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 31, 1997

                                       OR

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

                          Commission file number 1-3916

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

                      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, 1998: $23,238,000.

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, 1998
-------------------------------              --------------------------------
Common stock, without par value                         7,865,228


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.

At December  31, 1997 ARTRA held  approximately  10% of the  outstanding  common
stock  of  COMFORCE  Corporation  ("COMFORCE",  formerly  The  Lori  Corporation
"Lori").  Prior to  September  28,  1995,  COMFORCE/Lori  was a  majority  owned
subsidiary of ARTRA  operating 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.  Effective October 17, 1995,  COMFORCE
entered the  telecommunications  and computer  technical staffing and consulting
services  business with the  acquisition of COMFORCE  Telecom Inc.  COMFORCE has
subsequently  expanded this business through various  acquisitions.  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 Kansas  facility,
which has added production  capacity in Bagcraft's growing food service products
business, 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 and
subsequently sold in 1997).

Bagcraft's  products are sold  throughout  the United States by a sales force of
approximately  18  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 1997.

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

                                       1
<PAGE>

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.

In 1997  Bagcraft  restructured  its  marketing  its into seven  segments:  Food
Service,  Supermarket Deli/Bakery and Pharmacy,  Retail Packaging,  Concessions,
Microwave /International/Motion Sickness, and Distribution.


         Food Service

In 1997 the Food Service Segment  accounted for  approximately 47% of Bagcraft's
total sales.  The Food Service  Division  markets to the Quick Serve  Restaurant
("QSR"), Convenience Store, and Full Service Restaurant segments.

Approximately  93% of sales for the Food  Service  Segment are  attributable  to
QSRs.  Representative  customers for this segment include  McDonald's,  Wendy's,
Burger King, Taco Bell, Dairy Queen and Boston Market. Bagcraft products sold to
QSRs include  specialized  bags and sheets  constructed  of foil and paper,  for
hamburgers,  subs, hot dogs, tacos, sandwiches,  French fries, chicken and other
fast food products.

The  development of the  Honeycomb(TM)  foil sheet helped propel Bagcraft to its
industry  leading  position.  The Honeycomb sheet is an innovative  construction
which  incorporates a moisture  absorbing layer that prevents buns from becoming
soggy,  and keeps food warm for a longer period of time. In addition,  when used
to replace rigid packaging, it provides substantial space savings and represents
significant  source  reduction to the solid waste system - a growing concern for
environmentally  conscious companies.  Bagcraft has been recognized for numerous
other innovations in packaging within the QSR market,  including Churches' To Go
Bag,  McDonald's  hash brown bag, and Rotisserie  Chicken's To Go! Bag. The Food
Services Segment's leading products are described below.

   Product                              Description
   -------                              -----------
   Laminated Foil Sandwich Bags        Small   honeycombs  of  air   built  into
                                       Bagcraft's exclusive  lamination   absorb
                                       moisture  to  help prevent soggy buns and
                                       provide superior insulation.

   Laminated Foil Sheets               Same as above but in sheet form.

   Laminated Paper  Sheets             Has most  of the  benefits of foil and is
                                       also microwaveable;  the fastest  growing
                                       item in the Food Service Segment.

   Paper Sheets                        Economical as a quick wrap for sandwiches
                                       and as tray liners.

   French Fry Bags                     Stain   resistant  packages  of   various
                                       sizes.


Bagcraft's  state-of-the-art  printing  capabilities  also provide a competitive
advantage in servicing QSRs.  Bagcraft's  ability to register  print,  front and
back,  on foil and  paper  enable  the  Company  to print up to eight  different
sandwich  varieties on a single sheet,  which further reduces customer inventory
and storage  space  requirements.  Bagcraft was also the first  manufacturer  to
print 6-color sheets,  producing the most visually  appealing  packaging for the
QSR market.


                                       2
<PAGE>


The Convenience Store and Food Service Restaurant  segments of the Food Services
accounted for  approximately 3% of Bagcraft's 1997 sales. With a similar product
line to the QSR segment,  leading  Convenience  Store segment  customers include
7-Eleven,  WaWa,  AM/PM,  and Mobil.  Leading  Food Service  Restaurant  segment
customers include Pizza Hut and the Olive Garden.

The  Company's  leadership  in the Food  Services  area  has been  significantly
advanced by Bagcraft's  new Baxter  Springs  facility.  The Baxter Springs plant
features  state-of-the-art  printing and  converting  equipment  which allow the
Company to be the low cost producer with the widest array of capabilities in its
Food Service product offerings.


         Supermarket Deli/Bakery and Pharmacy

Bagcraft is the industry  leader in supplying the  specialized  bag needs to the
Deli and Bakery departments within Supermarkets, and a significant supplier to a
leading  Pharmacy.  Revenues in this segment  accounted for approximately 13% of
Bagcraft's  total 1997 sales.  Bakeries,  including  those in  supermarkets  and
various  retail  chains,  account  for the  majority  of this  segment's  sales.
Customers in this segment include Publix, Albertson's, Winn-Dixie, Wakefern, and
Walgreen's.  A number of the  Supermarket  Deli/Bakery  and  Pharmacy  segment's
products,    including    Dubl-Wax(R),    Dubl-Panel(R),    Dubl-Clear(R)    and
Sealing-Strip(TM),  represent a significant manufacturing innovations which have
contributed to Bagcraft's position as the industry leader. Bagcraft believes the
outlook for the future indicates stability and growth.

One of the successful additions to this segment is the "To Go!" Bags(TM).  These
single and double wall grease proof and moisture  resistant  bags offer superior
performance  relative to rigid containers such as tubs and cartons and cost much
less on a per unit basis.  To Go!  Bags(TM) also provide the  environmental  and
storage  advantages  of  bags.  "To Go!"  Bags(TM)  have  been  enthusiastically
received and expected to continue market penetration.

Similarly,  the patented  Message  Center Bag(TM) has a "tear out" portion which
has a variety of uses, including "proof of purchase",  coupon offers, restaurant
and deli menus, and others.  This new product,  as well as other patents pending
in the  promotional  field,  are enabling the Company to expand its offerings of
tie-in advertising and cross merchandising. Under these programs, national firms
utilize  the  Message  Center  Bag(TM)  to  display  their  ads and  work  out a
coordinated  program to have the Message  Center Bag(TM)  incorporated  in their
regular bags. The table below lists the leading products sold to the Supermarket
Deli/Bakery and Pharmacy segment, and provides a brief description of each.

   Product                               Description
   -------                               -----------
   Dubl-Clear(R)                         Bag   Translucent   bag,  in  pinch  or
                                         Self-Opening  Style  ("S.O.S.")  style,
                                         used  in  stores'   self-service  bins;
                                         makes it easier for cashier to identify
                                         contents and can be closed  easily with
                                         tape when  produced  with the  Bagcraft
                                         Sealing Strip(TM).

   Dubl-Wax(R)Bag                        Dubl-Wax(R)Bag  enables  baked foods to
                                         stay fresh and tasty  without  becoming
                                         soggy (in pinch or S.O.S.).

   Laminated Foil Bags                   Multi-color  laminated   bags  for  the
                                         packaging of specialty  breads and deli
                                         items.  Can be used  in  a conventional
                                         oven or on a grill for enhanced flavor.

   Dubl Panel(R)                         Clear   film   panel  for   visibility,
                                         surrounded by paper, which can be waxed
                                         on one or two  sides  for  extra  shelf
                                         life.

   Paper Bags                            Printed,  but where  visibility  is not
                                         needed.  Used  especially for specialty
                                         breads  such  as  French,  Italian  and
                                         Baguettes.

   Window Bags                           A clear  window  displays  the  product
                                         within.  Used  especially  for  quality
                                         baked  products,  this  product  has  a
                                         tamper  resistant  closure,  yet can be
                                         opened and reclosed.


                                       3
<PAGE>

         Retail Packaging

Bagcraft  enjoys  significant  competitive  advantages  in its Retail  Packaging
segment  through  its  ability to offer  this set of  customers  innovative  and
patented  products.  With  revenues of $12 million,  this segment  accounted for
approximately  9% of the Bagcraft's  total sales in 1997.  The Retail  Packaging
segment  features  products  for the  packaging of bakery  goods,  such as bagel
chips,  cookies,  biscotti,  dry pasta, donuts,  coffee,  pre-popped popcorn and
specialized  promotional  items.  This division  provides bags with  transparent
windows,  metal tin tie attachments,  and Tac Label(TM) closures.  Customers for
the division include Superior, Burns & Ricker and Interstate Brands.

Many  of the  products  sold to  this  segment  of  customers  represent  unique
additions to Bagcraft's standard products.  The Cue-Pon Bag(TM) has a "tear out"
coupon affixed near the window of 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.

As  discussed  in Note 3 to the  Company's  consolidated  financial  statements,
Bagcraft's  January 1997 purchase of AB Specialty  Holding Company,  Inc. ("AB")
enhanced  Bagcraft's  Retail  Packaging  business  through AB's  capabilities in
heat-sealed  bottom  bags as well as its  ability  to  produce  6 color  process
printed  decorative bags. The table below lists the Retail  Packaging  Segment's
leading products, and provides a brief description of each.

   Product                               Description
   -------                               -----------

   Coffee Bags                           Double  wall bags,  many  with tin  tie
                                         attachments   for    whole    bean   or
                                         pre-ground coffee.

   Window Bags                           Self-opening    bags    with    special
                                         shaped  windows  for  easy  viewing  of
                                         packaging contents.

   Cookie Bags                           Heat  sealed  top  and  bottom,  highly
                                         protective and attractively printed for
                                         maximum customer appeal.

   Bagel Chip                            Self-opening   bags  with  heat  sealed
                                         bottoms and liners.


         Concessions

The  Concessions  market  segment  encompasses  all food  service  items sold at
stadiums and movie  theaters,  including  circuit-owned  cafes and  restaurants,
accounting for  approximately 4% of Bagcraft's 1997 sales. The principal product
sold to these  customers is the theater  popcorn bag,  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.


