LORI CORP
10-Q, 1995-05-19
COSTUME JEWELRY & NOVELTIES
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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-Q

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

                 For the quarterly period ended March 31, 1995

                                       OR

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

                       For the transition period from to

                         Commission file number 1-6081

                              THE LORI CORPORATION
             (Exact name of registrant as specified in its charter)


               Delaware                                       36-2262248
      ---------------------------                           ---------------
      State or other jurisdiction                           I.R.S. Employer
    of incorporation or organization                       Identification No.


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

Registrant's telephone number, including area code:   (708) 441-7300


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


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                                    Yes X  No
                                       ---   ---

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

                                                   
               Class                             Outstanding at April 30, 1995
     ----------------------------                -----------------------------
     Common stock, $.01 par value                          3,314,994 

<PAGE>


                              THE LORI CORPORATION

                                     INDEX

<TABLE>
<CAPTION>



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

PART I            FINANCIAL INFORMATION

  Item 1.         Financial Statements (Unaudited)

                  Condensed Consolidated Balance Sheets
                       March 31, 1995 and December 31, 1994                                             2

                  Condensed Consolidated Statements of Operations
                       for the three Months ended March 31, 1995 and March 31, 1994                     4

                  Condensed Consolidated Statement of Changes in Shareholders'
                        Equity (Deficit) for the three Months ended March 31, 1995                      5

                  Condensed Consolidated Statements of Cash Flows
                     for the three Months ended March 31, 1995 and March 31, 1994                       6

                           Notes to Condensed Consolidated Financial Statements                                       7


  Item 2.         Management's Discussion and Analysis of
                       Financial Condition and Results of Operations                                  12



PART II           OTHER INFORMATION

  Item 6.         Exhibits and Reports on Form 8-K                                                    16



SIGNATURES                                                                                            17
</TABLE>

<PAGE>

                         PART I - FINANCIAL INFORMATION

Item 1.     Financial Statements
<TABLE>


                     THE LORI CORPORATION AND SUBSIDIARIES
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                            (Unaudited in thousands)

<CAPTION>

                                                                               March 31, December 31,
                                                                                  1995      1994
                                                                                --------   --------
   <S>                                                                          <C>        <C>

                              ASSETS
   Current assets:
      Cash and equivalents ..................................................   $    147   $    783
      Restricted cash and equivalents .......................................        550

      Receivables, less allowance for  doubtful accounts
         and markdowns of $984 in 1995 and $1,338 in 1994 ...................      1,216        814
      Inventories ...........................................................      1,935      2,105
      Other .................................................................        186        260
                                                                                --------   --------
                  Total current assets ......................................      3,484      4,512
                                                                                --------   --------

   Property, plant and equipment ............................................      1,584      1,563
   Less accumulated depreciation and amortization ...........................      1,151      1,119
                                                                                --------   --------
                                                                                     433        444
                                                                                --------   --------

   Other assets:
      Excess of cost over net assets acquired,
         net of accumulated amortization of $3,520 in 1995 and $3,415 in 1994     13,035     13,140
      Other .................................................................        869        608
                                                                                --------   --------
                                                                                  13,904     13,748
                                                                                --------   --------
                                                                                $ 17,821   $ 18,704
                                                                                ========   ========


</TABLE>

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



<PAGE>
<TABLE>

                     THE LORI CORPORATION AND SUBSIDIARIES
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                            (Unaudited in thousands)

<CAPTION>

                                                                               March 31, December 31,
                                                                                  1995       1994
                                                                                --------   --------
   <S>                                                                          <C>       <C>
                               LIABILITIES
   Current liabilities:
      Note payable to a related party ....................................      $    850 
      Current maturities of long-term debt ...............................                $     750
      Accounts payable ...................................................         2,568      3,414
      Accrued expenses ...................................................           997        905
      Due to ARTRA .......................................................           382        289
                                                                                --------   --------
                  Total current liabilities ..............................         4,797      5,358
                                                                                --------   --------

   Debt subsequently discharged ..........................................         7,105
                                                                                --------

   Other noncurrent liabilities ..........................................         1,002         963
                                                                                --------    --------

