for consideration of
approximately $6.4 million, net of cash acquired. This consideration consisted
of cash to the seller of approximately $5.1 million, fees of approximately
$700,000, including a fee of $500,000 to a related party, and 500,000 shares of
COMFORCE common stock valued at $843,000 (at a price per share of $1.68) issued
as consideration for various fees and guarantees associated with the
transaction. The 500,000 shares of COMFORCE common stock consisted of (i)
100,000 shares issued to an unrelated party for guaranteeing the purchase price
to the seller, (ii) 100,000 shares issued to ARTRA, then the majority
stockholder of the Company, in consideration of its guaranteeing the purchase
price to the seller and agreeing to enter into the Assumption Agreement, as
discussed below, (iii) 150,000 issued to two unrelated parties for advisory
services in connection with the acquisition, and (iv) 150,000 shares issued to
Peter R. Harvey, then a Vice President and director of COMFORCE for guaranteeing
the payment of the $6.4 million purchase price to the seller. Additionally, in
conjunction with the COMFORCE Telecom acquisition, ARTRA entered into an
Assumption Agreement whereby it agreed to assume substantially all pre-existing
Lori liabilities and indemnify COMFORCE in the event any future liabilities
arise concerning pre-existing environmental matters and business related
litigation. Accordingly, at December 26, 1996, $348,000 of such pre-existing
Lori liabilities were classified in ARTRA's condensed consolidated balance as
current liabilities of discontinued operations.

Effective July 4, 1995, COMFORCE's management agreed to issue up to a 35% common
stock interest in the COMFORCE to certain individuals to manage COMFORCE's entry
into the telecommunications and computer technical staffing business. COMFORCE
recognized a non-recurring charge of $3,425,000 related to this stock since
these stock awards were 100% vested when issued, and were neither conditioned
upon these individuals' service to the Company as employees nor the consummation
of the COMFORCE Telecom acquisition. Accordingly, this compensation charge was
fully recognized in 1995. The shares of COMFORCE common stock issued in
accordance with the above agreements were valued at $.93 per share. COMFORCE's
management valued COMFORCE based on its discussions with market makers and other
advisors, taking into account (i) that the Jewelry Business, which was
discontinued at the end of the second quarter of 1995, had a negligible value,
and (ii) the value of COMFORCE was principally related to the potential effect
that a purchase of COMFORCE Telecom, if successfully concluded, would have on
the market value of COMFORCE common stock. COMFORCE's management believed this
value of $.93 per share to be a fair and appropriate value based upon COMFORCE's
financial condition as of the date COMFORCE became obligated to issue these
shares. After the issuance of the COMFORCE common shares, plus the effects of
other transactions, ARTRA's

<PAGE>

ownership interest in COMFORCE common stock was reduced to approximately 14% and
25% at December 26, 1996 and December 28, 1995, respectively. Accordingly, in
October 1995, the accounts of COMFORCE and its majority-owned subsidiaries were
deconsolidated from ARTRA's consolidated financial statements. See Note 6 to the
Company's consolidated financial statements for the year ended December 26, 1996
for a further discussion of the accounting treatment of ARTRA's investment in
COMFORCE.

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

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

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

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

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

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

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

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

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

The aggregate amount of all amounts due from Mr. Harvey which remained
outstanding as of December 26, 1996 (the end of ARTRA's most recent fiscal year)
was $7,998,000. ARTRA has accrued interest in the sum of $1,699,000 on the
principal owed to it by Mr. Harvey. Commencing January 1, 1993 to date, interest
on these amounts due from Peter R. Harvey has been accrued and fully reserved.

As partial collateral for amounts due from Peter R. Harvey, the Company has
received the pledge of 1,523 shares of ARTRA redeemable preferred stock (with a
liquidation value of $1,523,000, plus accrued dividends) which are owned by Mr.
Harvey. In addition, Mr. Harvey has pledged a 25% interest in Industrial
Communication Company (a private company). Such interest is valued by Mr. Harvey
at $800,000 to $1,000,000. During 1995, Peter R. Harvey entered into a pledge
agreement with ARTRA whereby Mr. Harvey pledged additional collateral consisting
of 42,067 shares of ARTRA common stock and 707,281 shares of PureTec. In
addition, in connection with a discharge of certain bank indebtedness discussed
below, ARTRA received rights under a mortgage of certain real estate owned by
Mr. Harvey. The mortgage secures $2,150,000 of the amount owed by Mr. Harvey.
The bank has a senior security interest in the amount of $850,000. See
Settlement of the Bank of America Illinois Debt.

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

<PAGE>

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

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

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

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

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

On March 31, 1994, ARTRA entered into a series of agreements with its bank
lender and with Kenny. Under the terms of these agreements, Kenny purchased a
$2,500,000 participation in the $5,000,000 note payable to ARTRA's bank lender.
Kenny's participation is evidenced by a $2,500,000 ARTRA note (the "Kenny Note")
bearing interest at the prime rate. As consideration for its purchase of this
participation, the bank lender released Kenny from its $2,500,000 loan guaranty.
As additional consideration, Kenny received an option to put back to ARTRA the
49,980 shares of ARTRA common stock received as compensation for its $2,500,000
ARTRA loan guaranty at a price of $15.00 per share. The put option is subject to
increase at the rate of $2.25 per share per annum ($21.188 at December 26,
1996). The put option is exercisable on the later of the date the Kenny Note is
repaid or the date ARTRA's obligations to its bank lender are fully paid. During
the first quarter of 1996, the $2,500,000 note and related accrued interest was
paid in full, principally with the proceeds from additional short-term
borrowings. The put option remains outstanding.

On September 27, 1989, ARTRA received a proposal to purchase Bagcraft from Sage
Group, Inc. ("Sage"), a privately-owned corporation. Effective March 3, 1990, a
wholly-owned subsidiary of ARTRA indirectly acquired from Sage 100% of the
issued and outstanding common shares of BCA Holdings, Inc., which in turn owned
100% of the stock of Bagcraft, for total consideration which was delivered to
Ozite as the successor by merger to Sage, upon approval of ARTRA's shareholders.
The consideration for the Bagcraft acquisition consisted of 772,000 shares of
ARTRA's common stock and 3,750 shares of its $1,000 par value junior
non-convertible payment-in-kind preferred stock bearing a dividend rate of 6%.
The issuance of the ARTRA Common and Preferred Stock as consideration was
approved by ARTRA's shareholders at the December 1990 annual meeting of
shareholders. Upon the merger of Sage into Ozite on August 24, 1990, Ozite
became entitled to receive this consideration, which right Ozite assigned to its

<PAGE>

PST subsidiary. Peter R. Harvey, ARTRA's President, and John Harvey, ARTRA's
Chairman of the Board of Directors, were the principal shareholders of Sage and
Ozite as of the times that the merger agreements were executed and the mergers
consummated.

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

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

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

The BCA preferred stock provides a $1,000 per share liquidation preference and
annual cumulative cash dividends of $60.00 per share when and if declared by
BCA. The Bagcraft redeemable preferred stock remains outstanding as of the date
hereof.
As of December 26, 1996, dividends in the amount of $688,000 had cumulated
thereon.

Settlement of the Bank of America Illinois Debt

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

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

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

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

2. BCA executed a note in favor of Arabella in the principal amount of
$1,900,000 with a maturity date of May 26, 1996 (the "New ARTRA Note,")
and Peter R. Harvey executed a note in favor of Arabella in the
principal amount of $2,296,830 (the "New Harvey Note"). The amount of
the Harvey Note was reduced to $100,000 if payment was made by May 26,
1996. Arabella was entitled to up to an additional 100,000 shares of
ARTRA common stock and 25,000 shares of COMFORCE stock depending on
when ARTRA and Peter R. Harvey
<PAGE>

repaid the new debt. The New ARTRA and Harvey Notes were repaid in
April, 1996, principally from the proceeds of a private placement
completed in July (and commenced in April). Based on the date of the
repayment, Arabella received an additional 50,000 shares of ARTRA
stock, which had a value of $220,000 after a discount for restricted
marketability. Arabella also received an additional $125,000 in lieu of
the additional 12,500 shares of COMFORCE to which it was entitled based
on the date of repayment.

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

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

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

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

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

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

Other Transactions

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

During 1993, The Research Center of Kabbalah ("RCK"), which holds approximately
7% of ARTRA's outstanding Common Stock (including the stock issuable upon the
exercise of warrants) as of December 26, 1996, made certain short-term loans to
the Company of which $2,000,000, with interest at 10%, was outstanding at
December 31, 1993. As additional compensation, RCK received warrants to purchase
an aggregate of 86,250 ARTRA common shares at prices ranging from $6.00 to $7.00
per share based upon the market of ARTRA's common stock at the date of issuance.
The warrants expire five years from the date of issuance. In January 1994,
Kabbalah made an additional $1,000,000 short-term loan to the Company, also with
interest at 10%. The proceeds of these loans were used to pay down various ARTRA
short-term loans and other debt obligations. In December, 1995, RCK received
126,222 shares of ARTRA common in payment of past due interest through October
31, 1995. In 1996 and 1997 RCK received cash payments of

<PAGE>

approximately $390,000 representing interest due through December, 1996. Payment
on the loans was due March 31, 1994. In February 1997, RCK received a warrant to
purchase 100,000 ARTRA common shares, expiring February 14, 2002, at a price of
$5.625 per share. The warrant was issued as consideration for RCK not demanding
payment of its loan.

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

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

In January, 1997, ARTRA borrowed an additional $300,000 from Mr. Conant
evidenced by an short-term note, due December 23, 1996, bearing interest at 8%.
The loan is collateralized by 100,000 shares of COMFORCE common stock owned by
the Company's Fill-Mor subsidiary. As additional compensation for the loan, Mr.
Conant received a warrant, expiring in 2002, to purchase 25,000 ARTRA common
shares at a price of $5.75 per share.

In March 1997, ARTRA borrowed an additional $1,000,000 from Mr. Conant evidenced
by a short-term note, due May 26, 1997, bearing interest at 12%. The loan is
collateralized by 585,000 shares of COMFORCE common stock owned by the Company's
Fill-Mor subsidiary. As additional compensation, Mr. Conant received an option
to purchase 25,000 shares of COMFORCE common stock owned by the Company's
Fill-Mor subsidiary at a price of $4.00 per share. If the note is not paid at
maturity, the option price is reduced to $2.00 per share and, for every 30 days
the note is outstanding past June 26, 1997, Mr. Conant will receive an option to
purchase an additional 5,000 COMFORCE common shares at a price of $2.00 per
share. The proceeds from this loan were used in part to repay an ARTRA/Fill-Mor
$2,500,000 bank term loan.