         Microwave/International/Motion Sickness

The   Microwave/International/Motion   Sickness   segment,   which   contributed
approximately  2% of Bagcraft's  1997,  represents an example of Bagcraft's high
technology  advancements.  Bagcraft was  instrumental  in the development of the
first  microwave  popcorn bag and played an  important  role in  developing  the
"susceptor"  accelerator  technology which is incorporated  into these 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 because of a flat  and-consumer  market and the acquisition of
one of its major  customers by a company with its own packaging  ability.  Sales
growth,  however,  has recently been  assisted by the Brown and Crisp  microwave
cooking bag. Produced

                                       4
<PAGE>


exclusively for A.D. Tech, this product significantly expands the number of food
items which can be effectively cooked in a microwave.

Bagcraft currently supplies motion sickness bags to United, Delta, Southwest and
Northwest Airlines, and, with the addition of the heat-sealed bottoms capability
from the AB  acquisition,  is actively  seeking to further  its  airline  motion
sickness business from the other major carriers.


         Distribution

The  Company's  Distribution  segment  sells to  distributors  who service  many
smaller accounts in a particular  geographic  region.  The Distribution  segment
represented  approximately 21% of Bagcraft's 1997 sales.  Customers include such
leading  distributors  as Sysco,  Alliant  Foodservice,  Bunzl,  Unisource,  and
ResourceNet.  Bagcraft  leads the  industry in providing  the widest  variety of
immediately  available  unprinted and stock printed bags and sheets.  Bagcraft's
stock product line boasts some 300  generically  printed stock  products.  Stock
products are bought and inventories 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  Chicago   in-bound
telemarketing  efforts.  The  table  below  lists a number  of the  Distribution
segment's leading products, and provides a brief description of each.

   Product                               Description
   -------                               -----------

   Foil Honeycomb(TM) Sheets             Small  honeycombs  of  air  built  into
                                         Bagcraft's  exclusive lamination absorb
                                         moisture to help prevent soggy buns and
                                         provide superior insulation.

   SOS Bakery/Deli  Bags                 Self-opening  flat  bottom  waxed  bags
                                         with stand-up bottoms for fast  loading
                                         at bakery and deli operations.

   Pinch Paper Bread Bags                Complete  range of shapes and sizes for
                                         every style of bread.

   SOS Popcorn Bags                      Flat  bottom  popcorn  bags  to replace
                                         bulky  tubs  and  cartons in  theaters,
                                         stadiums, concession stands and malls.

   To Go!(TM) Bags                       Flat bottom bags with e xcellent grease
                                         and moisture  barriers engineered  with
                                         special breathing  vents  for  chicken,
                                         ribs and other hot foods to go.

   Foil Insulator Bags                   Paper laminated to foil bags;  provides
                                         excellent heat retention.

   Coffee Bags                           Double  wall  bags,  many  with tin tie
                                         attachments    for   whole    bean   or
                                         pre-ground coffee




Employees

At December 31, 1997, the Company  employed  approximately  1,000  persons.  The
Company considers its relationships with its employees to be good.




                                       5
<PAGE>


Item 2.  Properties

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

<TABLE>
<CAPTION>

 Location                             General Description                                  Ownership
 --------                             -------------------                                  --------

 ARTRA:
<S> <C>                               <C>                                                  <C>
    Northfield, IL (1)                Headquarters facility of                             Leased
                                      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               Manufacturing, warehouse and office facility         Owned
                                      of approximately 265,000 sq. ft.

     Hialeah, FL (2) (3)              Manufacturing, warehouse and office facility         Leased, expiring in 1998
                                      of approximately 20,000 sq. ft.

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


-------------------------------------------------------------------------------
<FN>


     (1)  This lease  expired in December  1997 and this  facility is  currently
          being leased on a month to month basis.  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 1997
          acquisition of AB Specialty Holding Company.

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

</FN>
</TABLE>





                                       6
<PAGE>


Item 3.  Legal Proceedings

The Company and its subsidiaries are the defendants in various  business-related
litigation  and  environmental  matters.  At  December  31, 1996 the Company had
accrued   $1,800,000   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 had a right to appeal the District Court's decision.  This appeal had 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,  and breach of contract and promissory estoppel. In the State
Court Action,  ARTRA sought  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 appealed this decision.

Effective  December 31, 1997, the above parties  reached a settlement  agreement
and  all  pending   litigation  was  dismissed.   ARTRA  recognized  a  gain  of
$10,416,000,  net of related legal fees and other  expenses,  resulting from the
settlement agreement.

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

Bagcraft has been notified by the EPA that it is a potentially responsible party
for the  disposal  of  hazardous  substances  at the Ninth  Avenue site in Gary,
Indiana.  This site is listed on the EPA's National  Priorities list. A group of
defendant PRPs,

                                       7
<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. In October 1997 Bagcraft paid $40,000 to formally extinguish this claim.

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

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

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

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

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

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

ARTRA was named as a defendant  in United  States v.  Chevron  Chemical  Company
brought  in the  United  States  District  Court  for the  Central  District  of
California  respecting  Operating  Industries,   Inc.  site  in  Monterey  Park,
California. This site is included on the EPA's National Priorities List. ARTRA's
involvement  stemmed from the alleged  disposal of hazardous  substances  by The
Synkoloid  Company  ("Synkoloid")  subsidiary  of  Baltimore  Paint and Chemical
Company,  which was formerly owned by ARTRA.  Synkoloid  manufactured  spackling
paste, wall coatings and related products,  certain of which generated hazardous
substances as a by-product of the manufacturing process.


                                       8
<PAGE>


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

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.

In  connection  with the sale of its former  Sargent  Welch  Scientific  Company
subsidiary, ARTRA assumed liabilities relating to early retirement claims. ARTRA
is approximately $80,000 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 $120,000  currently payable in
its financial statements.











                                       9
<PAGE>



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

On December  16, 1997,  the annual  meeting of  shareholders  of the Company was
held, at which the shareholders voted on and approved the following matters:

     1.   The  election  of the Board of  Directors  for a term of one  year.  A
          summary of the voting results is as follows:

                                                                    Shares
                     Director                   Shares For         Withheld
                     --------                   ----------         --------
                    Edward A. Celano             7,243,524           46,462
                    Howard A. Conant             7,242,624           47,362
                    Peter R. Harvey              7,241,413           48,573
                    John Harvey                  7,241,512           48,474
                    Robert L. Johnson            7,241,584           48,402
                    Gerard M. Kenny              7,239,684           50,302
                    Maynard K. Louis             7,241,624           47,362



     2.   The  appointment  of Coopers & Lybrand L.L.P.  as ARTRA's  independent
          certified  public  accountants for the fiscal year ending December 31,
          1997. A summary of the voting results is as follows:

                    For                          7,278,511

                    Against                          7,516

                    Abstain                          3,959









                                       10
<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 31, 1997,
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:

                                     1997                      1996
                             ---------------------    ----------------------
                              High           Low         High          Low
                             --------     --------    ---------     --------

   First quarter             6 - 3/8       4 - 1/2      6 - 3/4      4 - 5/8
   Second quarter            5 - 3/4       3 - 7/8      9 - 1/4      5 - 3/4
   Third quarter             5 - 1/8       3 - 1/2      8 - 3/8      4 - 3/4
   Fourth quarter            4 - 1/16      2 - 1/2      6 - 3/4      5



No dividends  were paid in 1997 or 1996,  nor are any  anticipated  in 1998. 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 1998 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  31, 1997.  The
information for the years ended December 28, 1995 and December 29, 1994 reflects
the operations of Arcar Graphics, Inc. ("Arcar") 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 three 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,  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)
                                           ---------------------------------------------------------
                                           1997         1996        1995        1994          1993
                                           -----       ------      ------      ------        ------
                                                   (In thousands except per share data)

<S>                                     <C>          <C>         <C>          <C>          <C>
 Net sales                              $ 125,027    $ 120,699   $ 121,879    $ 111,837    $ 113,584

 Earnings (loss) from
   continuing operations  (A) (B) (C)         773        3,549     (16,943)     (13,529)      (8,327)

 Earnings (loss) from
   discontinued operations (D)               --           --            10      (15,906)        (216)

 Extraordinary credits (E)                   --          9,424      14,030        8,965       22,057

 Net earnings (loss)                          773       12,973      (2,903)     (20,470)      13,514


 Earnings (loss) per share (F):

    Basic
      Continuing operations                  (.04)         .34       (2.70)       (2.52)       (1.87)
      Discontinued operations                --           --          --          (2.79)        (.04)
      Extraordinary credits                  --           1.25        2.07         1.57         4.57
      Net earnings (loss)                    (.04)        1.59        (.63)       (3.74)        2.66


    Diluted
      Continuing operations                  (.04)         .32       (2.70)       (2.52)       (1.84)
      Discontinued operations                --           --          --          (2.79)        (.04)
      Extraordinary credits                  --           1.19        2.07         1.57         4.49
      Net earnings (loss)                    (.04)        1.51        (.63)       (3.74)        2.61

Weighted average number of
  shares outstanding

      Basic                                 7,970        7,525       6,776        5,702        4,823
      Diluted                               7,970        7,939       6,776        5,702        4,908


 Total assets                              73,206       77,379      77,949       93,429       92,774
 Long-term debt                            50,619       34,207      34,113       19,673       29,264
 Debt subsequently discharged                --           --          --          9,750         --
 Cash dividends                              --           --          --           --           --




                                       12
<PAGE>


<FN>

     (A)  Earnings from continuing  operations for the years ended December 31,
          1997 and December 26, 1996 include  realized  gains of $2,531,000  and
          $5,818,000,  respectively,  from dispositions of COMFORCE common stock
          and a gain of $838,000 from an exchange of redeemable  preferred stock
          of its Bagcraft subsidiary.

     (B)  Earnings from  continuing  operations  for the year ended December 31,
          1997 includes a gain from settlement of litigation of $10,416,000, net
          of  related  legal  fees and other  expenses,  and net  related  party
          compensation/expense reimbursement costs of $2,816,000 (see Note 19 to
          the Company's consolidated financial statements).