   Commitments and contingencies


                     SHAREHOLDERS' EQUITY (DEFICIT)
   Preferred stock, $.01 par value, authorized 1,000 shares,
      all series;  Series C, issued 10 shares, including accrued dividends        19,515      19,515
   Common stock, $.01 par value; authorized 10,000 shares;
      issued 3,415 shares in 1995 and 3,265 shares in 1994 ...............            33          32
   Less restricted common stock (100 shares) .............................          (700)       (700)
   Additional paid-in capital ............................................        65,728      65,392
   Accumulated deficit ...................................................       (72,554)    (78,961)
                                                                                --------    --------
                                                                                  12,022       5,278
                                                                                --------    --------
                                                                                $ 17,821    $ 18,704
                                                                                ========    ========


</TABLE>

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



<PAGE>

<TABLE>

                     THE LORI CORPORATION AND SUBSIDIARIES
                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                     (In thousands, except per share data)

<CAPTION>



                                                        Three Months Ended March 31,
                                                              1995        1994
                                                           --------    --------
   <S>                                                     <C>         <C>  
   Net sales ...........................................   $  4,944    $  9,269
                                                           --------    --------
   Costs and expenses:
      Cost of goods sold ...............................      2,863       5,097
      Selling, general and administrative ..............      2,129       4,581
      Depreciation and amortization ....................        138         364
                                                           --------    --------  
                                                              5,130      10,042
                                                           --------    --------

   Operating loss ......................................       (186)       (773)
                                                           --------    --------

   Other income (expense):
      Interest expense .................................        (62)       (491)
      Other income, net ................................                      9
                                                           --------    --------
                                                                (62)       (482)
                                                           --------    -------- 

   Loss before income taxes and extraordinary credit ...       (248)     (1,255)
   Provision for income taxes ..........................         (2)         (5)
                                                           --------    -------- 
   Loss before extraordinary credit ....................       (250)     (1,260)
   Extraordinary credit, net discharge of indebtedness .      6,657         
                                                           --------    --------
   Net earnings (loss) .................................   $  6,407    ($ 1,260)
                                                           ========    ======== 


   Earnings (loss) per share:
      Loss before extraordinary credit .................   $  (0.07)   ($  0.40)
      Extraordinary credit .............................       1.79        
                                                           --------    --------
                  Net earnings (loss) ..................   $   1.72    ($  0.40)
                                                           ========    ======== 

   Weighted average number of shares of common stock and
      common stock equivalents outstanding .............      3,731       3,163
                                                           ========    ========

</TABLE>

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


<PAGE>

<TABLE>

                     THE LORI CORPORATION AND SUBSIDIARIES
 CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
                  (Unaudited in thousands, except share data)

<CAPTION>

                                                                                                                      
                                                                       Restricted                                      Total
                                 Preferred Stock   Common Stock      Common  Stock     Additional                 Shareholders' 
                                 ---------------  ----------------  ----------------    Paid-in      Accumulated    Equity
                                 Shares  Dollars   Shares  Dollars  Shares   Dollars    Capital       (Deficit)    (Deficit)
                                 ------  -------  -------- -------  ------   -------    -------       --------      ------- 
   <S>                            <C>   <C>       <C>         <C>    <C>       <C>      <C>          <C>           <C>
 
   Balance at December 31, 1994   9,701 $ 19,515  3,265,019   $ 32   100,000   ($700)   $ 65,392     ($ 78,961)    $  5,278
      Net earnings ............                                                                          6,407        6,407
      Common stock issued as
        consideration for debt
        restructuring .........                     150,000      1                           336                        337
   Fractional shares purchased                          (24)                                                             
                                 ------  -------  ---------    ---   -------    ----     -------      --------      -------
   Balance at March 31, 1995 ..   9,701 $ 19,515  3,414,995   $ 33   100,000   ($700)   $ 65,728     ($ 72,554)      12,022
                                 ======  =======  =========    ===   =======    ====     =======      ========      =======

</TABLE>

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

<PAGE>

<TABLE>


                     THE LORI CORPORATION AND SUBSIDIARIES
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (Unaudited in thousands)

<CAPTION>



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


   Net cash flows used by operating activities ......      $ (920)    $ (211)
                                                           ------     ------ 