As of March 31, 1997, ARTRA had total outstanding borrowings of $1,800,000 from
Mr. Conant collateralized by 810,000 shares of COMFORCE common stock.

<PAGE>

PART IV

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

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

(b) Reports on Form 8-K.

No reports on Form 8-K were filed during the quarter
ended December 26, 1996.

<PAGE>

SIGNATURE

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

ARTRA GROUP INCORPORATED

By: JOHN HARVEY
-----------
John Harvey
Chairman and Director
Dated: April 2, 1997 Chief Executive Officer

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

JOHN HARVEY Chairman and Director April 2, 1997
- ----------------------------- Chief Executive Officer
John Harvey

PETER R. HARVEY President and Director April 2, 1997
- ----------------------------- Chief Operating Officer
Peter R. Harvey

JAMES D. DOERING Vice President /Treasurer April 2, 1997
- ----------------------------- Chief Financial Officer
James D. Doering

EDWARD A. CELANO Director April 2, 1997
- -----------------------------
Edward A. Celano

HOWARD R. CONANT Director April 2, 1997
- -----------------------------
Howard R. Conant

ROBERT L. JOHNSON Director April 2, 1997
- -----------------------------
Robert L. Johnson

GERARD M. KENNY Director April 2, 1997
- -----------------------------
Gerard M. Kenny

MAYNARD K. LOUIS Director April 2, 1997
- -----------------------------
Maynard K. Louis

LAWRENCE D. LEVIN Controller April 2, 1997
- -----------------------------
Lawrence D. Levin

<PAGE>

INDEX TO FINANCIAL STATEMENTS

Page
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

Report of Independent Accountants

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

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

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

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

Notes to Consolidated Financial Statements

Schedules:

I. Condensed Financial Information of Registrant

II. Valuation and Qualifying Accounts

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

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

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

We have audited the consolidated financial statements and the financial
statement schedules of ARTRA GROUP Incorporated and Subsidiaries as listed in
the index on page F-1 of this Form 10-K. These financial statements and
financial statement schedules are the responsibility of ARTRA GROUP
Incorporated's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of ARTRA
GROUP Incorporated and Subsidiaries as of December 26, 1996 and December 28,
1995, and the consolidated results of their operations and their cash flows for
each of the three fiscal years in the period ended December 26, 1996 in
conformity with generally accepted accounting principles. In addition, in our
opinion, the financial statement schedules referred to above, when considered in
relation to the basic financial statements taken as a whole, present fairly, in
all material respects, the information required to be included therein.

The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has suffered recurring losses
from operations and has a net capital deficiency. As a result of these factors,
the Company has experienced difficulty in obtaining adequate financing to
replace its current credit arrangements, certain of which are in default, to
fund its debt service and to satisfy liquidity requirements for 1997. These
factors raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

COOPERS & LYBRAND L.L.P.

Chicago, Illinois
April 2, 1997

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

Redeemable preferred stock 8,678 18,631

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

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

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

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

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

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

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

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

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

<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</FN>
</TABLE>
<PAGE>
ARTRA GROUP INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
(In thousands, except share data)
<TABLE>
<CAPTION>
Unrealized Receivable Total
Common Stock Additional Appreciation From Treasury Stock Shareholders'
------------------ Paid-in of Related Accumulated ---------------- Equity
Shares Dollars Capital Investments Party (Deficit) Shares Dollars (Deficit)
---------- ------- ---------- ------------ ---------- ----------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 30, 1993 4,983,608 $3,922 $31,042 ($3,843) ($73,225) 57,038 ($805) ($42,909)
Net loss - - - - (20,470) - - (20,470)
Redeemable common
stock accretion - - - - (309) - - (309)
Common stock sold through
private placements 855,000 641 2,484 - - - - 3,125
Common stock issued for Lori
debt settlement agreement 400,000 300 2,200 - - - - 2,500
Common stock issued
to pay liabilities 142,635 107 684 - - - - 791
Sale and reclassification of
redeemable common stock (34,266) - (282) - - - - (282)
Common stock
contributed to ESOP 65,000 49 292 - - - - 341
Exercise of stock options 25,300 19 116 - - - - 135
Net increase in receivable
from related party - - - (257) - - - (257)
Redeemable preferred
stock dividends - - - - (516) - - (516)
Common stock issued
as compensation 18,325 14 77 - - - - 91
---------- ------- ---------- ---------- ----------- -------- -------- ------------
Balance at December 29, 1994 6,455,602 5,052 36,613 (4,100) (94,520) 57,038 (805) (57,760)
Net loss - - - - (2,903) - - (2,903)
Reclassification of
redeemable common stock (100,000) - (500) - - - - (500)
Common stock issued
to pay liabilities 243,915 183 857 - - - - 1,040
Common stock as additional
consideration for private
placement of ARTRA notes 375,000 281 985 - - - - 1,266
Net increase in receivable
from related party,
including accrued interest - - - (218) - - - (218)
Redeemable common stock
put option exercised - (8 8 - - - - -
Sale and reclassification of
redeemable common stock 85,714 399 399
Unrealized appreciation
of investments - - - $21,047 - - - - 21,047
Common stock
contributed to ESOP 23,750 18 95 - - - - - 113
Exercise of stock options 12,100 9 39 - - - - - 48
Redeemable common
stock accretion - - - - - (767) - - (767)
Redeemable preferred
stock dividends - - - - - (565) - - (565)
Common stock issued
as compensation 6,898 5 30 - - - - - 35
---------- ------- ---------- ------------ ---------- ----------- -------- -------- ------------
Balance at December 28, 1995 7,102,979 5,540 38,526 21,047 (4,318) (98,755) 57,038 (805) (38,765)

<PAGE>

Net earnings - - - - - 12,973 - - 12,973
Common stock issued
to pay liabilities 125,012 94 362 - - - (120,554) 818 1,274
Common stock issued as
additional consideration
for short-term borrowings 50,544 38 (398) - - - (99,456) 1,021 661
Increase in receivable
from related party,
including accrued interest - - - - (2,150) - - - (2,150)
Common stock loaned
by related party - - - - 587 - 100,000 (587) -
Repay common stock
loaned by related party 100,000 75 512 - (587) - - - -
Increase in unrealized
appreciation of investments - - - 4,672 - - - - 4,672
Exercise of stock options
and warrants 61,000 46 213 - - - (16,900) 109 368
Common stock received as
consideration for
short-term note - - - - - - 87,500 (608) (608)
Reclassification of
redeemable common stock 185,231 - 996 - - - - - 996
Redeemable common
stock accretion - - - - - (390) - - (390)
Redeemable preferred
stock dividends - - - - - (621) - - (621)
---------- ------- ---------- ------------ ---------- ----------- -------- -------- ------------
Balance at December 26, 1996 7,624,766 $5,793 $40,211 $25,719 ($6,468) ($86,793) 7,628 ($52) ($21,590)
========== ======= ========== ============ ========== =========== ======== ======== ============
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</FN>
</TABLE>
<PAGE>

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

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

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

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

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

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

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

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

Supplemental schedule of noncash investing and financing activities:
Issue common stock and redeemable common stock
to pay down current liabilities $ 1,274 $ 1,040 $ 791
Issue common stock as additional consideration
for short-term borrowings 661 1,266 --
BCA Holdings redeemable preferred stock issued in exchange for
Bagcraft redeemable preferred stock 8,135 -- --
ARTRA common stock issued to Lori's bank lender as partial
consideration for discharge of indebtedness -- -- 2,500
Transfer New Dimensions assets, net of cash of $674,
to Lori's bank lender under terms of the debt settlement agreement -- -- 6,475
Notes issued to sellers as consideration for Arcar acquisition -- -- 8,000

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

ARTRA GROUP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation and Financial Restructuring

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

In recent years, the Company has suffered recurring losses from operations and
has a net capital deficiency. As a result of these factors, the Company has
experienced difficulty in obtaining adequate financing to replace certain
current credit arrangements, certain of which are in default, and to fund its
debt service and liquidity requirements in 1997. These factors raise substantial
doubt about the Company's ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty. See Note 8, Notes Payable, and Note 9, Long-Term Debt, for
further discussion of the status of credit arrangements and restrictions on the
ability of operating subsidiaries to fund ARTRA corporate obligations. Due to
its limited ability to receive operating funds from its subsidiaries, ARTRA has
historically met its operating expenditures with funds generated by alternative
sources, such as private placements of ARTRA common stock and notes, sales of
ARTRA common stock with put options, loans from officers/directors and private
investors, as well as through sales of assets and/or other equity infusions.
ARTRA plans to continue to seek such alternative sources of funds to meet its
future operating expenditures.

ARTRA, through its wholly-owned subsidiary, Bagcraft Corporation of America
("Bagcraft"), currently operates in one industry segment as a manufacturer of
packaging products principally serving the food industry. Prior to September 28,
1995, ARTRA's then majority owned subsidiary, COMFORCE Corporation ("COMFORCE",
formerly The Lori Corporation "Lori"), operated as a designer and distributor of
popular-priced fashion costume jewelry and accessories. In September 1995
COMFORCE adopted a plan to discontinue its jewelry business as discussed in Note
3.

As discussed in Note 3, on October 17, 1995, COMFORCE acquired all of the
capital stock of COMFORCE Telecom Inc. ("COMFORCE Telecom"), formerly Spectrum
Global Services, Inc. d/b/a YIELD Global. COMFORCE Telecom provides
telecommunications and computer technical staffing services worldwide to Fortune
500 companies and maintains an extensive, global database of technical
specialists with an emphasis on wireless communications capability.

Effective July 4, 1995, COMFORCE and ARTRA entered into employment or consulting
services agreements with certain individuals to manage COMFORCE's entry into and
development of the telecommunications and computer technical staffing services
business. As additional compensation, the agreements provided for the issuance
in aggregate of a 35% common stock interest in COMFORCE. After the issuance of
the COMFORCE common shares, plus the effects of the issuance of COMFORCE common
shares sold by private placements and other COMFORCE common shares issued in
conjunction with the COMFORCE Telecom acquisition, ARTRA's ownership interest in
COMFORCE common stock was reduced to approximately 25% at December 28, 1995.
Accordingly, in October 1995, the accounts of COMFORCE and its majority-owned
subsidiaries were deconsolidated from ARTRA's consolidated financial statements
and ARTRA's investment in COMFORCE was accounted for under the equity method
during the fourth quarter of 1995. At December 28, 1995, the investment in
COMFORCE was recognized as a marketable security available for sale and stated
at fair value. At December 26, 1996, ARTRA's ownership interest in COMFORCE
common stock was reduced to approximately 14%. See Note 6 for a further
discussion of ARTRA's investment in COMFORCE.