     (C)  Earnings  from  continuing  operations  for the year December 26, 1996
          includes a gain of $838,000 from an exchange of  redeemable  preferred
          stock of its Bagcraft subsidiary.

     (D)  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.

     (E)  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.

     (F)  In 1997, the Company adopted the provisions of SFAS No. 128, "Earnings
          Per Share" and restated prior periods accordingly.

     (G)  In 1997,  the Company  changed its fiscal year end to December  31. In
          prior  years the  Company  had  operated  on a 52/53 week  fiscal year
          ending the last Thursday of December.


</FN>
</TABLE>








                                       13
<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:


         Results of Operations

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

The Company's  consolidated financial statements for the year ended December 28,
1995 were  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 31,  1997,  conducted by the
Company's Bagcraft subsidiary.

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 31, 1997.
<TABLE>
<CAPTION>

                                                                            Year Ended
                                                           ----------------------------------------------

                                                           December  31,  December 26,   December 28,
                                                               1997           1996           1995
                                                           -------------  ------------   ------------
<S>                                                              <C>           <C>            <C>
    Net sales                                                    100.0%        100.0%         100.0%
                                                                -----         -----          -----
    Costs and expenses:
       Cost of goods sold,
          exclusive of depreciation
          and amortization                                        81.2%         78.4%          84.1%
       Selling, general and administrative                        15.6%         13.0%          15.7%
       Depreciation and amortization                               3.5%          3.3%           3.6%
       Write-down of idle machinery and equipment                  -              -             1.2%
                                                                 -----          ----          -----
                                                                 100.3%         94.7%         104.6%
                                                                 -----          ----          -----
    Operating earnings (loss)                                     -0.3%          5.3%         - 4.6%
                                                                 -----          -----         -----
    Other income (expense):
       Interest expense                                           -7.4%         -6.1%          -7.7%
       Amortization of debt discount                              -2.2%         -0.5%          -0.3%
       Realized gain on disposal of                                2.0%          4.8%              -
    available-for-sale securities
       Litigation settlement                                       8.3%             -              -
       Gain on sale of idle machinery and                          0.7%             -              -
    equipment
       Other income (expense), net                                 0.3%         -0.1%          -0.1%
       Equity in loss of COMFORCE                                    -             -           -0.4%
                                                                 -----          -----          ----
                                                                   1.7%         -1.9%          -8.5%
                                                                 -----          ----           ----

    Earnings (loss) from continuing operations
       before income taxes and minority interest                   1.4%          3.4%         -13.1%
    Provision for income taxes                                        -         -0.1%              -
    Minority interest                                             -0.9%         -0.4%          -0.7%
                                                                  ----          ----           ----
    Earnings (loss) from continuing operations                     0.5%          2.9%         -13.8%
                                                                  ====          ====           ====
</TABLE>


                                       14
<PAGE>


Year Ended December 31, 1997  vs. Year Ended December 26, 1996

Net sales of $125,027,000  for the year ended December 31, 1997 were $4,328,000,
or 3.6%,  higher than net sales for the year ended  December 26, 1996.  The 1997
net sales increase is attributable to Bagcraft's January 1997 acquisition of the
business  assets of AB  Specialty,  partially  offset by sales  during 1996 to a
former food service customer.

The Company's cost of sales of $101,527,000 for the year ended December 31, 1997
increased  $6,914,000 as compared to the year ended  December 26, 1996.  Cost of
sales for the year ended  December 31, 1997 was 81.2% of net sales compared to a
cost of sales  percentage  of 78.4% for the year ended  December 26,  1996.  The
increase in cost of sales  percentage is primarily  attributable  to competitive
market  conditions,  certain  transition  costs  relating  to the  AB  Specialty
acquisition and a slightly less favorable product mix in 1997.

Selling, general and administrative expenses were $19,548,000 for the year ended
December  31, 1997 as compared to  $15,638,000  for the year ended  December 26,
1996. Selling,  general and administrative  expenses were 15.6% of net sales for
the year ended  December  31,  1997 as  compared  to 13.0% of net sales for year
ended   December  26,  1996.   The  1997   increase  in  selling,   general  and
administrative  expenses  was  principally  attributable  to net  related  party
compensation/expense  reimbursement costs of $2,816,000 (see discussion of Peter
R. Harvey advances below).

Depreciation and amortization expense was $4,364,000 for the year ended December
31,  1997 as  compared  to  $3,927,000  for the year ended  December  26,  1996.
Depreciation and amortization  expense was 3.5 % of net sales for the year ended
December  31, 1997 as compared to 3.3% of net sales for year ended  December 26,
1996.  The  1997  increase  in  depreciation   and   amortization  is  primarily
attributable to Bagcraft's January 1997 acquisition of the business assets of AB
Specialty.

The  Company  had an  operating  loss in the year  ended  December  31,  1997 of
$412,000 as  compared to  operating  earnings  of  $6,521,000  in the year ended
December  26,  1996.  The  1997  operating  loss is  attributable  to  decreased
operating margins and increased selling,  general and administrative expenses as
noted above.

Interest  expense for the year ended December 31, 1997  increased  $1,851,000 as
compared to the year ended  December 26, 1996.  The 1997 increase is principally
attributable to an increased level of borrowings and related loan fees incurred.

Amortization  of debt discount was  $2,702,000  for the year ended  December 31,
1997 as compared to $548,000  for the year ended  December  26,  1996.  The 1997
increase is  attributable  to the December  1996  amendment and  restatement  of
Bagcraft's Credit Agreement.

During the year ended  December 31, 1997 the Company sold or otherwise  disposed
of 302,203  shares of COMFORCE  common  stock  resulting  in a realized  gain of
$2,531,000.  During  the  year  ended  December  26,  1996 the  Company  sold or
otherwise  disposed of 331,333  shares of COMFORCE  common stock  resulting in a
realized gain of $5,818,000.

Effective  December  31,  1997,  the ARTRA  received a  settlement  from certain
litigation  relating to the acquisition of Envirodyne in 1989 by Emerald.  ARTRA
recognized a gain from the settlement  agreement of $10,416,000,  net of related
legal fees and other expenses.

In  December  1997  the  company  sold  certain  idle  machinery  and  equipment
written-off in prior years resulting in a gain of $932,000.

The  1996  extraordinary   credit  represents  a  net  gain  from  discharge  of
indebtedness.  No income tax expense is  reflected  in the  Company's  financial
statements  resulting from the 1996 extraordinary  credit due to the utilization
of tax loss carryforwards.





                                       15
<PAGE>


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

         Continuing Operations

Net sales of $120,699,000  for the year ended December 26, were  $1,180,000,  or
1.0%,  lower than net sales 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 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 for 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 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 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 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,  including  amortization of debt discount,  for 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.


                                       16
<PAGE>


         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.



Liquidity and Capital Resources

         Cash and Cash Equivalents and Working Capital

Cash and cash equivalents  increased  $5,820,000  during the year ended December
31, 1997. The increase in cash and cash equivalents is primarily attributable to
December proceeds from a litigation  settlement (see Note 18 to the consolidated
financial   statements),   partially   offset  by  pay  downs  of  certain  debt
obligations.  During the year ended December 31, 1997, cash flows from financing
activities  of $6,222,000  were  principally  attributable  to a net increase in
long-term borrowings. Cash flows used by operating activities of $287,000 during
the year ended  December 31, 1997 were  principally  attributable  the Company's
operating loss.  Cash flows used by investing  activities of $115,000 during the
year ended December 31, 1997 principally represent an increase in the receivable
from a  related  party as  discussed  in Note 19 to the  consolidated  financial
statements,  funds expended to complete  Bagcraft's  acquisition of the business
assets  of AB  Specialty  and  capital  expenditures,  offset by  proceeds  from
litigation settlement and proceeds from sale of COMFORCE common stock.

The Company's  consolidated  working capital deficiency  decreased $2,957,000 to
$435,000  during the year ended  December  31,  1997.  The  decrease  in working
capital deficiency is principally attributable to $4,725,000 of ARTRA short-term
private placement notes,  refinanced in January 1998,  reclassified as long-term
debt at December 31, 1997.


         Status of Debt Agreements and Operating Plan

         ARTRA Corporate

As of  December  31,  1997,  the  Company's  corporate  entity  had  outstanding
short-term indebtedness of $15,451,000 as discussed below.


         Promissory Notes

         1997 Private Placements

In December  1997,  ARTRA  completed  private  placements  of  $5,375,000 of 12%
promissory  notes  due  in  December  1998.  As  additional   consideration  the
noteholders  received  warrants to purchase an aggregate of 107,500 ARTRA common
shares at a price of $3.00 per  share.  The  warrants  expire  in  November  and
December 1999. The  warrantholders  have the right to put these warrants back to
ARTRA at any time during a period  commencing in December 1998 and ending in May
1999, at a price of $1.50 per share.  The cost of this  obligation  ($161,250 if
all warrants are put back to the Company) was accrued in the Company's financial
statements  as a charge  to  interest  expense.  In the event of a  default,  as
defined in the note agreements,  the promissory notes will bear interest at 37%.
The proceeds from the private  placement were used principally to pay down other
debt obligations.

In July 1997, ARTRA completed private placements of $7,475,000 of 12% promissory
notes due in January 1998. As additional  consideration the noteholders received
warrants to purchase an aggregate of 199,311  ARTRA common  shares at a price of
$3.75 per share. The warrants expire in July 1998. The  warrantholders  have the
right to put these warrants back to ARTRA at any time during a period commencing
in January  1998 and ending in August 1999,  at a price of $3.00 per share.  The
cost of this  obligation  ($598,000 if all warrants are put back to the Company)
was amortized in the Company's


                                       17
<PAGE>


financial  statements as a charge to interest  expense over the period July 1997
(the date of the private placement) through January 1998 (the scheduled maturity
date of the notes).  The  promissory  notes were  collateralized  principally as
follows:

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

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

The proceeds  from the July 1997  private  placement  were  advanced to Peter R.
Harvey  as  discussed  below  and  in  Note  19 to  the  consolidated  financial
statements.