   Cash flows from investing activities:
      Payment of liabilites with restricted cash ....         550         
      Additions to property, plant and equipment ....         (21)       (18)
      Retail fixtures ...............................        (338)       (97)
                                                           ------     ------
   Net cash flows from (used by) investing activities         191       (115)
                                                           ------     ------

   Cash flows from financing activities:
      Net increase (decrease) in short-term debt ....         850        (36)
      Proceeds from long-term borrowings ............                  1,150
      Reduction of long-term debt ...................        (750)      (375)
      Other .........................................          (7)         2
                                                           ------     ------
   Net cash flows from financing activities .........          93        741
                                                           ------     ------
     
   Increase (decrease) in cash and cash equivalents .        (636)       415
   Cash and equivalents, beginning of period ........         783        540
                                                           ------     ------
   Cash and equivalents, end of period ..............      $  147     $  955
                                                           ======     ======


   Supplemental cash flow information:
   Cash paid during the period for:
         Interest ...................................       $  36    $   108
         Income taxes paid, net .....................           3         20

   Supplemental schedule of noncash investing
      and financing activities:
         Common stock issued as consideration
           for debt restructuring ...................         337         


</TABLE>


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

<PAGE>


                     THE LORI CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


1.       BASIS OF PRESENTATION

ARTRA GROUP INCORPORATED  ("ARTRA"), a public company whose shares are traded on
the New York Stock Exchange,  owns, through its wholly-owned subsidiary Fill-Mor
Holding, Inc.  ("Fill-Mor"),  approximately 63.4% of the common stock and all of
the  outstanding  preferred  stock  of  The  Lori  Corporation  ("Lori"  or  the
"Company").  Lori is operating in one industry segment  (popular-priced  fashion
costume  jewelry  and  accessories)  through its two  wholly-owned  subsidiaries
Lawrence Jewelry Corporation ("Lawrence") and Rosecraft, Inc. ("Rosecraft").

The Company's  condensed  consolidated  financial  statements are presented on a
going  concern  basis,  which  contemplates  the  realization  of assets and the
satisfaction of liabilities in the normal course of business.  In the opinion of
the  Company,  the  accompanying  condensed  consolidated  financial  statements
reflect  all  normal  recurring  adjustments  necessary  to  present  fairly the
financial  position  as of March 31,  1995,  and the results of  operations  and
changes in cash flows for the three month periods ended March 31, 1995 and March
31, 1994. The Company has incurred losses from  continuing  operations in recent
years,  has a deficiency of working  capital of $1,113,000 at March 31, 1995 and
no  financing  in place for the coming  year.  No  assurances  can be given that
either the  business  and  operations  of Lori or the market  conditions  in the
fashion jewelry industry  generally will improve in the immediate future.  These
conditions 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.

Lori anticipates that the successful completion of the restructuring of its debt
(see Note 2), plus additional  working capital  borrowings  either from ARTRA or
external  sources will permit it to fund its capital  requirements  in 1995.  In
addition,  Lori  continues to  restructure  its  operations and is attempting to
increase  sales such that operating  results will improve.  If Lori is unable to
obtain working capital borrowings to fund its operations in 1995 and improve the
results  of  operations,  it may be forced to  liquidate  its assets or file for
protection under the Bankruptcy Code.

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

These condensed  consolidated  financial  statements are presented in accordance
with the  requirements  of Form 10-Q and  consequently  do not  include  all the
disclosures  required in the Company's annual report on Form 10-K.  Accordingly,
the Company's  annual report on Form 10-K for the fiscal year ended December 31,
1994, as filed with the  Securities and Exchange  Commission,  should be read in
conjunction  with  the  accompanying  consolidated  financial  statements.   The
condensed  consolidated  balance  sheet as of December 31, 1994 was derived from
the audited consolidated  financial statements in the Company's annual report on
Form 10-K.

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


2.       DEBT RESTRUCTURING

Effective August 18, 1994, as amended December 23, 1994, ARTRA,  Fill-Mor,  Lori
and Lori's operating subsidiaries,  (including New Dimensions Accessories, Ltd.,
"New Dimensions",  which ceased operations  effective December 27, 1994) entered
into an  agreement  with Lori's bank lender to settle  obligations  due the bank
under terms of the bank loan  agreements of Lori and its operating  subsidiaries
and Fill-Mor.