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

ARTRA GROUP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

In February 1996, a bank agreed to discharge all amounts under its ARTRA notes
($12,063,000 plus accrued interest and fees) and certain obligations of ARTRA's
president, Peter R. Harvey, resulting in a gain to ARTRA on the discharge of
this indebtedness of $9,424,000 in the first quarter of 1996. The cash payment
due the bank was funded principally with proceeds received from a short-term
loan agreement along with proceeds received from the Bagcraft subsidiary in
conjunction with the issuance of BCA Holdings, Inc. ("BCA" the parent of
Bagcraft) preferred stock. See Notes 7, 8 and 11 for further discussions of
these transactions.

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

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. Principles of Consolidation

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

B. Cash Equivalents

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

C. Inventories

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

D. Property, Plant and Equipment

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

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

<PAGE>

ARTRA GROUP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

E. Investments in Equity Securities

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

F. Intangible Assets

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

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

G. Revenue Recognition

Sales to customers are recorded at the time of shipment.

H. Income Taxes

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

I. Use of Estimates In Preparation of Financial Statements

The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

<PAGE>

ARTRA GROUP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

J. Stock-Based Compensation

Effective for the fiscal year ending December 26, 1996 the Company adopted SFAS
No. 123, "Accounting for Stock-Based Compensation". The pronouncement
encourages, but does not require, companies to recognize compensation expense
for grants of stock, stock options, and other equity instruments to employees
based on new fair value accounting rules. The Company did not adopt the new fair
value accounting, but instead chose to comply with the disclosure requirements
of SFAS No. 123. Accordingly, the adoption of SFAS No. 123 did not have a
material impact on the Company's financial statements.

K. Recently Issued Accounting Pronouncements

Earnings Per Share

3. CHANGE OF BUSINESS

Arcar Graphics, Inc.

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

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

COMFORCE

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

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

<PAGE>

ARTRA GROUP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

COMFORCE for guaranteeing the payment of the $6.4 million purchase price to the
seller. Additionally, in conjunction with the COMFORCE Telecom acquisition,
ARTRA entered into an Assumption Agreement whereby it agreed to assume
substantially all pre-existing Lori liabilities and indemnify COMFORCE in the
event any future liabilities arise concerning pre-existing environmental matters
and business related litigation. Accordingly, at December 26, 1996 and December
28, 1995, $348,000 and $4,500,000, respectively, of such pre-existing Lori
liabilities were classified in ARTRA's consolidated balance as current
liabilities of discontinued operations. These Lori liabilities consist
principally of notes and accounts payable incurred by Lori's discontinued
jewelry operations. The Assumption Agreement also provided for ARTRA to exchange
its interest in 100% of Lori's Series C cumulative preferred stock for 100,000
newly issued shares of COMFORCE common stock.

Effective July 4, 1995, COMFORCE's management agreed to issue up to a 35% common
stock interest in COMFORCE to certain individuals to manage COMFORCE's entry
into the telecommunications and computer technical staffing business. COMFORCE
recognized a non-recurring charge of $3,425,000 related to this stock since
these stock awards were 100% vested when issued, and were neither conditioned
upon these individuals' service to the Company as employees nor the consummation
of the COMFORCE Telecom acquisition. Accordingly, this compensation charge was
fully recognized in 1995. The shares of COMFORCE common stock issued in
accordance with the above agreements were valued at $.93 per share. COMFORCE's
management valued COMFORCE based on its discussions with market makers and other
advisors, taking into account (i) that the jewelry business, which was
discontinued in the third quarter of 1995, had a negligible value, and (ii) the
value of COMFORCE was principally related to the potential effect that a
purchase of COMFORCE Telecom, if successfully concluded, would have market value
of COMFORCE common stock. COMFORCE's management believes this value of $.93 per
share to be a fair and appropriate value based upon COMFORCE's financial
condition as of the date COMFORCE became obligated to issue these shares. After
the issuance of the COMFORCE common shares, plus the effects of other
transactions, ARTRA's ownership interest in COMFORCE common stock was reduced to
approximately 14% and 25% at December 26, 1996 and December 28, 1995,
respectively. Accordingly, in October 1995, the accounts of COMFORCE and its
majority-owned subsidiaries were deconsolidated from ARTRA's consolidated
financial statements. See Note 6 for a further discussion of the accounting
treatment of ARTRA's investment in COMFORCE.

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

<PAGE>

ARTRA GROUP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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

Other

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

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

1995 1994
-------- --------

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

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

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

Gain on sale of Arcar subsidiary 8,483 --

Provision for disposal of business (300) --

Provision for income taxes -- --
-------- --------
Gain on disposal of businesses 8,183 --
-------- --------

Earnings (loss) from
discontinued operations $ 10 $(15,906)
======== ========

<PAGE>

ARTRA GROUP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

4. CONCENTRATION OF RISK

The accounts receivable of the Company's Bagcraft subsidiary at December 26,
1996 consist primarily of amounts due from companies in the food industry. As a
result, the collectibility of these receivables is dependent, to an extent, upon
the

economic condition and financial stability of the food industry. Credit risk is
minimized as a result of the large number and diverse nature of Bagcraft's
customer base. Bagcraft's major customers include some of the largest companies
in the food industry. At December 26 1996, Bagcraft had 10 customers with
accounts receivable balances that aggregated approximately 40% of the Company's
total trade accounts receivable. No single customer accounted for 10% or more of
Bagcraft's 1996 sales.

5. INVENTORIES

Inventories (in thousands) consist of:

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

Raw materials and supplies $ 5,582 $ 5,645
Work in process 287 40
Finished goods 9,098 10,949
------- -------
$14,967 $16,634
======= =======

6. INVESTMENT IN COMFORCE CORPORATION

In prior years and until October 1995, COMFORCE was a majority-owned subsidiary
of ARTRA and, accordingly, the accounts of COMFORCE and its majority-owned
subsidiaries were included in the consolidated financial statements of ARTRA. As
discussed in Note 3, due to the issuances of COMFORCE common shares in
conjunction with the acquisition of COMFORCE Telecom, ARTRA's ownership interest
in COMFORCE common stock was reduced to approximately 25%. Accordingly, in
October 1995, the accounts of COMFORCE and its majority-owned subsidiaries were
deconsolidated from ARTRA's consolidated financial statements and ARTRA's
investment in COMFORCE was accounted for under the requirements of APB Opinion
No. 18 "The Equity Method of Accounting for Investments in Common Stock" during
the fourth quarter of 1995.

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

<PAGE>

ARTRA GROUP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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

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

7. EXTRAORDINARY GAINS

ARTRA Debt Restructuring

In February 1996, a bank agreed to discharge all amounts under its ARTRA notes
($12,063,000 plus accrued interest and fees) and certain obligations of ARTRA's
president, Peter R. Harvey for consideration consisting of ARTRA's cash payment
of $5,050,000, Mr. Harvey's cash payment of $100,000 and Mr. Harvey's $3,000,000
note payable to the bank (the "Harvey Note"). The bank assigned ARTRA a
$2,150,000 interest in the Harvey Note, subordinated to the bank's $850,000
interest in the Harvey Note. ARTRA then discharged $2,150,000 of Mr. Harvey's
prior advances in exchange for its $2,150,000 interest in Mr. Harvey's
$3,000,000 note payable to the bank. The amount of the $5,050,000 cash payment
to the bank applicable to Peter R. Harvey ($1,089,000) was charged to amounts
due from Peter R. Harvey. ARTRA recognized a gain on the discharge of this
indebtedness of $9,424,000 ($1.23 per share) in the first quarter of 1996. The
cash payment due the bank was funded principally with proceeds received from the
Bagcraft subsidiary in conjunction with the issuance of BCA (the parent of
Bagcraft) preferred stock along with proceeds received from a short-term loan
agreement with an unaffiliated company that was subsequently repaid. See Notes 8
and 11 for further discussions of these transactions. As additional compensation
for its loan and for participating in the above discharge of indebtedness the
unaffiliated company received 150,000 shares of ARTRA common stock (with a then
fair market value of $661,000 after a discount for restricted marketability) and
25,000 shares of COMFORCE common stock held by ARTRA (with a then fair market
value of $200,000).

<PAGE>

ARTRA GROUP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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

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

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

COMFORCE Debt Restructuring

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

The Company recognized an extraordinary gain of $8,965,000 ($1.57 per share) in
December 1994, calculated (in thousands) as follows:

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

<PAGE>

ARTRA GROUP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

On March 31, 1995, the remaining indebtedness of COMFORCE and Fill-Mor was
discharged, resulting in an additional extraordinary gain to the Company of
$9,113,000 ($1.35 per share) in the first quarter of 1995 calculated (in
thousands) as follows:

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

8. NOTES PAYABLE

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

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

ARTRA 12% secured promissory notes 7,675 --

ARTRA 12% convertible subordinated
promissory notes -- 2,500

Amounts due to related parties,
interest principally at 10% 3,600 5,675

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

Bank Notes Payable

<PAGE>

ARTRA GROUP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

At December 28, 1995, $12,063,000 of ARTRA notes, plus accrued interest and
fees, were payable to a bank. The notes provided for interest at the prime rate.
These bank notes were collateralized by, among other things, 100% of the common
stock of ARTRA's BCA subsidiary, the parent of Bagcraft, a secondary position on
the assets of BCA and any and all net proceeds arising from a lawsuit in
connection with the acquisition and subsequent reorganization of Envirodyne
Industries, Inc. as discussed in Note 18. Additionally, the bank notes were
collateralized by a $5,500,000 personal guaranty of a private investor. As
additional compensation, the private investor received 1,833 shares of ARTRA
common stock for each month the guaranty was outstanding. Among other things,
the bank notes prohibited the payment of cash dividends by ARTRA.