The July 1997  private  placement  notes  were  repaid and /or  refinanced  with
proceeds of a January 1998 private placement of 12% notes and with proceeds from
the litigation  settlement  discussed in Note 18 to the  consolidated  financial
statements. The January 1998 private placement notes, in the principal amount of
$5,925,000, are payable in January 1999. As additional consideration the January
1998 private placement noteholders received warrants to purchase an aggregate of
116,500 ARTRA common shares at a price of $3.00 per share.  The warrants  expire
in January 2000. The warrantholders have the right to put these warrants back to
ARTRA at any time  during a  six-month  period  commencing  in January  1999 and
ending in July 1999, at a price of $1.50 per share.  The cost of this obligation
($175,000 if all warrants are put back to the Company)  will be amortized in the
Company's financial statements as a charge to interest expense.

The December 1997 and January 1998 private placement notes are collateralized by
900,000  shares  of  COMFORCE  common  stock  owned  by the  Company's  Fill-Mor
subsidiary and by ARTRA's interest in all of the common stock of BCA (the parent
of Bagcraft).

In June 1997, ARTRA completed private placements of $4,975,000 of 12% promissory
notes due in December 1997. As additional consideration the noteholders received
warrants to purchase an aggregate of 228,750  ARTRA common  shares at a price of
$3.75 per share. The warrants expire in June 1999. The  warrantholders  have the
right to put these warrants back to ARTRA at any time during a period commencing
in December  1997 and ending in May 1999, at prices of $2.00 to $2.40 per share.
The  cost of this  obligation  ($517,000  if all  warrants  are put  back to the
Company) was  amortized in the  Company's  financial  statements  as a charge to
interest expense over the period June 1997 (the commencement date of the private
placement)  through December 1997 (the maturity date of the notes). The proceeds
from  the  private  placement  were  used  principally  to pay down  other  debt
obligations.  The notes were paid at maturity in December 1997  principally with
proceeds from the December 1997 private placement.


         1996 Private Placement

In April  1996,  ARTRA  commenced  a  private  placement  of  $7,675,000  of 12%
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 $3.75 per share,  as amended.  The warrants  expire April 15, 1999. The
warrantholders  have the right to put these  warrants  back to ARTRA at any time
during the period  April 15, 1997 to October 15,  1998,  at a price of $2.00 per
share. The cost of this obligation ($837,500 if all warrants are put back to the
Company) was  amortized 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).  During 1997,  warrants to purchase  50,000 ARTRA common shares were put
back  to  the  Company  at a cost  of  $100,000.  These  promissory  notes  were
collateralized by ARTRA's interest in all of the common stock of BCA (the parent
of Bagcraft).  The proceeds from the private placement,  completed in July 1996,
were used  principally  to pay down  other debt  obligations.  During the second
quarter of 1997, the Company repaid these  promissory notes with the proceeds of
additional  short-term  borrowings  and with funds  received  from the Company's
Bagcraft  subsidiary  in  accordance  with a May 1997  amendment  to its  credit
agreement (see Note 9 to the consolidated financial statements).


                                       18
<PAGE>


         Amounts Due To Related Parties

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

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

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

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

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

In July 1997,  borrowings  from this  lender  were  reduced to  $3,000,000  with
proceeds  advanced to ARTRA from a Bagcraft term loan as discussed in Note 9. In
December  1997  borrowings  from this lender  were  reduced to  $2,000,000  with
proceeds from other short-term borrowings. The borrowings from this director are
collaterallized  by  490,000  shares  of  COMFORCE  common  stock  owned  by the
Company's Fill-Mor subsidiary.

At December 26, 1996,  ARTRA had  outstanding  borrowings of $3,000,000  from an
unaffiliated company then holding approximately 7% of ARTRA's outstanding common
stock.  The loans were evidenced by 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.  Payment on the loans
was due March 31, 1994, however,  the lender did not demand payment. In February
1997,  the lender  received a warrant to purchase an  additional  100,000  ARTRA
common shares at $5.625 per share as consideration  for not demanding payment of
this  obligation.  In April 1997,  the lender  received a warrant to purchase an
additional  100,000 ARTRA common shares at $5.00 per share as consideration  for
not demanding payment of this obligation. In June 1997 outstanding borrowings to
the  unaffiliated  company were reduced to $300,000 with the proceeds from other
short-term borrowings. In July 1997 ARTRA repaid all remaining obligations under
these loans.


                                       19
<PAGE>


In May 1996,  ARTRA borrowed  $100,000 from a private  investor,  evidenced by a
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,  the private
investor was elected to the Company's board of directors.  Effective January 17,
1997, the private investor  exercised his conversion  rights and received 18,182
shares of ARTRA common stock as payment of the principal balance of his note.


         Bank Notes Payable

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


         Other

At  December  31,  1997 and  December  26,  1996,  ARTRA  also  had  outstanding
short-term  borrowings from other  unrelated  parties  aggregating  $601,000 and
$1,990,000, with interest rates varying between 10 % and 15%.

At December 26, 1996, ARTRA was the obligor under two demand notes, issued to an
unaffiliated  company, in the principal amount of $2,266,000,  including accrued
interest.  The notes were issued in October,  1990 with interest at 15%. In July
1997, ARTRA paid all outstanding  interest on these demand notes and reduced the
principal amount outstanding under the demand notes to approximately $1,500,000.
In October  1997,  the lender  agreed to accept  357,720  ARTRA common shares in
payment of the principal  amount due on these notes.  In January 1998 the lender
returned the 357,720 ARTRA common  shares to the Company for cash  consideration
of approximately $1,600,000.

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.

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


         Peter R. Harvey Advances

As  discussed in Note 19 to the  Company's  consolidated  financial  statements,
ARTRA had total  advances  due from its  president,  Peter R.  Harvey,  of which
$18,226,000 and $7,998,000,  including accrued interest, remained outstanding at
December 31, 1997 and December 26, 1996,  respectively.  A $7,500,000  July 1997
advance,  as discussed below,  bears interest at 12%. The remaining  advances of
$10,726,000  and  $7,998,000  at  December  31,  1997  and  December  26,  1996,
respectively,  bear  interest at the prime rate plus 2% (10.5% at  December  31,
1997 and 10.25% December 26, 1996, respectively).  This receivable from Peter R.
Harvey has been classified as a reduction of common shareholders' equity.

Commencing January 1, 1993 to date,  interest on the advances to Peter R. Harvey
has been accrued and fully reserved.  Interest accrued and fully reserved on the
advances to Peter R. Harvey for the years ended  December  31, 1997 and December
26, 1996 totaled $1,125,000 and $479,000, respectively.



                                       20
<PAGE>


In July 1997,  ARTRA advanced an additional  $7,500,000 to Peter R. Harvey.  Mr.
Harvey provided ARTRA with additional  collateral for his advances consisting of
652.285 shares of ARTRA redeemable preferred stock (a 18.2% interest at December
31, 1997),  1,784.02 shares of BCA Series A redeemable  preferred stock (a 51.6%
interest at December  31,  1997) and 6,488.8  shares of BCA Series B  redeemable
preferred  stock (a 82.7%  interest at December 31,  1997).  These ARTRA and BCA
redeemable  preferred shares were pledged by ARTRA as partial collateral for the
July 1997 private placement of ARTRA promissory notes that funded the advance to
Mr. Harvey.  As of December 31, 1997, this additional  collateral had a carrying
value in ARTRA's  consolidated balance sheet of approximately  $11,200,000.  The
advances were funded with the proceeds  from the July 1997 private  placement of
ARTRA notes.

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.

As collateral  for amounts due from Peter R. Harvey,  in prior years the Company
had received the pledge of 1,523 shares of ARTRA  redeemable  preferred stock (a
42.5% interest,  with a carrying value in ARTRA's  consolidated balance sheet of
approximately $2,000,000 at December 31, 1997) which are owned by Mr. Harvey. In
addition,  Mr.  Harvey has pledged a 25%  interest in  Industrial  Communication
Company (a private  company).  Such interest is valued by Mr. Harvey at $800,000
to $1,000,000. During 1995, Peter R. Harvey entered into a pledge agreement with
ARTRA  whereby Mr. Harvey  pledged  additional  collateral  consisting of 42,067
shares of ARTRA  common  stock and  707,281  shares of Pure Tech  International,
Inc., a publicly traded  corporation.  Per terms of a February 1996 discharge of
bank  indebtedness  (see  Note  5  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. In March 1997, the bank
sold its interest in Mr.  Harvey's note and the related  collateral to a private
investor.  ARTRA  retained  its  $2,150,000  security  interest the real estate,
subordinated to the noteholder's $850,000 security interest in this real estate.

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

Peter R. Harvey has received  only nominal  compensation  for his services as an
officer or director of ARTRA or any of its  subsidiaries  for the period October
1990 through December 1997. 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,  were  fully  satisfied.
Additionally,  since December 31, 1986, Peter R. Harvey has guaranteed in excess
of $100,000,000 of ARTRA obligations to private and institutional  lenders,  and
has also  incurred  significant  expenses on behalf of ARTRA in defending  ARTRA
against certain litigation.

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).


                                       21
<PAGE>


In March  1998,  ARTRA's  Board of  Directors  ratified a proposal to settle Mr.
Harvey's advances as follows:

          Effective December 31, 1997, Mr. Harvey's net advances from ARTRA were
          offset by $2,816,000  ($5,605,000 net of interest accrued and reserved
          for the  period  1993 -  1997)  to  $12,621,000.  This  offset  of Mr.
          Harvey's advances  represented a combination of compensation for prior
          year  guarantees  of ARTRA  obligations  to private and  institutional
          lenders,  compensation  in excess of the nominal  amounts  Mr.  Harvey
          received  for the years  1995 - 1997 and  reimbursement  for  expenses
          incurred to defend ARTRA against certain litigation.

          Effective January 31, 1998, Mr. Harvey's  remaining  advances totaling
          $12,787,000  were  paid  with  consideration   consisting  of  certain
          ARTRA/BCA  preferred  stock held by Mr. Harvey as discussed in Note 19
          to the consolidated financial statements.