Per terms of the Amended Settlement Agreement, borrowings due the bank under the
loan   agreements   of  Lori  and  its  operating   subsidiaries   and  Fill-Mor
(approximately  $25,000,000 as of December 23, 1994),  plus amounts due the bank
for accrued  interest and fees were reduced to $10,500,000 (of which  $7,855,000
pertained  to  Lori's  obligation  to  the  bank  and  $2,645,000  pertained  to
Fill-Mor's  obligation to the bank). Upon the satisfaction of certain conditions
of the Amended Settlement  Agreement in 1995, as discussed below, the balance of
this indebtedness was discharged.
<PAGE>


                     THE LORI CORPORATION AND SUBSIDIARIES

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)



In  conjunction  with the Amended  Settlement  Agreement,  ARTRA  entered into a
$1,850,000  short-term  loan agreement with a  non-affiliated  corporation,  the
proceeds of which were used to fund amounts due the bank as discussed below. The
loan, due June 30, 1995, with interest payable monthly at 10%, is collateralized
by 100,000  shares of Lori common  stock.  These  100,000  Lori  common  shares,
originally  issued to the bank under  terms of the August  18,  1994  Settlement
Agreement,  are carried in the Company's condensed consolidated balance sheet as
restricted  common stock.  Upon payment of the loan, these shares will revert to
treasury stock.

In  exchange  for the  reduction  of  amounts  due the bank,  and as  additional
consideration   for  the   $1,850,000   short-term   loan   agreement  from  the
non-affiliated  corporation,  Lori and Lori's operating subsidiaries,  ARTRA and
Fill-Mor agreed to pay the following consideration:

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

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

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

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


The Settlement Agreement required ARTRA to advance $400,000 to Lori which, along
with $150,000 of the ARTRA $1,850,000 short-term loan agreement noted above, was
deposited  in  trust  at  December,  1994.  This  deposit  was  used to fund the
installment  payment due December 31, 1994 for unsecured claims arising from the
May 3, 1993  reorganization of New Dimensions.  The installment payment was made
in January, 1995.

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


                     THE LORI CORPORATION AND SUBSIDIARIES

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)



Lori  recognized  an  extraordinary  gain of  $8,965,000  ($2.81  per  share) in
December  1994 as a result of the  reduction  of amounts  due the bank under the
loan  agreements  of  Lori  and  its  operating  subsidiaries  and  Fill-Mor  to
$10,500,000 (of which $7,855,000  pertained to Lori's obligation to the bank and
$2,645,000  pertained to  Fill-Mor's  obligation to the bank) as of December 23,
1994 calculated (in thousands) as follows:


   Amounts due the bank under loan agreements
      of Lori and its operating subsidiaries .........     $ 22,749
   Less amounts due the bank at December 29, 1994 ....       (7,855)
                                                            ------- 
   Bank debt discharged ..............................       14,894
   Accrued interest and fees discharged ..............        3,635
   Other liabilities discharged ......................        1,985
   Less consideration to the bank per terms of the
       amended settlement agreement
            Cash .....................................       (1,900)
            ARTRA common stock .......................       (2,500)
            New Dimensions assets assigned to the bank       (7,149)
                                                            ------- 
            Net extraordinary gain ...................     $  8,965
                                                            =======


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

On March  31,  1995 the  $750,000  note due the bank was paid and the  remaining
indebtedness  of Lori and Fill-Mor was  discharged,  resulting in an  additional
extraordinary  gain to Lori of $6,657,000 ($1.79 per share) in the first quarter
of 1995.  The  $750,000  note payment was funded with the proceeds of a $850,000
short-term  loan from a director of Lori.  The loan provides for interest at the
prime rate plus 1%. As  consideration  for assisting in the debt  restructuring,
the director  received  150,000 Lori common shares valued at $337,500 ($2.25 per
share)  based upon Lori's  closing  market  value on March 30,  1995.  The first
quarter 1995 extraordinary gain was calculated (in thousands) as follows:


   Amounts due the bank under loan agreements
      of Lori and its operating subsidiaries ............     $ 7,855
   Less amounts due the bank   applicable to Lori .......        (561)
                                                               ------ 
   Bank debt discharged .................................       7,294
   Less fair market value of Lori common stock
       issued as consideration for the debt restructuring        (337)
   Other fees and expenses ..............................        (300)
                                                               ------ 
            Net extraordinary gain ......................     $ 6,657
                                                               ======

<PAGE>

                     THE LORI CORPORATION AND SUBSIDIARIES

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)



3.       INVENTORIES

Inventories (in  thousands) consist of:
<TABLE>
<CAPTION>


                                      March 31,  December 31,
                                         1995        1994
                                        ------      ------
   <S>                                  <C>         <C>

   Raw materials and supplies ......    $   95      $  115

   Work in process .................        26          19

   Finished goods ..................     1,814       1,971
                                        ------      ------
                                        $1,935      $2,105
                                        ======      ======

</TABLE>


4.       NOTES PAYABLE AND LONG-TERM DEBT

Notes payable and long-term debt (in thousands) consists of:

<TABLE>
<CAPTION>

                                                  March 31,    December 31,  
                                                    1995           1994
                                                    ------        ------ 
   <S>                                             <C>           <C>
   
   Notes payable
        Amounts due to a related party,
            interest at the prime rate plus 1%     $   850       $   -    
                                                    ======        ====== 


    Long-term debt
        Amounts due a bank term under terms of    
             a debt settlement agreement .....         -         $ 7,855

        Current scheduled maturities .........         -            (750)

        
        Debt subsequently discharged .........         -          (7,105)
                                                    ------        ------ 
                                                   $   -         $    -
                                                    ======        ======
</TABLE>


As discussed in Note 2, effective August 18, 1994, as amended effective December
23, 1994, ARTRA,  Fill-Mor,  Lori and Lori's operating subsidiaries entered into
an agreement  with Lori's bank lender to settle  obligations  due the bank under
terms of the bank loan  agreements  of Lori and its operating  subsidiaries  and
Fill-Mor. Per terms of the Amended Settlement Agreement, borrowings due the bank
under the loan  agreements  of Lori and its  operating  subsidiaries  and Lori's
parent,  Fill-Mor,  plus amounts due the bank for accrued interest and fees were
reduced to $10,500,000 as of December 23, 1994 (of which $7,855,000 pertained to
Lori's obligation to the bank and $2,645,000 pertained to Fill-Mor's  obligation
to the bank). As partial  consideration for the Amended Settlement Agreement the
bank received a $750,000 Lori note payable due March 31, 1995.


<PAGE>


                     THE LORI CORPORATION AND SUBSIDIARIES

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)



On March  31,  1995 the  $750,000  note due the bank was paid and the  remaining
indebtedness  of Lori and Fill-Mor was  discharged,  resulting in an  additional
extraordinary gain to Lori of $6,657,000 in 1995 (See Note 2). The $750,000 note
payment  was  funded  with the  proceeds  of a $850,000  short-term  loan from a
director of Lori.  The loan  provides for interest at the prime rate plus 1%. As
consideration for assisting with the debt  restructuring,  the director received
150,000  Lori  common  shares  valued at $337,500  ($2.25 per share)  based upon
Lori's closing market value on March 30, 1995.


5.       PREFERRED STOCK

The Series C cumulative preferred stock, owned in its entirety by ARTRA, accrues
dividends  at the rate of 13% per annum on its  liquidation  value.  Accumulated
dividends  were  $7,011,000 at March 31, 1995 and December 31, 1994.  Due to the
limited ability of the Company to receive funds from its operating  subsidiaries
in recent years under terms of their former bank loan agreements, effective July
1,  1989,  ARTRA  placed  a  moratorium  on the  accrual  of  interest  and  the
declaration and accrual of dividends on its Lori preferred stock. The moratorium
has been extended indefinitely.

The Series C preferred stock is redeemable at Lori's option at prices based upon
the principal  amount paid plus accumulated  dividends and a redemption  premium
that increased each year until 1995.


6.       EARNINGS PER SHARE

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


7.       INCOME TAXES

The 1995  extraordinary  credit  represents  a net gain from  discharge  of bank
indebtedness.  No income tax expense is  reflected  in the  Company's  financial
statements resulting from the extraordinary credit due to the utilization of tax
loss carryforwards.  No income tax benefit was recognized in connection with the
Company's 1994 pre-tax loss due to the Company's tax loss carryforwards.