In February 1996, a bank agreed to discharge all amounts under its ARTRA notes
($12,063,000 plus accrued interest and fees) and certain obligations of ARTRA's
president, Peter R. Harvey for consideration consisting of ARTRA's cash payment
of $5,050,000, Mr. Harvey's cash payment of $100,000 and Mr. Harvey's $3,000,000
note payable to the bank (the "Harvey Note"). The bank assigned ARTRA a
$2,150,000 interest in the Harvey Note, subordinated to the bank's $850,000
interest in the Harvey Note, and ARTRA discharged $2,150,000 of Mr. Harvey's
prior advances. ARTRA recognized a gain on the discharge of this indebtedness of
$9,424,000 ($1.23 per share) in the first quarter of 1996 and recorded a
receivable for Mr. Harvey's prorata share ($1,089,000) of the debt discharge
funded by the Company. The cash payment due the bank was funded principally with
proceeds received from the Bagcraft subsidiary in conjunction with the issuance
of BCA (the parent of Bagcraft) preferred stock (see Note 11) along with
proceeds received from a short-term loan agreement with an unaffiliated company.
As collateral for this advance and other previous advances (see Note 19), Mr.
Harvey provided ARTRA a $2,150,000 security interest in certain real estate,
subordinated to the bank's $850,000 security interest in this real estate.

Secured Promissory Notes

Convertible Subordinated Promissory Notes

<PAGE>

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

Amounts Due To Related Parties

At December 26, 1996 and December 28, 1995, ARTRA had outstanding borrowings of
$3,000,000 from an unaffiliated company currently holding approximately 7% of
ARTRA's outstanding common stock. The loans are evidenced by unsecured
short-term notes bearing interest at 10%. As additional compensation for the
above loans, the lender received five year warrants expiring in 1998 to purchase
an aggregate of 86,250 ARTRA common shares at prices ranging from $6.00 to $7.00
per share. The proceeds of this loan were used to pay down various ARTRA
short-term loans and other debt obligations. In December 1995 the unaffiliated
company received 126,222 shares of ARTRA common in payment of past due interest
through October 31, 1995. In 1996 and 1997 the unaffiliated company received
cash payments of approximately $390,000 representing interest due through
December, 1996. Payment on the loans was due March 31, 1994, however, the lender
has not demanded payment. In February 1997, the lender received a warrant to
purchase an additional 100,000 ARTRA common shares at $5.625 per share as
consideration for not demanding payment of this obligation.

In August, 1996, ARTRA borrowed $500,000 from a private investor, evidenced by a
short-term note, due December 23, 1996, bearing interest at 10%. The loan is
collateralized by 125,000 shares of COMFORCE common stock owned by the Company's
Fill-Mor subsidiary. As additional compensation for the loan, the private
investor received a warrant, expiring in 2001, to purchase 25,000 ARTRA common
shares at a price of $5.00 per share. The proceeds of the loan were used for
working capital. At the Company's annual meeting of shareholders, held August
29, 1996, the private investor was elected to the Company's board of directors.
In December 1996, the loan was extended until April 23, 1997 and the lender
received, as additional compensation, a warrant , expiring in 2001, to purchase
25,000 ARTRA common shares at a price of $5.875 per share. In January, 1997,
ARTRA borrowed an additional $300,000 from this lender evidenced by an
short-term note, due December 23, 1997, bearing interest at 8%. The loan is
collateralized by 100,000 shares of COMFORCE common stock owned by the Company's
Fill-Mor subsidiary. As additional compensation for the loan, the lender
received a warrant, expiring in 2002, to purchase 25,000 ARTRA common shares at
a price of $5.75 per share. In March 1997, ARTRA borrowed an additional
$1,000,000 from this lender evidenced by a short-term note, due May 26, 1997,
bearing interest at 12%. The loan is collateralized by 585,000 shares of
COMFORCE common stock owned by the Company's Fill-Mor subsidiary. As additional
compensation, the lender received an option to purchase 25,000 shares of
COMFORCE common stock, owned by the Company's Fill-Mor subsidiary, at a price of
$4.00 per share. If the note is not paid at maturity, the option price is
reduced to $2.00 per share and, for every 30 days the note is outstanding past
June 26, 1997, the lender will receive an option to purchase an additional 5,000
COMFORCE common shares at a price of $2.00 per share. The proceeds from this
loan were used in part to repay the ARTRA/Fill-Mor $2,500,000 bank term loan
described above. As of March 31, 1997, ARTRA had total outstanding borrowings of
$1,800,000 from this lender collateralized by 810,000 shares of COMFORCE common
stock.

At December 28, 1995, the Company had outstanding borrowings from its Chairman,
John Harvey, of $175,000. John Harvey's borrowings were evidenced by unsecured
short-term notes bearing interest at 12%. As additional compensation the loans
provided for the issuance of warrants to purchase ARTRA common shares, the
number of which was determined by the number of days the loans were outstanding.
The warrants expire five years from the date of issuance. John Harvey received
warrants to purchase an aggregate of 66,045 shares of ARTRA common stock at
prices ranging from $3.75 to $6.125 per share as additional compensation for his
loans to ARTRA. In May 1996, ARTRA repaid all borrowings from John Harvey.

<PAGE>

ARTRA GROUP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

As additional consideration, the private corporation received an option to put
back to ARTRA the 49,980 shares of ARTRA common stock received as compensation
for its former $2,500,000 ARTRA loan guaranty at a price of $15.00 per share.
The put option is exercisable on the later of the day that the $2,500,000 note
payable to the private corporation becomes due or the date the ARTRA bank notes
have been paid in full. The option price increases by $2.25 per share annually
($21.188 per share at December 26, 1996). The $2,500,000 note payable to the
private corporation was reflected in the above table at December 28, 1995 as
amounts due to related parties. During the first quarter of 1996, the $2,500,000
note and related accrued interest was paid in full principally with proceeds
from additional short-term borrowings.

Other

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.

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

In conjunction with the February 1996 discharge of bank debt, the Company
entered into a $1,900,000 short-term loan agreement, due May 26, 1996, with an
unaffiliated company. The loan, with interest at 12%, was collateralized by,
among other things, the common stock of ARTRA's BCA subsidiary. As additional
compensation for its loan and for participating in the above discharge of
indebtedness the unaffiliated company received 150,000 shares of ARTRA common
stock (with a then fair market value of $661,000 after a discount for restricted
marketability) and 25,000 shares of COMFORCE

<PAGE>

ARTRA GROUP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

common stock held by ARTRA (with a then fair market value of $200,000).
Additionally, for consideration of $500,000, the lender purchased an option to
acquire up to 40% of the common stock of Bagcraft for nominal consideration. The
borrowings under this short-term loan agreement were repaid in April, 1996 and,
per terms of the loan agreement, ARTRA repurchased the option for a cash payment
of $550,000.

In conjunction with the COMFORCE debt settlement agreement discussed in Note 7,
ARTRA entered into a $1,850,000 short-term loan agreement with a non-affiliated
corporation, the proceeds of which were used to fund amounts due the bank as
discussed below. The loan, due June 30, 1995, with interest payable monthly at
10%, was collateralized by 100,000 shares of COMFORCE common stock. In August,
1995 the loan was extended until September 15, 1995 and the lender received the
above mentioned 100,000 COMFORCE common shares as consideration for the loan
extension. The loan was repaid by ARTRA in February, 1996.

9. LONG-TERM DEBT

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

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

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

Term loan B, interest at the lender's index rate plus 3% -- 4,600

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

Unamortized discount (1,752) --

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

$ 34,207 $ 34,113
======== ========

</TABLE>

<PAGE>

ARTRA GROUP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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

<PAGE>

ARTRA GROUP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

At December 26, 1996 the aggregate amount of yearly maturities of long-term
debt, exclusive of debt discharged, is: 1997, $2,712,000; 1998, $5,137,000;
1999, $5,137,000; 2000, $3,712,000; 2001, $3,712,000; thereafter, $16,509,000.

10. REDEEMABLE COMMON STOCK

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

At December 26, 1996 and December 28, 1995 options were outstanding that, if
exercised, would require ARTRA to repurchase 98,734 and 283,965 shares of its
common stock for an aggregate amount of $3,657,000 and $4,774,000, respectively.
In September 1996, the Company settled an obligation that would have required
ARTRA to repurchase 66,113 common shares for a total of $897,000. The option
holder received cash payments of $510,000 and retained the 66,113

<PAGE>

ARTRA GROUP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

ARTRA common shares in settlement of all obligations due under the option
agreement. Additionally, during 1996, the holder of 100,000 ARTRA common shares
with an option that would have required the Company to repurchase these shares
for $500,000 sold these shares in a private transaction and options that would
have required the Company to repurchase 19,118 shares of ARTRA common stock for
an aggregate of expired unexercised. Accordingly, these 185,231 shares of ARTRA
common stock were removed from redeemable common stock and reclassified to
shareholders' equity.

11. REDEEMABLE PREFERRED STOCK

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

December 26, December 28,
1996 1995
------- -------
<S> <C> <C>
Currently payable:
Bagcraft redeemable preferred stock
payable to a related party,
cumulative $.01 par value,
13.5%; including accumulated dividends;
redeemable in 1997 with a liquidation
preference equal to $100 per share;
issued 8,650 shares in 1996 $ 2,007

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

Noncurrent:
ARTRA redeemable preferred stock,
Series A, $1,000 par value,
6% cumulative payment-in-kind,
including accumulated dividends,
net of unamortized discount
of $1,271 in 1996 and $1,575 in 1995;
redeemable March 1, 2000
at $1,000 per share plus accrued dividends;
authorized 2,000,000 shares all series;
issued 3,750 shares $ 4,315 $ 3,694

Bagcraft redeemable preferred stock
payable to a related party,
cumulative $.01 par value, 13.5%;
including accumulated dividends;
redeemable in 1997 with a liquidation 10,794
preference equal to $100 per share;
issued 50,000 shares in 1995 --

BCA Holdings preferred stock, Series A,
$1.00 par value, 6% cumulative,
including accumulated dividends;
redeemable in 1997 with a liquidation
preference of $1,000 per share;
10,000 shares authorized; issued 3,675 shares 4,363 4,143
------- -------

$ 8,678 $ 18,631
======= =======
</TABLE>
<PAGE>

ARTRA GROUP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

ARTRA

On September 27, 1989, ARTRA received a proposal to purchase BCA, the parent of
Bagcraft, from Sage Group, Inc. ("Sage"), a privately-owned corporation that
owned 100% of the outstanding common stock of BCA. Sage was merged with and into
Ozite Corporation ("Ozite") on August 24, 1990. Peter R. Harvey, ARTRA's
President, and John Harvey, ARTRA's Chairman of the Board of Directors, were the
principal shareholders of Sage and are the principal shareholders of Ozite.
Effective March 3, 1990, a wholly-owned subsidiary of ARTRA acquired 100% of
BCA's issued and outstanding common shares for consideration of $5,451,000,
which included 772,000 shares of ARTRA common stock and 3,750 shares of $1,000
par value junior non-convertible payment-in-kind redeemable Series A Preferred
Stock with an estimated fair value of $1,012,000, net of unamortized discount of
$2,738,000. The Series A Preferred Stock accrues dividends at the rate of 6% per
annum and is redeemable by ARTRA on March 1, 2000 at a price of $1,000 per share
plus accrued dividends. Accumulated dividends of $1,836,000 and $1,519,000 were
accrued at December 26, 1996 and December 28, 1995, respectively.