The following table presents the pro forma effect on the Company's  consolidated
balance  sheet as if the  January 31, 1998  transaction  to retire Mr.  Harvey's
remaining advances had occurred as of December 31, 1997:


                                                       Pro Forma
                                        As Reported   Adjustments    Pro Forma
                                        -----------   -----------    ---------
                                                     (In thousands)

  Current assets                         $  44,531                    $  44,531
  Noncurrent assets                         28,675                       28,675
                                         ---------                    ---------
    Total assets                         $  73,206                    $  73,206
                                         =========                    =========

  Current liabilities
     Notes payable and current
      maturities of long-term debt       $  15,188                    $  15,188
     Accounts payable and
      accrued expenses                      17,823                       17,823
     Redeemable preferred stock             11,955        (7,732)         4,223
                                         ---------                    ---------

                                            44,966                       37,234

  Noncurrent liabilities                    55,294                       55,294

  Redeemable preferred stock                 9,110        (4,548)         4,562

  Shareholders' equity (deficit)           (36,164)       12,280        (23,884)
                                         ---------                    ---------
                                         $  73,206                    $  73,206
                                         =========                    =========


The pro forma  adjustments to Company's  consolidated  balance sheet reflect the
payment of Mr.  Harvey's  remaining  advances with  consideration  consisting of
certain ARTRA/BCA preferred stock held by Mr. Harvey.


         Redeemable Common Stock

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


                                       22
<PAGE>


During 1997, all put options were exercised and settled.  In December 1997 ARTRA
repurchased 72,984 shares of its common stock for cash of $3,379,000. In January
1997 ARTRA  settled an obligation  that would have required  ARTRA to repurchase
25,750  common shares for a total of $679,000.  The option  holder  retained the
25,750  ARTRA  common  shares  subject to the option  agreement  and received an
additional 89,793 ARTRA common shares in settlement of all obligations due under
the option agreement.


         Redeemable Preferred Stock

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  $21,065,000  at December 31, 1997.
Redeemable   preferred  stock  issues  with  an  aggregate   carrying  value  of
$11,955,000  at  December  31, 1997  matured in 1997.  The  Bagcraft  redeemable
preferred  stock,  with a carrying value of $2,124,000 at December 31, 1997, was
payable  in June 1997.  The BCA  Series B  redeemable  preferred  stock,  with a
carrying  value of  $9,831,000  at December 31,  1997,  was also payable in June
1997.  ARTRA does not have  available  funds to satisfy this  obligation  in its
entirety.  The Company is currently  negotiating  with the redeemable  preferred
shareholders  to  restructure  or extend the  maturity  date of this  obligation
beyond 1997. In August and September  1997 ARTRA  repurchased  certain ARTRA and
BCA redeemable  preferred stock with a carrying value of approximately  $820,000
for cash of  approximately  $425,000.  The redeemable  preferred stock purchases
were funded with proceeds of short-term borrowings.

As  discussed in Note 19 to the  consolidated  financial  statements,  effective
January 31, 1998, Peter R. Harvey exchanged certain ARTRA/BCA preferred stock to
retire advances from ARTRA totaling $12,787,000.


The Company has suffered  recurring losses from operations and has a net capital
deficiency. As a result of these factors, the Company has experienced difficulty
in obtaining adequate financing to replace certain current credit  arrangements,
certain  of  which  are in  default,  to fund  its debt  service  and  liquidity
requirements in 1997. Due to its limited ability to receive operating funds from
its  operating   subsidiaries,   ARTRA   historically   has  met  its  operating
expenditures  with  funds  generated  by such  alternative  sources  as  private
placements of ARTRA common stock and notes, sales of ARTRA common stock with put
options, loans from officers/directors and private investors, as well as through
sales of assets and/or other equity  infusions.  ARTRA plans to continue to seek
such alternative sources of funds to meet its future operating expenditures.

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

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


         Bagcraft

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


                                       23
<PAGE>


In December 1996, the Credit Agreement was amended and restated  whereby,  among
other  things,  the  maturity  date of the  Credit  Agreement  was  extended  to
September 30, 2002 and certain loan covenants were amended. Term Loan A and Term
Loan B, as previously  defined in the Credit Agreement were  consolidated into a
new  $20,000,000  term loan with  interest at the lender's  index rate plus .25%
(8.75% at December 31, 1997 and 8.5% at December 26, 1996).  Principal  payments
under the term loan were  modified  to  provide  for annual  principal  payments
(payable in quarterly  installments) in the amount of $2,000,000 in 1997 through
1999;  $3,000,000  in 2000 and 2001;  and  $8,000,000  in 2002.  The amended and
restated Credit  Agreement  reduced the interest on the revolving credit loan to
the lender's index rate and also provided for a $3,000,000 capital  expenditures
line of credit with interest at the lender's index rate plus .25%.

The amount available to Bagcraft under the revolving credit loan is subject to a
borrowing  base,  as  defined  in  the  Credit  Agreement,  up to a  maximum  of
$18,000,000.   At  December  31,  1997  and  December  26,  1996,  approximately
$4,400,000 and  $6,200,000,  respectively,  was available and unused by Bagcraft
under the revolving credit loan.  Borrowings under the revolving credit loan are
payable upon maturity of the Credit Agreement, unless accelerated under terms of
the Credit  Agreement.  At December 31, 1997 and December 26, 1996, the interest
rate on the revolving credit loan was 8.5% and 8.25%, respectively.

Borrowings under the Credit Agreement are collateralized by the common stock and
substantially all of the assets of Bagcraft.  The Credit Agreement,  as amended,
contains various restrictive covenants,  that among other restrictions,  require
Bagcraft to maintain minimum levels of tangible net worth and liquidity  levels,
and limit future capital expenditures and restricts  additional loans,  dividend
payments and payments to related  parties.  In  addition,  the Credit  Agreement
prohibits changes in ownership of Bagcraft. At December 31, 1997 Bagcraft was in
compliance with the provisions of its Credit Agreement.

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

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

Effective  February  27,  1998,  the Credit  Agreement  was amended and restated
whereby,  among other things,  certain loan  covenants were amended and payments
under the Term Loans were  modified  to provide  for annual  principal  payments
(payable in quarterly installments) as follows:

         Term Loan A - $1,200,000  in 1998;  $1,800,000  in 1999;  $5,500,000 in
                       2000 and 2001; and $6,000,000 in 2002.
         Term Loan B - $50,000 in 1998 - 2002; and $4,750,000 in 2002.
         Term Loan C - $75,000 in 1998 - 2003; and $7,050,000 in 2004.

As  additional  compensation  for  borrowings  under the  Credit  Agreement,  in
December 1993, the lender received a detachable warrant ("Warrant"),  originally
expiring  in  December  1998,  allowing  the holder to purchase up to 10% of the
fully diluted common equity of Bagcraft at a nominal value. The determination of
the  repurchase  price of the Warrant is to be based on the  Warrant's  pro rata
share of the highest of book value, appraised value or market value of Bagcraft.
In connection with the February 1, 1996 amendment to the Credit  Agreement,  the
warrant  agreement was amended to permit the holder to purchase 13% of the fully
diluted common equity of Bagcraft at the original  nominal purchase price and to
extend the expiration  date to December 17, 1999. In January 1997, in accordance
with the December 1996 amendment to the Credit Agreement,  Bagcraft  repurchased
50% of the Warrant  (6.5% of the fully  diluted  common  equity of Bagcraft) for
$1,500,000.  The  warrant  has  been  subsequently  amended,  most  recently  in
accordance  with the February 27, 1998  amendment  to the Credit  Agreement,  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 warrant's  expiration
date to February  27, 2003.  Under  certain  conditions  Bagcraft is required to
repurchase the Warrant from the lender.

                                       24

<PAGE>


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  31, 1997 and  December  26, 1996,
         Bagcraft had  outstanding  borrowings  of  $4,900,000  and  $5,600,000,
         respectively, under this loan agreement.

         A  $5,000,000   subordinated   promissory   note  payable  as  follows:
         $2,425,000 due in 1998;  and  $2,425,000 due in 1999. The  subordinated
         promissory note is non-interest  bearing,  subject to certain repayment
         provisions as defined in the  agreement  (as amended).  At December 31,
         1997 and December 26, 1996,  Bagcraft  had  outstanding  borrowings  of
         $4,850,000 under this loan agreement.

         Two separate $250,000 subordinated  promissory notes payable in varying
         installments  through  January 20, 2025.  The  subordinated  promissory
         notes are non-interest bearing, subject to certain repayment provisions
         as defined in the  agreement.  At December  31, 1997 and  December  26,
         1996,  Bagcraft had  outstanding  borrowings  of $218,000 and $231,000,
         respectively, under this loan agreement.


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

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

Bagcraft  anticipates  that  its  1998  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.

As  discussed  in  Note 3 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 1,525,500 shares or approximately
10% of the outstanding  common stock of COMFORCE as of December 31, 1997 with an
aggregate value as of that date of $12,013,000.

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


                                       25
<PAGE>


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.

The Company's  operating plan for fiscal year 1998 anticipates the sale of these
marketable  securities,  with  proceeds  to be  used  principally  to  pay  down
Corporate debt obligations and fund working capital requirements.

During 1997 ARTRA sold 219,203  COMFORCE  common shares in the market,  with the
net proceeds of approximately $1,700,000 used for working capital. During 1997 a
lender  received 25,000 COMFORCE common shares held by the Company as additional
consideration  for a short-term  loan. The disposition of these 244,703 COMFORCE
common shares  resulted in realized  gains of  $2,306,000  during the year ended
December 31, 1997, with cost determined by average cost.