8.       LITIGATION

Lori and its subsidiaries  are parties in various  business  related  litigation
which, in the opinion of management,  will not have a material adverse effect on
the Company's financial position and results of operations.


<PAGE>


 Item 2.            MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS


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

Liquidity and Capital Resources

Cash and cash equivalents decreased $636,000 during the three months ended March
31, 1995.  Cash flows used by operating  activities  of $920,000  exceeded  cash
flows from  investing  activities  of  $191,000  and cash  flows from  financing
activities of $93,000.  Cash flows used by operating activities were principally
attributable  to the Company's loss from  operations and an installment  payment
made  in  January  1995  for  unsecured   claims   arising  from  the  May  1993
reorganization of New Dimensions. Cash flows from investing activities consisted
of $550,000  deposited  in trust in December,  1994 used to fund an  installment
payment  in  January,  1995 for  unsecured  claims  arising  from the May,  1993
reorganization  of New  Dimensions,  less  expenditures  for retail  fixtures of
$338,000 and  expenditures  for equipment of $21,000.  Cash flows from financing
activities were  attributable to an $850,000  short-term loan from a director of
the Company  used to fund the  $750,000  payment due the  Company's  former bank
lender under terms of the debt settlement agreement.

During the three months  ended March 31, 1995,  the  Company's  working  capital
deficiency increased by $467,000.  The increase in working capital deficiency is
principally attributable to the Company's loss from operations.

In  recent  years,  the  Company  has  suffered  significant  operating  losses,
principally at its New  Dimensions  subsidiary.  As a result of the  significant
operating  loss incurred in 1992, on February 5, 1993,  New  Dimensions  filed a
petition for reorganization under Chapter 11 of the Bankruptcy Code. On April 9,
1993,  New  Dimensions'  reorganization  plan was  confirmed  by an order of the
Bankruptcy   Court  and  on  May  3,  1993,   the   consummation   date  of  the
reorganization,   New  Dimensions  emerged  from  Chapter  11  bankruptcy  court
protection.  Lori assumed and guaranteed certain New Dimensions'  pre-bankruptcy
loans payable to its bank and the bank also provided New Dimensions with certain
credit  facilities.  Additionally,  Lori's bank  lender  provided  Lawrence  and
Rosecraft with new credit facilities in the first quarter of 1993.

At December 31, 1993 and during 1994, Lori and its operating  subsidiaries  were
not in  compliance  with  certain  provisions  of  their  respective  bank  loan
agreements.

Effective  August  18,  1994,  as amended  December  23,  1994,  Lori and Lori's
operating  subsidiaries  (collectively,  the  "Borrowers"),  ARTRA and  Fill-Mor
entered into an agreement with Lori's bank lender to settle  obligations due the
bank  under  terms  of the  bank  loan  agreements  of Lori  and  its  operating
subsidiaries.

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

In  conjunction  with the Amended  Settlement  Agreement,  ARTRA  entered into a
$1,850,000  short-term  loan agreement with a  non-affiliated  corporation,  the
proceeds of which were used to fund amounts due the bank as discussed below. The
loan, due June 30, 1995, with interest payable monthly at 10%, is collateralized
by 100,000  shares of Lori common  stock.  These  100,000  Lori  common  shares,
originally  issued to the bank under  terms of the August  18,  1994  Settlement
Agreement,  are carried in the Company's condensed consolidated balance sheet as
restricted  common stock.  Upon payment of the loan, these shares will revert to
treasury stock.


<PAGE>


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


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

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

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

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

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


Additionally, ARTRA advanced $400,000 to Lori to be used to fund the installment
payment due December 31, 1994 for unsecured  claims arising from the May 3, 1993
reorganization of New Dimensions.

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

Lori  recognized  an  extraordinary  gain of  $8,965,000  ($2.81  per  share) in
December  1994 as a result of the  reduction  of amounts  due the bank under the
loan  agreements  of  the  Borrowers  and  Fill-Mor  to  $10,500,000  (of  which
$7,855,000  pertained to Lori's obligation to the bank and $2,645,000  pertained
to  Fill-Mor's  obligation  to the  bank) as of  December  23,  1994.  Lori also
recorded  a  charge  against  operations  of  $10,800,000  in  December  1994 to
write-off New Dimensions' remaining goodwill.