Bagcraft/BCA Holdings

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

In 1987, Bagcraft issued to a subsidiary of Ozite $5,000,000 of preferred stock
(50,000 shares of 13.5% cumulative, redeemable preferred stock with a
liquidation preference equal to $100 per share) redeemable by Bagcraft in 1997
at a price of $100 per share plus accrued dividends. Dividends, which accrue and
are payable semiannually on June 1 and December 1 of each year, are reflected in
the Company's consolidated statement of operations as minority interest. The
holder has agreed to forego dividend payments as long as such payments are
prohibited by Bagcraft's lenders. Accumulated dividends of $5,794000 were
accrued at December 28, 1995. After giving effect to the preferred stock
exchange discussed below, 8,650 shares of Bagcraft redeemable preferred stock
with accumulated dividends of $1,142,000 were outstanding at December 26, 1996.

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

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

In conjunction with the preferred stock exchange agreement, Bagcraft's lender
consented to advance of $4,135,000 under Bagcraft's revolving credit to be
transferred to ARTRA as a dividend. ARTRA used the funds from this dividend plus
funds from a short-term loan agreement to fund a payment to its bank lender in
accordance with provisions of its debt discharge agreement as discussed in Notes
7 and 8.

<PAGE>

ARTRA GROUP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

12. STOCK OPTIONS AND WARRANTS

Stock Option Plans

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

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

In July, 1985, ARTRA's shareholders approved a stock option plan (the "1985
Plan") for certain officers and key employees of the Company and its
subsidiaries. The 1985 Plan, as amended, reserved 1,000,000 shares of the
Company's common stock and authorized the granting of options on or before
February 1, 1995. The purchase price of such options granted under the 1985 Plan
was not less than the market value at the date of grant for ISOs and not less
than 110% of the market value on the date of grant for an ISO granted to a
shareholder possessing 10% more of the voting stock of the Company.

Effective for the fiscal year ending December 26, 1996, the Company has adopted
the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation". In 1996 all stock options were granted at an exercise price equal
to fair market value at the date of grant and, accordingly, no compensation
expense has been recognized in connection with the Company's stock option plans.
Had compensation cost for the Company's stock option plan been determined based
on the fair value on the date of grant for awards in 1996 consistent with the
provisions of SFAS No. 123, earnings from continuing operations and net earnings
for the year ended December 26, 1996 would have been reduced by $1,450,000 ($.18
per share).

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

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

<PAGE>

ARTRA GROUP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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

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

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

Options granted 532,750 -- 20,000

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

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

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

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

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

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

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

10-04-96 532,750 532,750 $ 5.25 9

01-08-93 148,100 148,100 $ 3.75 6

06-22-92 6,000 6,000 $ 5.25 5

09-19-91 52,967 52,967 $ 3.65 4

12-19-90 178,033 178,033 $ 3.65 3

Warrants

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

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

<PAGE>

ARTRA GROUP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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

During 1995, ARTRA issued warrants to purchase an aggregate of 140,507 shares of
its common stock at prices ranging from $3.75 per share to $6.125 per share,
principally to certain lenders as additional compensation for short-term loans.
The warrants expire at various dates in 2000. Warrants to purchase 48,331 shares
of ARTRA common stock at prices ranging from $6.75 per share to $11.375 per
share expired unexercised during 1995.

During 1994, ARTRA issued warrants to purchase an aggregate of 154,719 shares of
its common stock at prices ranging from $4.50 per share to $6.625 per share,
principally to certain lenders as additional compensation for short-term loans.
The warrants expire at various dates from 1996 to 1999. Warrants to purchase
9,166 shares of ARTRA common stock at prices ranging from $10.00 per share to
$11.25 per share expired unexercised during 1994.

13. COMMITMENTS AND CONTINGENCIES

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

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

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

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

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

<PAGE>

ARTRA GROUP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

The Company and its subsidiaries are the defendants in various business-related
litigation and environmental matters. At December 26, 1996 and December 28,
1995, the Company had accrued current liabilities of $1,900,000 and $1,800,000,
respectively, for potential business-related litigation and environmental
liabilities. While these litigation and environmental matters involve wide
ranges of potential liability, management does not believe the outcome of these
matters will have a material adverse effect on the Company's financial
statements. However, ARTRA may not have available funds to pay liabilities
arising out of these business-related litigation and environmental matters or,
in certain instances, to provide for its legal defense.

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

<PAGE>

ARTRA GROUP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

<PAGE>

ARTRA GROUP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

14. INCOME TAXES

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

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

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

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

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

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

The 1996, 1995 and 1994 extraordinary credits represent net gains from discharge
of indebtedness. No income tax expense is reflected in the Company's financial
statements resulting from the extraordinary credits in due to the utilization of
tax loss carryforwards, except for Federal alternative minimum tax incurred in
1996.

<PAGE>

ARTRA GROUP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

14. INCOME TAXES, continued

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

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

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

<PAGE>

ARTRA GROUP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

14. INCOME TAXES, continued

The types of temporary differences between the tax bases of assets and
liabilities and their financial reporting amounts that give rise to the deferred
tax liabilities and deferred tax assets at December 26, 1996 and December 28,
1995 and their approximate tax effects (in thousands) are as follows:
<TABLE>
<CAPTION>

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

Inventories (4,500) (1,700) (6,700) (2,600)
Accumulated depreciation (6,400) (2,500) (7,900) (3,100)
Other (1,000) (300) (800) (300)
-------- --------
Total deferred tax liabilities (4,500) (6,000)
-------- --------
Valuation allowance (30,800) (17,700)
-------- --------
Net deferred tax asset $ -- $ --
======== ========

</TABLE>

The Company has recorded a valuation allowance with respect to the future tax
benefits and the net operating loss reflected in deferred tax assets as a result
of the uncertainty of their ultimate realization.

<PAGE>

ARTRA GROUP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

15. EMPLOYEE BENEFIT PLANS

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

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

Effective June 1, 1990, the Company adopted an Employee Stock Ownership Plan
("ESOP") which covered eligible employees of ARTRA and certain of its
subsidiaries. Employer contributions to the Plan were at the discretion of
ARTRA's Board of Directors. Employee contributions were not permitted. Effective
August 1, 1995, the Company terminated the ESOP and subsequently distributed the
related Employee accounts to participants. The Company contributed 8,750 ARTRA
common shares to the Plan with a fair market value of $42,000 ($4.75 per share)
for the plan year ending December 28, 1995 and 15,000 ARTRA common shares to the
Plan with a fair market value of $71,250 ($4.75 per share) for the plan year
ending December 29, 1994.

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

16. EARNINGS PER SHARE

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

17. INDUSTRY SEGMENT INFORMATION

At December 26, 1996, the Company, through its Bagcraft subsidiary operates in
one industry segment as a manufacturer of packaging products principally serving
the food industry.

Prior to September 28, 1995, ARTRA's then majority owned subsidiary, COMFORCE,
operated as a designer and distributor of popular-priced fashion costume jewelry
and accessories. In September, 1995, COMFORCE adopted a plan to discontinue its
jewelry business.

As discussed in Note 3, on September 11, 1995, COMFORCE signed a stock purchase
agreement to participate in the acquisition of one hundred percent of the
capital stock of COMFORCE Telecom. COMFORCE Telecom provides telecommunications
and computer technical staffing services worldwide to Fortune 500 companies and
maintains an extensive, global database of technical specialists, with an
emphasis on wireless communications capability. On October 17, 1995, COMFORCE
completed the acquisition of one hundred percent of the capital stock of
COMFORCE Telecom.

<PAGE>

ARTRA GROUP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Due to the issuances of COMFORCE common shares in conjunction with the
acquisition of COMFORCE Telecom, ARTRA's common stock ownership in COMFORCE was
reduced to approximately 25%. Accordingly, in October 1995, the accounts of
COMFORCE and its majority-owned subsidiaries were deconsolidated from ARTRA's
consolidated financial statements and ARTRA's investment in COMFORCE was
accounted for under the equity method during the fourth quarter of 1995. As
discussed in Note 5, effective December 28, 1995, the Company adopted SFAS No.
115 "Accounting for Certain Investments in Debt and Equity Securities." Under
this statement, at December 28, 1995, the Company's investment in COMFORCE is
classified as available for sale and is stated at fair value.

No single customer accounted for more than 10% of consolidated net sales in
1996, 1995 and 1994.

18. LITIGATION

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

<PAGE>

ARTRA GROUP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Welch's breach of the payment terms of the parties' Non-Competition Agreement
and the Subordinated Note executed by Welch. ARTRA was seeking damages in the
amount of approximately $5,300,000 plus accrued interest. On November 23, 1994,
the Circuit Court of Cook County Law Division in Chicago granted a judgment in
favor of ARTRA affirming the validity of the amounts due under the
Non-Competition Agreement and the Subordinated Note of $2,625,000 and
$2,500,000, respectively.

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

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

19. RELATED PARTY TRANSACTIONS

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

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

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

ARTRA has total advances due from its president, Peter R. Harvey, of which
$7,998,000 and $5,369,000, including accrued interest, remained outstanding at
December 26, 1996 and December 28, 1995, respectively. The advances bear
interest at the prime rate plus 2% (10.25% at December 26, 1996 and 10.5% at
December 28, 1995, respectively). This receivable from Peter R. Harvey has been
classified as a reduction of common shareholders' equity. See Note 8 for an
additional 1996 advance for Mr. Harvey's prorata share of debt discharged by a
bank funded by ARTRA. Per terms of the debt discharge agreement, as partial
consideration, the bank also received Mr. Harvey's $3,000,000 note payable to
the bank. The bank assigned ARTRA a $2,150,000 interest in the Mr. Harvey's
note, subordinated to the bank's $850,000 interest in Mr.
Harvey's note, and ARTRA discharged $2,150,000 of Mr. Harvey's prior advances.