In January 1996, the Company's  Board of Directors  approved the sale of 200,000
of  ARTRA's  COMFORCE  common  shares to  certain  officers,  directors  and key
employees of ARTRA for non-interest bearing notes totaling $400,000. The 200,000
COMFORCE  common  shares  sold  collateralize  the  notes.   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  were  removed  from  the  Company's  portfolio  of   "Available-for-sale
securities" and were 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 that was 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.  Prior to the forth quarter of 1997 no options to acquire any of
the 200,000 COMFORCE common shares had been exercised. During the fourth quarter
of 1997,  options  to  acquire  59,500  of these  COMFORCE  common  shares  were
exercised  resulting  in a realized  gain of  $225,000.  At December  31,  1997,
options to acquire 140,500 COMFORCE common shares remained  unexercised and were
classified in the Company's  consolidated  balance sheet at December 31, 1997 as
other  receivables with an aggregate value of $281,000,  based upon the value of
proceeds to be received upon future exercise of the options.

During 1996 ARTRA sold 193,000  COMFORCE  common shares in the market,  with the
net proceeds of approximately  $3,700,000 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.


                                       26
<PAGE>


At December 31, 1997 ARTRA's remaining investment in COMFORCE (1,525,500 shares,
currently a common stock ownership interest of approximately 10%) was classified
in  the   Company's   consolidated   balance   sheet  in   current   assets   as
"Available-for-sale  securities." At December 31, 1997 the gross unrealized gain
relating to ARTRA's investment in COMFORCE, reflected as a separate component of
shareholders' equity, was $14,733,000.


         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
consolidated  financial statements.  At December 31, 1997 and December 26, 1996,
the  Company had accrued  current  liabilities  of  $1,800,000  and  $1,900,000,
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.


         Net Operating Loss Carryforwards

At December 31, 1997,  the Company and its  subsidiaries  had Federal income tax
loss carryforwards of approximately  $40,000,000  expiring principally in 2002 -
2013,  available to be applied against future taxable income,  if any. In recent
years,  the Company has issued  shares of its common stock to repay various debt
obligations,  as  consideration  for  acquisitions,   to  fund  working  capital
obligations and as consideration for various other transactions.  Section 382 of
the Internal  Revenue  Code of 1986 limits a  corporation's  utilization  of its
Federal income tax loss carryforwards when certain changes in the ownership of a
corporation's common stock occurs. In the opinion of management,  the Company is
not  currently  subject to such  limitations  regarding the  utilization  of its
Federal income tax loss  carryforwards.  Should the Company  continue to issue a
significant  number of shares of its common stock, it could trigger a limitation
that would prevent it from utilizing a substantial portion of its Federal income
tax loss carryforwards.


Impact of Inflation and Changing Prices

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


Recently Issued Accounting Pronouncements

During  1997 the  Financial  Accounting  Standards  Board  issued  Statement  of
Financial  Accounting Standards ("SFAS") No. 128, "Earnings per Share", SFAS No.
129,  "Disclosure  of  Information  about  Capital  Structure,"  SFAS  No.  130,
"Reporting  Comprehensive Income Summary," and SFAS No. 131,  "Disclosures About
Segments  of an  Enterprise  and  Related  Information".  In  February  1998 the
Financial  Accounting  Standards Board issued Statement of Financial  Accounting
Standards  ("SFAS") No. 132  "Employers'  Disclosures  about  Pensions and other
Postretirement   Benefits".   SFAS  No.  128   establishes   standards  for  the
computation,  presentation,  and disclosure requirements for earnings per share.
SFAS No. 129 consolidates the existing  requirements  relating to the disclosure
of  certain  information  about an  entity's  capital  structure.  SFAS No.  130
establishes standards for reporting comprehensive income to present a measure of
all  changes in equity  that result  from  renegotiated  transactions  and other
economic  events of the period  other  than  transactions  with  owners in their
capacity as owners. Comprehensive income is defined as the change in equity of a
business  enterprise  during a period  from  transactions  and other  events and
circumstances  from  nonowner  sources and  includes  net  income.  SFAS No. 131
specifies revised  guidelines for determining an entity's operating segments and
the type and level of  financial  information  to be  disclosed.  This  standard
requires  that  management  identify  operating  segments  based on the way that
management  disaggregates  the entity for making internal  operating  decisions.
SFAS No. 132  standardizes  the  disclosure  requirements  for pension and other
postretirement benefits.


                                       27
<PAGE>


The Company  adopted the  provisions of SFAS No. 128 and SFAS No. 129 during for
the Company's fiscal year ending December 31, 1997. The adoption of SFAS No. 128
and SFAS No.  129 did not have a  material  impact  on the  Company's  financial
statements.  SFAS No. 130,  SFAS No. 131 and SFAS No. 132 are  effective for the
Company's  fiscal year ending  December 31, 1998.  Management has not determined
what impact these standards,  when adopted, will have on the Company's financial
statements.


Year 2000 Compliance

The  Company  has  implemented  an upgrade  to its  existing  financial,  sales,
production and  distribution  software that is Year 2000  compliant.  It is also
conducting  a  comprehensive  review of the balance of its  computer  systems to
identify those processes that could be adversely affected by the Year 2000 issue
and is developing an implementation  plan to resolve any issue that might arise.
In conducting its review,  the Company is actively  soliciting its suppliers and
customers to assess any Year 2000 issue that might arise from the interaction of
its computer  systems with those of its suppliers and  customers.  The Year 2000
issue refers to the inability of many  computer  programs and systems to process
accurately  dates later than  December  31,  1999.  Unless  these  programs  are
modified to handle the century change,  they will likely interpret the Year 2000
as the year 1900.  The Company has not incurred any  significant  costs for Year
2000 compliance to date and does not expect to incur any significant  additional
costs to complete such compliance.










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.







                                       28
<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  of  ARTRA,  his
business experience during the past five (5) years, his positions with ARTRA and
certain directorships.

Term Expiring at Next Shareholders' Meeting at which Directors are Elected

Name                       Age          Positions and Experience
----                       ---          ------------------------
John Harvey                65           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 10%
                                        of   COMFORCE   outstanding   stock;   a
                                        Director  of  Plastic   Specialties  and
                                        Technologies,  Inc.  ("PST")  (textiles,
                                        hose and  tubing);  Director  of PureTec
                                        Corporation,  the successor by merger to
                                        Ozite.

Peter R. Harvey            62           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 10% of COMFORCE outstanding
                                        common s  tock;).  Director  of  PureTec
                                        Corporation, (textiles, hose and tubing)
                                        the successor by merger to Ozite.


Gerard M. Kenny            45           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           58           Director  since  1996;   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           73           Director since 1996; Retired Chairman of
                                        the Board of Interstate  Steel Co., 1970
                                        to 1990,  and a consultant to Interstate
                                        through 1992.

Maynard K. Louis           68           Director since 1996; Retired Chairman of
                                        the Board of Lord  Label  (now  known as
                                        Porter & Chadburn),  a printing company,
                                        from 1965 to 1989, Vice President,  1989
                                        to 1993,  director  of ARTRA  from  1993
                                        through 1995.

Robert L. Johnson          61           Director since 1996; 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.


                                       29
<PAGE>

Name                       Age          Positions and Experience
----                       ---          ------------------------
Mark Santacrose            39           Director  since  1997;    President   of
                                        Bagcraft    Corporation    of    America
                                        ("Bagcraft"),     flexible     packaging
                                        materials of food  products  since 1994,
                                        Executive  Vice  President  of  Bagcraft
                                        since 1993.

John  Harvey  and Peter R.  Harvey  are  brothers.  COMFORCE  was a 64.3%  owned
subsidiary of ARTRA until December,  1995. ARTRA now owns  approximately  10% of
COMFORCE. PureTec International,  Inc. and PST are affiliates of ARTRA. Bagcraft
is a wholly owned subsidiary of BCA Holdings, Inc., a wholly owned subsidiary of
ARTRA.

                                   MANAGEMENT

Information Regarding Executive Officers

Set forth below is information  concerning the executive  officers and other key
employees  of  ARTRA  who  were in  office  or  employed  as of the date of this
Prospectus.

Name                 Age   Position
-----------------    ---   -------------------------------------
John Harvey          65    Chairman of the Board and Chief Executive Officer
Peter R. Harvey      62    President and Chief Operating Officer
John G. Hamm         58    Executive Vice President
Robert S. Gruber     64    Vice President - Corporate Relations
James D. Doering     61    Vice President, Treasurer and Chief Financial Officer
John Conroy          53    Vice President  - Corporate Administration
Lawrence D. Levin    46    Controller
Edwin G. Rymek       67    Secretary
Mark Santacrose      38    President - Bagcraft Corporation of America

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 as a
consultant to The Lori Corporation from 1975 to 1995. Mr. Gruber has also 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.



                                       30
<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.

Mark Santacrose,  President of Bagcraft Corporation of America. See "Information
Concerning  Directors"  above for a  description  of Mr.  Santacrose's  relevant
business experience.

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.


Item 11. Executive Compensation

Directors' Compensation

Directors who are not employees of ARTRA  ("Outside  Directors") are entitled to
receive an annual  retainer of $10,000.  Each  Outside  Director  who sits on an
established committee of ARTRA is entitled to receive $250 per committee meeting
attended  and the  chairman of a committee  is entitled to receive $500 for each
meeting.  Employees of ARTRA who also serve as  directors  or committee  members
receive no additional compensation for such service.

Executive Officer Compensation

The following table shows all  compensation  paid by ARTRA and its  subsidiaries
for the fiscal years ended December 31, 1997, and December 26, 1996 and December
28,  1995,  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 31, 1997 and whose compensation exceeded $100,000 in 1997.