On March  31,  1995 the  $750,000  note due the bank was paid and the  remaining
indebtedness  of Lori and Fill-Mor was  discharged,  resulting in an  additional
extraordinary  gain to Lori and Fill-Mor of $6,657,000  ($1.79 per share) in the
first quarter of 1995. The $750,000 note payment was funded with the proceeds of
a  $850,000  short-term  loan from a director  of Lori.  The loan  provides  for
interest at the prime rate plus 1%. As  consideration  for assisting in the debt
restructuring,  the  director  received  150,000  Lori common  shares  valued at
$337,500  ($2.25 per share) based upon Lori's  closing market value on March 30,
1995.

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

<PAGE>

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



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

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

The common stock and  virtually  all the assets of the Company and its operating
subsidiaries have been pledged as collateral for $850,000 short-term loan from a
director  of Lori,  the  proceeds of which were used to fund the  $750,000  note
payment to the bank under terms of the debt settlement agreement.

Due to the limited  ability of the Company to receive  funds from its  operating
subsidiaries  in recent years under terms of their former bank loan  agreements,
effective July 1, 1989, ARTRA placed a moratorium on the declaration and accrual
of dividends on its Lori  preferred  stock.  The  moratorium  has been  extended
indefinitely.  Additionally,  Lori has not paid dividends on its common stock in
recent years and no dividend payments are anticipated in the immediate future.

During the three months ended March 31, 1995, ARTRA made net advances of $93,000
to Lori.  During  1994,  ARTRA  made net  advances  to Lori of  $2,531,000.  The
advances  consisted of a $1,850,000  short-term  note with  interest at 10%, the
proceeds of which were used to fund the  $1,900,000  cash payment to the bank in
conjunction with the Amended  Settlement  Agreement with Lori's bank lender, and
certain  non-interest  bearing  advances  used  to  fund  Lori  working  capital
requirements.

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

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


Results of Operations

         1995 vs 1994

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

Net  sales of  $4,944,000  for the  three  months  ended  March  31,  1995  were
$4,325,000,  or 46.7%, lower than net sales for the three months ended March 31,
1994. The 1995 sales decrease is principally attributable the termination of New
Dimensions  operations effective December 27, 1994 and a soft retail environment
in 1995.

The Company's  cost of sales of $2,863,000  for the three months ended March 31,
1995 decreased  $2,234,000 as compared to the three months ended March 31, 1994.
Cost of sales in the three  months  ended  March 31, 1995 was 57.9% of net sales
compared to a cost of sales percentage of 55.0% for the three months ended March
31, 1994.  The 1995 cost of sales decrease is  principally  attributable  to the
decrease in sales volume due to the  termination  of New  Dimensions  operations
effective  December 27, 1994. The cost of sales  percentage  increase of 2.9% is
primarily  attributable to a soft retail  environment that resulted in depressed
operating margins.
<PAGE>


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



Selling, general and administrative expenses in the three months ended March 31,
1995 decreased  $2,452,000 as compared to the three months ended March 31, 1994.
Selling,  general  and  administrative  expenses  were 43.1% of net sales in the
three months ended March 31, 1995 as compared to 49.4% of net sales in the three
months ended March 31, 1994. The decrease in selling, general and administrative
expenses is  attributable to the decrease in sales volume due to the termination
of New  Dimensions  operations  effective  December  27,  1994.  The decrease in
selling,  general and  administrative  expenses as a percentage  of net sales is
attributable to certain cost reduction  efforts of the Company and its operating
subsidiaries.

Operating loss in the three months ended March 31, 1995 was $186,000 as compared
to  operating  loss of $773,000 in the year ended three  months  ended March 31,
1994.  The decreased 1995  operating  loss is  principally  attributable  to New
Dimensions, which terminated operations effective December 27, 1994.

Interest expense in the three months ended March 31, 1995 decreased  $429,000 as
compared  to the  three  months  ended  March 31,  1994.  The 1995  decrease  is
principally  due the settlement  agreement  with the Company's bank lender.  See
Note 2 to the Company's condensed consolidated financial statements.