<PAGE>

ARTRA GROUP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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

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

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

In conjunction with COMFORCE's October 1995 acquisition of COMFORCE Telecom (see
Note 3), ARTRA agreed to assume substantially all pre-existing Lori liabilities
and indemnify COMFORCE in the event any future liabilities arise concerning
pre-existing environmental matters and business related litigation. Accordingly,
at December 26, 1996 and December 28, 1995, respectively, $348,000 and
$4,500,000 of such pre-existing Lori liabilities were classified in ARTRA's
consolidated balance at as current liabilities of discontinued operations.

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

<PAGE>

ARTRA GROUP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

20. SUBSEQUENT EVENT

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

<PAGE>

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

ARTRA GROUP INCORPORATED
BALANCE SHEETS
(Registrant Only In Thousands)

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

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

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

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

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

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

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

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

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

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

ARTRA GROUP INCORPORATED
NOTES TO FINANCIAL INFORMATION
(Registrant Only)

1. Presentation

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

2. Commitments and Contingencies

See Note 13 of the consolidated financial statements.

3. Restricted Assets

The terms of several agreements place certain restrictions on the net assets of
certain operating subsidiaries. See Notes 8 and 10 of the consolidated financial
statements for additional information.

4. Notes Payable and Long-Term Debt

See Notes 8 and 9 of the consolidated financial statements.

5. Redeemable Common and Preferred Stock and Stock Options

See Notes 10, 11 and 12 of the consolidated financial statements.

6. Income Taxes

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

7. Related Party Transactions

See Notes 8 and 19 of the consolidated financial statements.

<PAGE>

ARTRA GROUP INCORPORATED AND SUBSIDIARIES
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
for each of the three fiscal years in the period ended December 26, 1996
(in thousands)

Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
----------------------

(1) (2)
Balance at Charged to Charged to
Beginning of Costs and Other Deductions Balance at
Description Period Expenses Accounts (Describe) End of Period
------------------- --------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C>
For the fiscal year ended December 28, 1995:

Deducted from assets to which they apply:

Allowance for inventory valuation $ 290 $ 191 $ (232)(D) $ 249
======== ========== ======== =========

Allowance for doubtful accounts $ 250 $ 365 $ (103)(E) $ 512
======== ========== ======== =========

For the fiscal year ended December 28, 1995:

Deducted from assets to which they apply:

Allowance for inventory valuation $ 207 $ 315 $ (232)(A) $ 290
========= ========== ======== =========

Allowance for markdowns $ 835 $ 291 $ (1,126)(A) $ -

Allowance for doubtful accounts 819 487 (1,056)(A) 250
-------- ---------- -------- ---------

$ 1,654 $ 778 $ (2,182) $ 250
======== ========== ======== =========

For the fiscal year ended December 29, 1994:

Deducted from assets to which they apply:

Allowance for inventory valuation $ 4,315 $ 218 $ (4,326)(D) $ 207
======== ========= ======== =========

Allowance for markdowns $ 2,499 $ 4,799 $ (6,463)(B) $ 835

Allowance for doubtful accounts 595 445 (221)(C) 819
-------- -------- -------- ---------

$ 3,094 $ 5,244 $ (6,684) $ 1,654
======== ======== ======== =========
</TABLE>

(A) Principally amounts of discontinued operations.
(B) Principally markdowns taken.
(C) Principally uncollectible accounts written off, net of recoveries.
(D) Principally inventory written off, net of recoveries.

<PAGE>

INDEX OF EXHIBITS

(A) Exhibits included herein:

EXHIBIT 3 Articles of Incorporation and By-laws

3.1 Statement with Respect to Shares of Series A
Preferred Stock of Registrant.

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

EXHIBIT 10 Material contracts

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

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

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

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

EXHIBIT 11 Computation of earnings per share and equivalent
share of common stock for each of the three years in
the period ended December 26, 1996.

EXHIBIT 21 Subsidiaries.

EXHIBIT 23 Consent of Independent Accountants.

<PAGE>

(B) Exhibits incorporated herein by reference:

EXHIBIT 3 Articles of Incorporation and By-laws

3.1 Amended and Restated Articles of
Incorporation of the Registrant as filed in
the Department of State of Pennsylvania on
December 21, 1990 filed as an exhibit to
Registrant's Form 10-K for the year ended
December 31, 1990.

3.2 Bylaws of the Registrant, amended as of July
24, 1990, filed as an exhibit to
Registrant's Form 10-K for the year ended
December 31, 1990.

3.3 Statement with Respect to Shares of Series A
Preferred Stock of Registrant, filed as an
exhibit to Registrant's Form 10-K for the
year ended December 30, 1993.

3.4 Statement with Respect to Shares of Rights
and Preferences of Series B Preferred Stock
of Registrant, filed as an exhibit to
Registrant's Form 10-K for the year ended
December 30, 1993.

EXHIBIT 10 Material contracts

10.1 AMENDED AND RESTATED CREDIT AGREEMENT, Dated
as of December 30, 1996, by and among
BAGCRAFT CORPORATION OF AMERICA, as Borrower
and GENERAL ELECTRIC CAPITAL CORPORATION, as
Agent and as Lender, filed as an exhibit to
Registrant's Form Amendment No. 1 to Form
S-1 Registration Statement dated January 29,
1997.

10.2 AMENDED AND RESTATED WARRANT To Purchase
Common Stock of BAGCRAFT CORPORATION OF
AMERICA (Warrant No. 2), filed as an exhibit
to Registrant's Form Amendment No. 1 to Form
S-1 Registration Statement dated January 29,
1997.

10.3 SETTLEMENT AND RELEASE AGREEMENT, dated as
of December 19, 1996, by and among ARTRA
GROUP Incorporated, Fill-Mor Holding, Inc.
and Peter R. Harvey, COMFORCE Corporation,
James L. Paterek, Michael Ferrentino,
Christopher P. Franco and Kevin W. Kiernan
and Kwiatt, Silverman & Ruben, Ltd., filed
as an exhibit to Registrant's Form Amendment
No. 1 to Form S-1 Registration Statement
dated January 29, 1997.

10.4 LOCK-UP AGREEMENT, dated December 19, 1996,
re. sale of COMFORCE common stock, filed as
an exhibit to Registrant's Form Amendment
No. 1 to Form S-1 Registration Statement
dated January 29, 1997.

10.5 LOAN AGREEMENT, dated as of August 15, 1996,
between Fill-Mor Holding, Inc. ARTRA GROUP
Incorporated, and Manufacturers Bank filed
as an exhibit to Registrant's Form 8-K dated
August 23, 1996.

10.6 Letter Agreement dated February 26, 1996 by
and among ARTRA GROUP Incorporated, ARTRA
Subsidiary, Inc., BCA Holdings, Inc., Peter
and Jean Harvey, and Bank of America
Illinois, re. certain Purchase and Sale
Agreement and Assignment between the Bank
and Arabella S.A., a Luxembourg holding
company, filed as an exhibit to Registrant's
Form 10-K, for the year ended December 28,
1995, dated April 9, 1996.

<PAGE>

10.7 PURCHASE AND SALE AGREEMENT AND ASSIGNMENT,
dated as of February 26, 1996, by and
between Bank of America Illinois (the
"Seller") and Arabella S.A., a Luxembourg
holding company (the "Purchaser"), filed as
an exhibit to Registrant's Form 10-K, for
the year ended December 28, 1995, dated
April 9, 1996.

10.8 Letter Agreement dated February 26, 1996 by
and among ARTRA GROUP Incorporated and
Arabella S.A., a Luxembourg holding company,
re. purchase of certain indebtedness by
Arabella (the "Purchaser") from Bank of
America Illinois (the "Seller"), filed as an
exhibit to Registrant's Form 10-K, for the
year ended December 28, 1995, dated April 9,
1996.

10.9 AMENDED AND RESTATED PROMISSORY NOTE, dated
February 26, 1996 made by BCA HOLDINGS, INC.
in favor of ARABELLA S.A. , filed as an
exhibit to Registrant's Form 10-K, for the
year ended December 28, 1995, dated April 9,
1996.

10.10 OPTION TO PURCHASE SHARES OF COMMON STOCK OF
BAGCRAFT CORPORATION OF AMERICA sold by BCA
HOLDINGS, INC. to ARABELLA S.A., filed as an
exhibit to Registrant's Form 10-K, for the
year ended December 28, 1995, dated April 9,
1996.

10.11 PREFERRED STOCK AGREEMENT made by and
between BCA HOLDINGS INC. AND BAGCRAFT
CORPORATION OF AMERICA, filed as an exhibit
to Registrant's Form 10-K, for the year
ended December 28, 1995, dated April 9, 1996

10.12 PREFERRED STOCK EXCHANGE AGREEMENT, dated as
of January 31, 1996 by and between Ozite
Corporation, BCA Holdings Inc. and Bagcraft
Corporation of America, filed as an exhibit
to Registrant's Form 10-K, for the year
ended December 28, 1995, dated April 9,
1996.

10.13 LIMITED CONSENT AND SIXTH AMENDMENT TO
CREDIT AGREEMENT, dated as of February 1,
1996 between BAGCRAFT CORPORATION OF AMERICA
and GENERAL ELECTRIC CAPITAL CORPORATION,
filed as an exhibit to Registrant's Form
10-K, for the year ended December 28, 1995,
dated April 9, 1996.

10.14 ASSET PURCHASE AGREEMENT made as of the 28th
day of September, 1995, by and among Arcar
Graphics, Inc., an Illinois corporation
("Arcar" or "Seller"), BCA Holdings, Inc., a
Delaware corporation ("BCA"), Bagcraft
Corporation of America, a Delaware
corporation ("BCA" and, collectively with
BCA, "Bagcraft"), ARTRA GROUP Incorporated,
a Pennsylvania corporation ("ARTRA"), and
Arcar Acquisition Corp., a Delaware
corporation ("Buyer"), filed with
Registrant's Form 8-K dated October 26,
1995.

10.15 LIMITED RELEASE, dated October 30, 1995,
between NatWest Bank N. A. ("Releasor"), and
ARTRA GROUP Incorporated and Peter R. Harvey
("Releasee"), filed with Registrant's Form
8-K dated October 26, 1995.

10.16 STOCK PURCHASE AGREEMENT, Dated September
11, 1995 by and Among Spectrum Technologies,
Inc., The Lori Corporation, COMFORCE Corp.;
ARTRA Group Incorporated, Peter R. Harvey,
Marc L. Werner, James L. Paterek, Michael
Ferrentino, and Christopher P. Franco, filed
with Registrant's Form 8-K dated September
11, 1995.

<PAGE>

10.17 Letter Agreement dated June 29, 1995,
regarding employment or consulting services
between The Lori Corporation, ARTRA Group
Incorporated, James L. Paterek, Michael
Ferrentino, and Christopher P. Franco, filed
with Registrant's Form 8-K dated September
11, 1995.