                           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,         1997     $190,000      $  -0-      $ -0-           -0-       $  -0- (4)
      Chairman and Chief      1996     $137,811      $  -0-      $ -0-       141,000       $5,456 (4)
      Executive Officer       1995      126,200         -0-        -0-           -0-        2,520 (5)

      James D. Doering,       1996      147,000         -0-        -0-           -0-        4,750 (4)
     Vice President and       1996      133,600         -0-        -0-        57,500        6,000 (4)
   Chief Financial Officer    1995       49,900       83,500       -0-           -0-        3,470 (5)

        John G. Hamm,         1997      147,000         -0-        -0-           -0-        4,750 (4)
          Executive           1996      133,600         -0-        -0-       101,250        6,000 (4)
        Vice President        1995       49,900       83,500       -0-           -0-        3,470 (5)

      Robert S. Gruber,       1997      110,450         -0-        -0-           -0-        4,750 (4)
        Vice President        1996      110,400         -0-        -0-        97,750        6,000 (4)
     Corporate Relations      1995       92,000       69,000       -0-           -0-        2,868 (5)

        John G. Hamm,         1997      147,000         -0-        -0-           -0-        4,750 (4)
          Executive           1996      133,600         -0-        -0-       101,250        6,000 (4)
        Vice President        1995       49,900       83,500       -0-           -0-        3,470 (5)

      Mark Santacrose,        1997      225,000         -0-       75,000 (7)     -0-      144,616 (4)(6)(8)(10)
     President Bagcraft       1996      200,000         -0-       17,500 (7)     -0-       89,524 (4)(6)(8)(9)(10)
   Corporation of America     1995      175,000         -0-        -0-           -0-        7,896 (4)(6)(8)(10)




                                      31
<PAGE>

<FN>
--------------------------------------
(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 1997 (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
         year 1995 has been paid as of the date hereof.

(3)      All of the options shown in this column were granted under ARTRA's 1996
         Stock  Option Plan at an exercise  price of $5.25 per share,  being the
         closing price of ARTRA'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 ARTRA's  contributions  to the 401(k) plan during
         1997,  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, ARTRA terminated the ESOP
         and  subsequently   distributed  the  related   Employee   accounts  to
         participants.

(6)      These amounts include $30,960 in 1996, and $61,900 in 1997,  which were
         grossed up to  compensate  for the tax effect of the  forgiveness  of a
         promissory note dated August 2, 1994, in the original  principal amount
         of $52,000, in consideration of Mr. Santacrose's  agreement to cancel a
         Put  whereby he had the option of  requiring  ARTRA to  purchase  up to
         10,000 shares of no par value common stock of ARTRA at a price of $7.00
         per share.

(7)      Based upon a written plan and determined by  the prior year's  earnings
         performance of Bagcraft.

(8)      Included in this amount are amounts related to auto allowance payments,
         group term life insurance and health insurance refunds.

(9)      This   amount   includes  a  special   compensation   payment  for  Mr.
         Santacrose's involvement in the acquisition and sale of Arcar Graphics,
         a former wholly owned subsidiary of Bagcraft.

(10)     Mr. Santacrose  also  participates  in  a  Bagcraft  unfunded  deferred
         compensation  plan.  (See  note  15  to   the  consolidated   financial
         statements).
</FN>
</TABLE>












                                      32
<PAGE>


                        OPTION GRANTS IN FISCAL YEAR 1997

There were no grants of options made in fiscal year 1997.


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 ARTRA  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 ARTRA.  No other  options held by the Chief  Executive
Officer  or any  other  executive  officers  of  ARTRA  listed  in  the  Summary
Compensation Table were exercised in 1996.


                     AGGREGATED OPTION EXERCISES IN 1997 AND
                      OPTION VALUES AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
                                                                     Number of           Value of Unexercised
                                                                    Unexercised             In-the-Money
                                                                Options at 12-31-97      Options at 12-31-97
                           Shares Acquired          Value           Exercisable/            Exercisable/
      Name                   on Exercise          Realized        Unexercisable(1)         Unexercisable(2)
------------------         ---------------        ---------     -------------------       ------------------
<S>                            <C>                 <C>                <C>                     <C>
John Harvey                       0                $    0             221,000/0               $ 17,600/None
James D. Doering                  0                     0             111,000/0                  8,938/None
John G. Hamm                      0                     0             140,450/0                  7,500/None
Robert S. Gruber                  0                     0             118,750/0                  3,525/None
Mark Santacrose                   0                     0                 0                        0

-------------------------------
<FN>
(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  31,  1997 on the New York Stock
         Exchange was $3.875 per share.
</FN>
</TABLE>

Compensation Committee Interlocks and Insider Participation

Authority to determine the compensation of executive  officers is conferred upon
ARTRA'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 1997.  The
decisions   concerning  the  cash  compensation  of  these  executive   officers
(including 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 1997. See
"Transactions   with  Management  and  Others"  for  a  description  of  various
transactions and relationships between ARTRA and each of these directors.




                                       33
<PAGE>


Item 12. Security Ownership of Certain Beneficial Owners and Management

As of February 28, 1998,  there were 7,864,228 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 February 28,
1998 by (i) all  shareholders  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 February  28,  1998,  3,583.62
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
-------------------------------------                -------       -------

The Equitable Companies Incorporated (1)             559,100         7.1%
Peter R. Harvey(2)   Common                          440,243         5.6%
                     Preferred                         2,175        60.7%
John Harvey(3)                                       423,796         6.4%
Gerard M. Kenny(4)                                   167,064         2.1%
Maynard K. Louis(5)                                  121,000         1.5%
Howard R. Conant(6)                                  572,333         6.9 %
Edward A. Celano                                       3,700          *
Robert L. Johnson                                      2,873          *
John G. Hamm(7)                                      142,232         1.8%
Robert S. Gruber(8)                                  141,104         1.8%
James D. Doering(9)                                  124,311         1.6%
Mark Santacrose (10)                                  11,059          *

All directors and executive officers
as a group (14 persons)                            2,365,350        26.2%

 * Less than 1% of the outstanding shares.


(1)      The address of The Equitable Companies  Incorporated  ("Equitable"),  a
         Delaware  corporation,  is 1290 Avenue of the Americas,  New York,  New
         York.  The shares  beneficially  owned by Equitable  consist of 559,100
         shares of common stock owned by four French mutual insurance companies,
         AXA Assurances I.A.R.D.  Mutuelle,  AXA Assurances Vie Mutuelle,  Alpha
         Assurances Vie Mutuelle and AXA Courtage Assurances Mutuelle,  which as
         a group  beneficially own a majority interest in AXA-UAP,  which owns a
         majority interest in Equitable.

(2)      Mr.  Peter  R.  Harvey's   business  address  is  500  Central  Avenue,
         Northfield, Illinois 60093. The shares beneficially owned by Mr. Harvey
         consist of 375,790  shares held  directly by him (of which  373,615 are
         Common Stock and 2,175 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,  100,000 shares held by Mr. Harvey's daughters,  75,000 shares



                                       34
<PAGE>

         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,  ARTRA  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 150,000 ARTRA common  shares  directly,  Mrs.  Conant
         holds  9,000  ARTRA  common  shares and Mr.  Conant  holds  warrants to
         acquire  443,333  shares  of ARTRA  common  stock at prices of $5.00 to
         $5.875 per share  which  warrants  expire on various  dates in 2001 and
         2002.

(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,  1,639 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



                                       35
<PAGE>

         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.

(10)     The shares  of stock  beneficially  owned by  Mr. Santacrose consist of
         10,000 Shares owned by him directly and 1,055 shares in  his Individual
         Retirement Account.


Item 13. Certain Relationships and Related Transactions

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.

The  Harvey  Family  Trust  is the  owner  of the real  estate  at 500  Central,
Northfield,  Illinois,  the corporate offices of ARTRA which was acquired by the
Trust in September 1996. ARTRA rents  approximately  7,000 square feet of office
space and  1,000  square  feet of  warehouse  space  from the Trust at an annual
rental of $126,000 pursuant to a lease expiring in January 1998. ARTRA may renew
the lease for an additional  one year period at an increased  rent in the sum of
$132,000.  The building contains  approximately 29,500 total square feet. In the
opinion of ARTRA  management,  the ARTRA rental  obligation to the Harvey Family
Trust does not exceed the fair market value for similar rentals.  John Harvey is
the grantor and beneficiary of the Trust.

In June 1996,  Peter R. Harvey loaned ARTRA 100,000 shares of ARTRA common stock
(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 ARTRA's  shareholders  approved an
increase in the number of authorized  common shares,  ARTRA repaid this loan. At
Peter R. Harvey's  direction,  the 100,000  shares of ARTRA's  common stock were
issued in blocks of 25,000 shares to the four  daughters of ARTRA's  Chairman of
the Board, John Harvey. John Harvey and Peter R. Harvey are brothers.

In March  1998,  ARTRA's  Board of  Directors  ratified a proposal to settle Mr.
Harvey's previous advances from ARTRA in the amount of $15,437,000 as follows:

          Effective December 31,1997,  Mr. Harvey's net advances from ARTRA were
          offset by $2,816,000  ($5,606,000 net of interest accrued and reserved
          for the  period  1993 -  1997)  to  $12,621,000.  This  offset  of Mr.
          Harvey's advances  represented a combination of compensation for prior
          year  guarantees  of ARTRA  obligations  to private and  institutional
          lenders,  compensation  in excess of the nominal  amounts  Mr.  Harvey
          received  for the  years  1995-1997  and  reimbursement  for  expenses
          incurred to defend ARTRA against certain litigation.

          Effective January 31, 1998, Mr. Harvey's  remaining  advances totaling
          $12,787,000 were paid with  consideration  consisting of the following
          ARTRA and BCA preferred stock held by Mr. Harvey:

                                                        Face Value Plus
                          Security                     Accrued Dividends
         -----------------------------------------     -----------------

         ARTRA redeemable preferred stock,
               1,734.28 shares                           $ 2,751,000
         BCA Holding Series A preferred stock,
               1,784.029 shares                            2,234,000
         BCA Holding Series B preferred stock,
               6,172 shares                                7,802,000
                                                         -----------
                                                         $12,787,000
                                                         ===========

                                       36
<PAGE>

For additional  related Party  Transactions  between the Registrant and Peter R.
Harvey, ARTRA's president, see Note 19 to the consolidated financial statements.

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
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 was subject
to  increase at the rate of $2.25 per share per annum  ($21.188 at December  26,
1996). The put option was 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.

In December 1997 Kenny  exercised  all of its put options and ARTRA  repurchased
72,984 shares of its common stock for cash of $2,379,000.

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
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.


                                       37
<PAGE>

Peter R. Harvey and John Harvey were  significant  shareholders of PST's parent,
PureTec. Peter R. Harvey formerly was a Vice President and a director of PST and
a director of PureTec. John Harvey formerly was 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  31, 1997,  net  dividends in the amount of $854,000 had
accumulated thereon.