The 1995  extraordinary  credit  represents  a net gain from  discharge  of bank
indebtedness.  No income tax expense is  reflected  in the  Company's  financial
statements resulting from the extraordinary credit due to the utilization of tax
loss  carryforwards.  Due  to the  Company's  tax  loss  carryforwards  and  the
uncertainty  of future taxable  income,  no income tax benefit was recognized in
connection with the Company's 1994 pre-tax loss.


Seasonality

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


Impact of Inflation and Changing Prices

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

<PAGE>


                          PART II - OTHER INFORMATION


Item 6.   EXHIBITS AND REPORTS ON FORM 8-K

         (a)      Exhibits

                    None


         (b)      Reports on Form 8-K:

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



<PAGE>


                                   SIGNATURES





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




                                              THE LORI CORPORATION
                                    ------------------------------------------
                                                  Registrant






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






                                                                      EHIBIT 11
                     THE LORI CORPORATION AND SUBSIDIARIES
                    COMPUTATION OF EARNINGS (LOSS) PER SHARE
                      AND EQUIVALENT SHARE OF COMMON STOCK

                    (In thousands except per share amounts)

<TABLE>
<CAPTION>



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

   AVERAGE SHARES OUTSTANDING

     1   Weighted average number of shares of common stock
            outstanding during the period ...........................       3,203        3,149
     2   Net additional shares assuming stock options and warrants
           exercised and proceeds used to purchase treasury shares ..         528           -
                                                                           ------       ------
     3   Weighted average number of shares and equivalent shares
           of common stock outstanding during the period ............       3,731        3,149
                                                                           ======       ======


   EARNINGS (LOSS)

     4   Loss before extraordinary credit ...........................       ($250)     ($1,260)
                                                                           ------       ------
     5   Amount for per share computation ...........................       ($250)     ($1,260)
                                                                           ======       ====== 
                                                                            
     6   Net earnings (loss) ........................................      $6,407      ($1,260)
                                                                           ------      ------- 
     7   Amount for per share computation ...........................      $6,407      ($1,260)
                                                                           ======      ======= 


   PER SHARE AMOUNTS

         Loss before extraordinary credit
           (line  5 / line 3) .......................................      ($0.07)      ($0.40)
                                                                           ======       ====== 

         Net loss
           (line 7 / line 3) ........................................       $1.72       ($0.40)
                                                                           ======       ====== 

</TABLE>



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



<TABLE> <S> <C>


<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information from the third quarter Form
10-Q and is qualified in its entirety by reference to such Form 10-Q.
</LEGEND>
<CIK>                                       0000006814  
<NAME>                            The Lori Corporation
<MULTIPLIER>                                     1,000
<CURRENCY>                                     dollars
       
<S>                                        <C>
<PERIOD-TYPE>                                    3-mos
<FISCAL-YEAR-END>                          Dec-31-1995
<PERIOD-START>                             Jan-01-1995
<PERIOD-END>                               Mar-31-1995
<EXCHANGE-RATE>                                  1.000
<CASH>                                             147
<SECURITIES>                                         0
<RECEIVABLES>                                    2,200
<ALLOWANCES>                                       984 
<INVENTORY>                                      1,935
<CURRENT-ASSETS>                                 3,484
<PP&E>                                           1,584
<DEPRECIATION>                                   1,151 
<TOTAL-ASSETS>                                  17,821
<CURRENT-LIABILITIES>                            4,797
<BONDS>                                              0
<COMMON>                                            33
                                0
                                     19,515    
<OTHER-SE>                                      (7,493)
<TOTAL-LIABILITY-AND-EQUITY>                    17,821
<SALES>                                          4,944
<TOTAL-REVENUES>                                 4,944
<CGS>                                            2,863
<TOTAL-COSTS>                                    2,863
<OTHER-EXPENSES>                                 2,267 
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                                  62
<INCOME-PRETAX>                                   (248)
<INCOME-TAX>                                         2
<INCOME-CONTINUING>                               (250)
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                  6,657
<CHANGES>                                            0
<NET-INCOME>                                     6,407 
<EPS-PRIMARY>                                     1.72  
<EPS-DILUTED>                                        0
        



</TABLE>


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