10.18 ASSIGNMENT AGREEMENT, dated and effective
March 31, 1995, by and among IBJ Schroder
Bank & Trust Company, The Lori Corporation,
Lawrence Jewelry Co., Lawrence Jewelry
Corporation, New Dimensions Accessories
Ltd., Rosecraft, Inc., Fill-Mor Holding,
Inc., ARTRA GROUP Incorporated and Alexander
Verde, filed as an exhibit to Registrant's
Form 10-K, for the year ended December 29,
1994, dated April 12, 1995.

10.19 REGISTRATION AND SETTLEMENT AGREEMENT dated
as of March 31, 1995 by and between ARTRA
GROUP Incorporated and IBJ Schroder Bank &
Trust Company filed as an exhibit to
Registrant's Form 10-K, for the year ended
December 29, 1994, dated April 12, 1995.

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

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

EXHIBIT 10.1

THIS NOTE SHALL NOT BE TRANSFERABLE BY THE HOLDER
WITHOUT THE ISSUANCE OF A REPLACEMENT NOTE

TERM PROMISSORY NOTE

$1,000,000.00 Chicago, Illinois
March 26, 1997

FOR VALUE RECEIVED, the undersigned, ARTRA GROUP Incorporated, a
Pennsylvania corporation, ("Borrower"), HEREBY PROMISES TO PAY to the order of
HOWARD R. CONANT ("Lender"), at the address of the Lender 445 North Wells
Street, Suite 403, Chicago, Illinois 60610, or at such other place as Lender may
designate from time to time in writing, in lawful money of the United States of
America and in immediately available funds, the principal amount of ONE MILLION
DOLLARS AND NO CENTS ($1,000,000.00) plus interest, on the terms hereinafter
provided.

Borrower promises to pay interest on the unpaid principal balance of
this Note, payable on the Maturity Date (as defined below), calculated at a rate
equal to twelve percent (12%) per annum. Borrower promises to pay to the Lender
on May 26, 1997 (the "Maturity Date"), the entire unpaid principal balance of
this Note plus all accrued and unpaid interest hereon.

All computations in interest shall be made by Lender on the basis of a
three hundred sixty (360) day year in each case for the actual number of days
occurring in the period for which such interest is payable.

Borrower may prepay the obligations under this Note in full or in part,
without penalty, during the term of this Note.

If any payment on this Note becomes due and payable on a day other than
a Business Day, the maturity thereof shall be extended to the next succeeding
Business Day and, with respect to payments of principal, interest thereon shall
be payable at a per annum rate equal to twelve percent (12%) during such
extension.

This Note may not be amended, modified or changed nor shall any waiver
of any of the provisions hereof be effective, except only by an instrument in
writing, signed by the party against whom enforcement of any waiver, amendment,
change, modification or discharge is sought.

The provisions of this Note shall be binding upon Borrower, its
successors and assigns, and shall inure to the benefit of and extend to the
Lender and any holder hereof.

Borrower hereby waives presentment for payment, notice of dishonor,
protest and notice of protest.

<PAGE>

Each of the following shall constitute an event of default hereunder:
(a) Borrower shall fail to pay when due any principal or interest due on this
Note, and such failure shall not be fully cured within ten (10) business days
thereafter; (b) an Event of Default occurs under that certain Stock Pledge
Agreement, dated as of the date hereof, executed by Fill-Mor Holding, Inc., a
wholly owned subsidiary of Borrower, in favor of Lender.

Upon the occurrence of any Event of Default described hereunder, the
holder or holders of the Note by written notice to Borrower, may declare the
unpaid principal amount of this Note to be, and the same shall forthwith become,
due and payable, together with the interest accrued thereon, in respect of such
principal amount, without presentment, demand, protest, or other notice or other
requirements of any kind, all of which are hereby expressly waived by the
Borrower and Borrower shall also be liable for all reasonable expenses
(including attorneys fees) incurred by Lender in the enforcement of the terms of
this Note.

In no event whatsoever shall the amount of interest paid or agreed to
be paid to Lender pursuant to this Note exceed the highest lawful rate of
interest permissible under applicable law. If, from any circumstances
whatsoever, fulfillment of any provision of this Note shall involve exceeding
the lawful rate of interest which a court of competent jurisdiction may deem
applicable hereto, then ipso facto, the obligation to be fulfilled shall be
reduced to the highest rate of interest permissible under such law and if Lender
shall receive, as interest, an amount which would be deemed unlawful under such
applicable law, such interest shall be applied to the principal amount of this
Note (whether or not due and payable), and not to the payment of interest, or
refunded to Borrower if the Note has been paid in full.

This Note has been delivered at Chicago, Illinois and shall be construed
according to the laws of the State of Illinois, in which State it shall be
performed by the Borrower. The Borrower agrees that all legal actions or
proceedings in any manner or respect arising out of or related to this Note
shall be brought and litigated only in courts having situs in Cook County,
Illinois; and the Borrower hereby consents to and submits to the jurisdiction of
any local, state or federal court located within Cook County, and the Borrower
hereby waives any right the Borrower may have to transfer or change the venue of
any such legal action or proceeding.

The Borrower waives irrevocably the right to a trial by jury in any
action or proceeding to enforce or defend any rights under this Note or under
any amendment, instrument, document or agreement delivered or which may in the
future be delivered in connection herewith, and agrees that any such action or
proceeding shall be tried before a court and not before a jury.

ARTRA GROUP Incorporated

By: ______________________________
Title: ______________________________

EXHIBIT 10.2

THIS NOTE SHALL NOT BE TRANSFERABLE BY THE HOLDER
WITHOUT THE ISSUANCE OF A REPLACEMENT NOTE

TERM PROMISSORY NOTE

$1,000,000.00 Chicago, Illinois
March 26, 1997

FOR VALUE RECEIVED, the undersigned, ARTRA GROUP Incorporated, a
Pennsylvania corporation, ("Borrower"), HEREBY PROMISES TO PAY to the order of
STEPHALEX INTERNATIONAL, INC. a foreign corporation ("Lender"), at the address
of the Lender c/o Schnittman & Schnittman, P.O. Box 1019, Melville, NY 11747, or
at such other place as Lender may designate from time to time in writing, in
lawful money of the United States of America and in immediately available funds,
the principal amount of ONE MILLION DOLLARS AND NO CENTS ($1,000,000.00) plus
interest, on the terms hereinafter provided.

Borrower may prepay the obligations under this Note in full or in part,
without penalty, during the term of this Note.

The provisions of this Note shall be binding upon Borrower, its
successors and assigns, and shall inure to the benefit of and extend to the
Lender and any holder hereof.

Borrower hereby waives presentment for payment, notice of dishonor,
protest and notice of protest.

<PAGE>

ARTRA GROUP Incorporated

By: ______________________________
Title: ______________________________

EXHIBIT 10.3

OPTION AGREEMENT

THIS OPTION AGREEMENT, dated as of the 26th day of March, 1997 by and
between ARTRA GROUP INCORPORATED, a Pennsylvania corporation ("ARTRA"), FILL-MOR
HOLDING, INC., a Delaware corporation ("Fill-Mor") (ARTRA AND Fill-Mor
hereinafter jointly referred to as "Grantor") and HOWARD R. CONANT ("Grantee").

WHEREAS, Grantor owns the common stock of COMFORCE Corporation, a
Delaware corporation ("Comforce"); and

WHEREAS, Grantee has agreed to make a loan in the amount of $1,000,000
(the "Loan"), to ARTRA to be evidenced by ARTRA's Promissory Note of even date
herewith in said principal amount, payable to the order of Lender with interest
as therein described (such Term Loan Promissory Note, together with any and all
renewals, extensions, replacements, supplements or additional notes are
hereinafter collectively referred to as the "Note").

NOW, THEREFORE, in consideration of the premises, it is agreed as
follows:

1. Option. Grantor hereby grants to Grantee the option to purchase
25,000 shares of the common stock (the "Shares") of Comforce at a price of $4.00
per share (the "Option").

2. Term of Option. This Option shall be effective from the date hereof
and shall expire one year after the repayment of the Note, or the exercise of
the terms of Paragraphs 6 or 7, hereinbelow.

3. Repayment of Note - Reduction of Price. In the event that Artra does
not repay the Note in full, on or before May 26, 1997, price for the Shares
shall, effective May 26, 1997, be reduced from $4.00 per share to $2.00 per
share.

4. Repayment of Note - Additional Shares. In the event that Artra does
not repay the Note in full on or before June 26, 1997, and every thirty (30)
days thereafter until the Note is paid in full, Grantor hereby grants to Grantee
an option to purchase an additional 5,000 shares of the common stock of Comforce
(the "Additional Shares") at a price of $2.00 per share (the "Additional
Option").

5. Exercise of Option. This Option and the Additional Option may be
exercised in whole or in part at any time on or before the above-stated time of
expiration of this Option, or if such day is a day on which banking institutions
are authorized by law to close in Chicago, Illinois, then on the next succeeding
business day, by written notice to ARTRA at 500 Central Avenue, Northfield,
Illinois 60093, accompanied by payment in full for the number of shares of
Common Stock specified in such notice. Upon Grantee's exercise of this Option or
the Additional Option, Grantee will be entitled to receive a stock certificate
representing the Shares (and, as the case may be, the Additional Shares) for
which the Grantee has made payment.

<PAGE>

6. Put of Option Agreement. Grantee shall have a one time option to
require Artra to purchase this Option from Grantee on or before the date of May
30, 1997, for a total purchase price of $50,000.00 (the "Put Option"). Grantee
shall exercise the Put Option by giving Artra five (5) days written notice
(which shall be in the form of Exhibit "A" attached hereto and made a part
hereof) prior to the date of May 30, 1997.

7. Purchase of Option. Provided that Artra has repaid the Note in full
at the maturity thereof, and that Grantee shall not have exercised the Option or
the Put Option on or before the date of May 30, 1997, Artra shall have a one
time option, but not the obligation, to purchase this Option from Grantee, for a
total price of $50,000.00. Artra shall exercise the right to purchase this
Option by giving Grantee five (5) days written notice (which shall be in the
form of Exhibit "B" attached hereto and made a part hereof) prior to the date of
May 30, 1997. Upon Grantee's receipt of Artra's notice and payment in full, this
Option shall automatically terminate.

8. Governing Law. This Option has been executed and delivered in the
State of Illinois and shall be construed in accordance with the laws of the
State of Illinois.

IN WITNESS WHEREOF, Artra, Grantee and Fill-Mor have executed this
Option Agreement as of the day and date above first written.

GRANTEE: GRANTOR:
ARTRA GROUP Incorporated

By: _____________________
Its: _____________________
_________________________
HOWARD R. CONANT

Fill-Mor Holding, Inc.

By: _____________________
Its: _____________________

<PAGE>

EXHIBIT A

NOTICE OF PUT OPTION

Dated: _____________________

TO: ARTRA GROUP Incorporated
500 Central Avenue
Northfield, IL 60693

RE: Option Agreement

Please be advised that in accordance with Paragraph 6 of the Option Agreement,
Grantee hereby exercises its rights under the Put Option.

Very truly yours,

_________________________
Howard R. Conant

<PAGE>

EXHIBIT B

NOTICE OF PURCHASE OPTION

Dated: __________________

TO: Howard R. Conant
445 N. Wells Street
Suite 403
Chicago, IL 60610

RE: Option Agreement

To Whom It May Concern:

Please be advised that in accordance with Paragraph 7 of the Option Agreement,
Grantor hereby exercises its right to purchase the option. Enclosed please find
our check in the amount of $50,000.

Very truly yours,

ARTRA GROUP Incorporated

By: ______________________________
Its: ______________________________

EXHIBIT 10.4

OPTION AGREEMENT

THIS OPTION AGREEMENT, dated as of the 26th day of March, 1997 by and
between ARTRA GROUP INCORPORATED, a Pennsylvania corporation ("ARTRA"), FILL-MOR
HOLDING, INC., a Delaware corporation ("Fill-Mor") (ARTRA AND Fill-Mor
hereinafter jointly refered to as "Grantor") and STEPHALEX INTERNATIONAL, INC. a
foreign corporation ("Grantee").

WHEREAS, Grantor directly owns the common stock of COMFORCE
Corporation, a Delaware corporation ("Comforce"); and

NOW, THEREFORE, in consideration of the premises, it is agreed as
follows:

1. Option. Grantor hereby grants to Grantee the option to purchase
25,000 shares of the common stock (the "Shares") of Comforce at a price of $4.00
per share (the "Option").

2. Term of Option. This Option shall be effective from the date hereof
and shall expire one year after the repayment of the Note or upon the exercise
of the terms of Paragraphs 6 or 7, hereinbelow.

3. Repayment of Note - Reduction of Price. In the event that Grantor
does not repay the Note in full, on or before May 26, 1997, price for the Shares
shall, effective May 26, 1997, be reduced from $4.00 per share to $2.00 per
share.

5. Exercise of Option. This Option and the Additional Option may be
exercised in whole or in part at any time on or before the above-stated time of
expiration of this Option, or if such day is a day on which banking institutions
are authorized by law to close in Chicago, Illinois, then on the next succeeding
business day, by written notice to the Escrowee, as hereinafter defined, and
accompanied by payment in full for the number of shares of Common Stock
specified in such notice. Upon Grantee's exercise of this Option or the
Additional Option, Grantee will be entitled to receive a stock certificate
representing the Shares (and, as the case may be, the Additional Shares) for
which the Grantee has made payment.

<PAGE>

7. Purchase of Option. Provided that Artra has repaid the Note in full
at the maturity thereof, and that Grantee shall not have exercised the Option or
the Put Option on or before the date of May 30, 1997, Artra shall have a one
time option, but not the obligation, to purchase this Option from Grantee, for a
total price of $50,000.00. Grantor shall exercise the right to purchase this
Option by giving Grantee five (5) days written notice (which shall be in the
form of Exhibit "B" attached hereto and made a part hereof) prior to the date of
June 6, 1997. Upon Grantee's receipt of Artra's notice and payment in full, this
Option shall automatically terminate.

8. Escrowee. Grantor and Grantee agree to the appointment of the law
firm of Kwiatt, Silverman & Ruben to act as Escrowee to execute the terms of
this Option Agreement. Contemporaneously with the execution of this Agreement,
Grantor and Grantee shall execute an Escrow Agreement in the form of Exhibit
"C," attached hereto and made a part hereof.

9. Governing Law. This Option has been executed and delivered in the
State of Illinois and shall be construed in accordance with the laws of the
State of Illinois.

IN WITNESS WHEREOF, Artra, Grantee and Fill-Mor have executed this
Option Agreement as of the day and date above first written.

GRANTEE: GRANTOR:
STEPHALEX INTERNATIONAL, INC. ARTRA GROUP Incorporated

By: _____________________ By: ___________________________
Its: _____________________ Its: ___________________________

Fill-Mor Holding, Inc.

By: _________________________
Its: _________________________

<PAGE>

EXHIBIT A

NOTICE OF PUT OPTION

Dated: _____________________

TO: ARTRA GROUP Incorporated
500 Central Avenue
Northfield, IL 60693

RE: Option Agreement

Please be advised that in accordance with Paragraph 6 of the Option Agreement,
Grantee hereby exercises its rights under the Put Option.

Very truly yours,

STEPHALEX INTERNATIONAL, INC.

By: ______________________________
Its: ______________________________

<PAGE>

EXHIBIT B

NOTICE OF PURCHASE OPTION

Dated: __________________

TO: Stephalex International, Inc.
c/o Schnittman & Schnittman
P.O. Box 1019
Melville, NY 11747

RE: Option Agreement

To Whom It May Concern:

Please be advised that in accordance with Paragraph 7 of the Option Agreement,
Artra hereby exercises its right to purchase the option. Enclosed please find
our check in the amount of $50,000.

Very truly yours,

ARTRA GROUP Incorporated

By: __________________________
Its: __________________________

EXHIBIT 11

ARTRA GROUP INCORPORATED
COMPUTATION OF EARNINGS (LOSS) PER SHARE
AND EQUIVALENT SHARE OF COMMON STOCK
(In thousands, except per share data)

Fiscal Year
---------------------------------
Line 1996 1995 1994
-------- -------- --------
AVERAGE SHARES OUTSTANDING

<S><C> <C> <C> <C> <C>
1 Weighted average number of shares of common stock
outstanding during the period 7,525 6,776 5,702
2 Net additional shares assuming stock options and warrants
exercised and proceeds used to purchase treasury shares 414 - -
--------- --------- --------
3 Weighted average number of shares and equivalent shares
of common stock outstanding during the period 7,939 6,776 5,702
========= ========= ========

EARNINGS (LOSS)

4 Earnings (loss) from continuing operations $ 3,549 ($16,943) ($13,529)
5 Less dividends applicable to redeemable preferred stock (621) (565) (516)
6 Less redeemable common stock accretion (390) (767) (309)
========= ========= ========
7 Amount for per share computation $ 2,538 ($18,275) ($14,354)
========= ========= ========

8 Earnings (loss) before extraordinary credit $ 3,549 (16,933) ($29,435)
9 Less dividends applicable to redeemable preferred stock (621) (565) (516)
10 Less redeemable common stock accretion (390) (767) (309)
========= ========= ========
11 Amount for per share computation $ 2,538 ($18,265) ($30,260)
========= ========= ========

12 Net earnings (loss) $12,973 ($2,903) ($20,470)
13 Less dividends applicable to redeemable preferred stock (621) (565) (516)
14 Less redeemable common stock accretion (390) (767) (309)
--------- --------- --------
15 Amount for per share computation $11,962 ($4,235) ($21,295)
========= ========= ========

PER SHARE AMOUNTS

Earnings (loss) from continuing operations
(line 7 / line 3) $ .28 ($2.69) ($2.56)
========= ========= ========

Earnings (loss) before extraordinary credit
(line 11 / line 3) $ .28 ($2.69) ($5.30)
========= ========= ========

Net earnings (loss)
(line 15 / line 3) $1.51 ($0.63) ($3.73)
========= ========= ========

</TABLE>

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

EXHIBIT 21
SUBSIDIARIES
(As of April 2, 1997)

ARTRA GROUP INCORPORATED (1)
|
|
|
-------------------------------------------------------------
| | | | |
| | | | |
A. G. Fill-Mor ARTRA ARTRA BCA
Holding Corp. (2) Holding Inc (2) Resources Subsidiary Inc. Holdings Inc.
100% 100 % Corp. (2) 100 % (3) 100 %(2)
100 % |
|
Bagcraft Corporation
of America (2)
100 %

(1) Pennsylvania Corporation
(2) Delaware Corporation
(3) lllinois Corporation

EXHIBIT 23

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the incorporation by reference in the registration statement of
ARTRA GROUP Incorporated on Form S-8 (File No. 2-61375) of our report, which
includes an explanatory paragraph referring to an uncertainty concerning the
Company's ability to continue as a going concern, dated April 2, 1997 on our
audits of the consolidated financial statements and financial statement
schedules of ARTRA GROUP Incorporated as of December 26, 1996 and December 28,
1995, and for each of the three fiscal years in the period ended December 26,
1996, which report is included in this Annual Report on Form 10-K.

COOPERS & LYBRAND L.L.P.

Chicago, Illinois
April 2, 1997

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM FORM 10-K FOR THE YEAR
ENDED DECEMBER 26, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FORM 10-K.

</LEGEND>
<CIK> 0000200243
<NAME> ARTRA GROUP INCORPORATED
<MULTIPLIER> 1,000
<CURRENCY> dollars

<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> DEC-26-1996
<PERIOD-START> DEC-29-1995
<PERIOD-END> DEC-26-1996
<EXCHANGE-RATE> 1.000
<CASH> 171
<SECURITIES> 22,564
<RECEIVABLES> 8,779
<ALLOWANCES> 512
<INVENTORY> 14,967
<CURRENT-ASSETS> 46,900
<PP&E> 45,414
<DEPRECIATION> 20,480
<TOTAL-ASSETS> 77,379
<CURRENT-LIABILITIES> 50,292
<BONDS> 0
8,678
0
<COMMON> 5,793
<OTHER-SE> (27,383)
<TOTAL-LIABILITY-AND-EQUITY> 77,379
<SALES> 120,699
<TOTAL-REVENUES> 120,699
<CGS> 94,613
<TOTAL-COSTS> 94,613
<OTHER-EXPENSES> 14,380
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,005
<INCOME-PRETAX> 3,701
<INCOME-TAX> 152
<INCOME-CONTINUING> 3,549
<DISCONTINUED> 0
<EXTRAORDINARY> 9,424
<CHANGES> 0
<NET-INCOME> 12,973
<EPS-PRIMARY> 1.51
<EPS-DILUTED> 0

</TABLE>