During 1993,  The  Research  Center of Kabbalah  ("RCK"),  which  formerly  held
approximately  7.5% of ARTRA's  outstanding  Common Stock  (including  the stock
issuable upon the exercise of warrants),  made certain short-term loans to ARTRA
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 ARTRA, 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. Interest on the
loans was paid through March, 1997. Payment on the loans was due March 31, 1994,
however,  the  lender did not  demand  payment.  In  February  1997,  the lender
received a warrant to purchase an  additional  100,000  ARTRA  common  shares at
$5.625 per share as consideration  for not demanding payment of this obligation.
In April 1997, the lender  received a warrant to purchase an additional  100,000
ARTRA  common  shares  at $5.00  per share as  consideration  for not  demanding
payment of this  obligation.  In June 1997  outstanding  borrowings  to RCK were
reduced to $300,000 with the proceeds from other short-term borrowings.  In July
1997 ARTRA repaid all remaining  obligations  under these loans.  In early 1998,
RCK disposed of all of its ARTRA holdings.

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 ARTRA's annual meeting of shareholders,  held
August 29, 1996, Mr. Celano was elected to ARTRA'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 was  collateralized  by 125,000  shares of  COMFORCE
common stock owned by ARTRA'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 ARTRA's annual meeting of shareholders,
held August 29, 1996,  Mr. Conant was elected to ARTRA'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.


                                       38
<PAGE>

In January 1997, ARTRA borrowed an additional $300,000 from Mr. Conant evidenced
by a short-term  note, due December 23, 1997,  bearing  interest at 8%. The loan
was  collateralized  by 100,000 shares of COMFORCE common stock owned by ARTRA'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 was
collateralized  by 585,000  shares of  COMFORCE  common  stock  owned by ARTRA's
Fill-Mor subsidiary.  As additional compensation,  Mr. Conant received an option
to purchase  25,000  shares of COMFORCE  common stock owned by ARTRA's  Fill-Mor
subsidiary at a price of $4.00 per share,  with the right to put the option back
to ARTRA on or before  May 30,  1997 for a total put  price of  $50,000.  In May
1997, Mr. Conant  exercised his rights and put the COMFORCE option back to ARTRA
for  $50,000.  The  proceeds  from  this  loan  were  used in part to  repay  an
ARTRA/Fill-Mor $2,500,000 bank term loan.

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

In June 1997,  ARTRA  borrowed an additional  $1,000,000  from Mr.  Conant,  due
December 10, 1997,  bearing  interest at 12%. As  additional  compensation,  the
lender  received a warrant to purchase  40,000  ARTRA  common  stock shares at a
price of $5.00 per share.  The warrant  holder has the right to put this warrant
back to ARTRA at any time during the period  December 10, 1997 to June 10, 1998,
for a total  purchase  price of  $80,000.  The cost of this  obligation  will be
accrued in the Company's  financial  statements as a charge to interest  expense
over the period June 10, 1997 (the date of loan) through  December 10, 1997 (the
date the  warrant  holder has the right to put the warrant  back to ARTRA).  The
proceeds from this loan were used to pay down other ARTRA debt  obligations.  In
July 1997,  borrowings  from Mr. Conant were reduced to $3,000,000 with proceeds
advanced to ARTRA from a Bagcraft term loan as discussed above. In December 1997
borrowings  from Mr. Conart were reduced to $2,000,000  with proceeds from other
short-term   borrowings.   The  borrowings  from  this  director  are  currently
collaterallized  by 490,000  shares of COMFORCE  common  stock by the  Company's
Fill-Mor subsidiary.






                                       39
<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
                        December 31, 1997.













                                       40
<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:     March 26, 1998                             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        March 26, 1998
------------------------
     John Harvey                  Chief Executive Officer

   PETER R. HARVEY                President and Director       March 26, 1998
------------------------
   Peter R. Harvey                Chief Operating Officer

   JAMES D. DOERING               Vice President /Treasurer    March 26, 1998
------------------------
   James D. Doering               Chief Financial Officer

   EDWARD A. CELANO               Director                     March 26, 1998
------------------------
   Edward A. Celano

   HOWARD R. CONANT               Director                     March 26, 1998
------------------------
   Howard R. Conant

  ROBERT L. JOHNSON               Director                     March 26, 1998
------------------------
  Robert L. Johnson

   GERARD M. KENNY                Director                     March 26, 1998
------------------------
   Gerard M. Kenny

   MAYNARD K. LOUIS               Director                     March 26, 1998
------------------------
   Maynard K. Louis

  MARK F. SANTACROSE              Director                     March 26, 1998
------------------------
  Mark F. Santacrose

  LAWRENCE D. LEVIN               Controller                   March 26, 1998
------------------------
  Lawrence D. Levin







                                       41
<PAGE>


                          INDEX TO FINANCIAL STATEMENTS




                                                                       Page
                                                                       ----
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

     Report of Independent Accountants                                  F-2

       Consolidated Balance Sheets as
           of December 31, 1997
           and December 26, 1996                                        F-3

       Consolidated Statements of Operations
           for each of the three fiscal years
           in the period ended December 31, 1997                        F-5

       Consolidated Statements of Changes
           in Shareholders' Equity (Deficit)
           for each of the three fiscal years
           in the period ended December 31, 1997                        F-6

       Consolidated Statements of Cash Flows
           for each of the three fiscal years
           in the period ended December 31, 1997                        F-7

       Notes to Consolidated Financial Statements                       F-9


     Schedules:

       I.  Condensed Financial Information of Registrant                F-42

      II.  Valuation and Qualifying Accounts                            F-46




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.






                                      F-1
<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 31, 1997 and December 26,
1996, and the consolidated  results of their operations and their cash flows for
each of the  three  fiscal  years  in the  period  ended  December  31,  1997 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, to fund its debt service and to satisfy
liquidity  requirements.   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
March  26, 1998






                                       F-2
<PAGE>


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


                                                    December 31,  December 26,
                                                        1997           1996
                                                      --------      --------

                    ASSETS
Current assets:
   Cash and equivalents                               $  5,991      $    171
   Receivables, less allowance
     for doubtful accounts
     of $275 in 1997 and $512 in 1996                   10,004         8,267
   Inventories                                          15,749        14,967
   Available-for-sale securities                        12,013        22,564
   Other                                                   774           931
                                                      --------      --------
               Total current assets                     44,531        46,900
                                                      --------      --------

Property, plant and equipment
    Land                                                   417           417
    Buildings                                           12,742        11,672
    Machinery and equipment                             35,657        32,346
    Construction in progress                               675           979
                                                      --------      --------
                                                        49,491        45,414
Less accumulated depreciation and amortization          24,397        20,480
                                                      --------      --------
                                                        25,094        24,934
                                                      --------      --------

Other assets:
   Excess of cost over net assets acquired,
      net of accumulated amortization
      of $2,388 in 1997 and $2,083 in 1996               2,729         2,995
   Other                                                   852         2,550
                                                      --------      --------
                                                         3,581         5,545
                                                      --------      --------
                                                      $ 73,206      $ 77,379
                                                      ========      ========




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














                                       F-3
<PAGE>

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


                                                    December 31,   December 26,
                                                        1997           1996
                                                      --------       --------

               LIABILITIES
Current liabilities:
   Notes payable, including amounts
      due to related parties
      of $2,000 in 1997 and $3,600 in 1996            $ 10,726       $ 18,631
   Current maturities of long-term debt                  4,462          2,712
   Accounts payable                                      5,841          5,129
   Accrued expenses                                     11,440         10,394
   Income taxes                                            324            478
   Bagcraft detachable put warrant                        --            1,500
   Redeemable preferred stock                           11,955         11,100
   Liabilities of discontinued operations                  218            348
                                                      --------       --------
               Total current liabilities                44,966         50,292
                                                      --------       --------

Long-term debt                                          50,619         34,207
Other noncurrent liabilities                             4,675          2,135
Commitments and contingencies

Redeemable common stock, issued 98,734 shares             --            3,657

Redeemable preferred stock                               9,110          8,678


      SHAREHOLDERS' EQUITY (DEFICIT)
Common stock, no par value;
   authorized 20,000,000 shares;
   issued 8,297,810 shares in 1997
   and 7,624,766 shares in 1996                          6,223          5,793
Additional paid-in capital                              42,721         40,211
Unrealized appreciation of investments                  14,733         25,719
Receivable from related party,
   including accrued interest                          (12,621)        (6,468)
Accumulated deficit                                    (87,113)       (86,793)
                                                      --------       --------
                                                       (36,057)       (21,538)
Less treasury stock, 80,612 shares in 1997
    and  7,628 shares in 1996, at cost                     107             52
                                                      --------       --------
                                                       (36,164)       (21,590)
                                                      --------       --------
                                                      $ 73,206       $ 77,379
                                                      ========       ========



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














                                       F-4
<PAGE>
                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                                                            Fiscal Year
                                                                                -----------------------------------
                                                                                   1997         1996         1995
                                                                                ---------    ---------    ---------
<S>                                                                             <C>          <C>          <C>
Net sales                                                                       $ 125,027    $ 120,699    $ 121,879
                                                                                ---------    ---------    ---------

Costs and expenses:
   Cost of goods sold,
     exclusive of depreciation and amortization                                   101,527       94,613      102,508
   Selling, general and administrative                                             19,548       15,638       19,131
   Depreciation and amortization                                                    4,364        3,927        4,330
   Write-down of idle machinery and equipment                                        --           --          1,503
                                                                                ---------    ---------    ---------
                                                                                  125,439      114,178      127,472
                                                                                ---------    ---------    ---------

Operating earnings (loss)                                                            (412)       6,521       (5,593)
                                                                                ---------    ---------    ---------

Other income (expense):
   Interest expense                                                                (9,308)      (7,457)      (9,447)
   Amortization of debt discount                                                   (2,702)        (548)        (335)
   Realized gain on disposal
     of available-for-sale securities                                               2,531        5,818         --
   Litigation settlement, net                                                      10,416         --           --
   Gain on sale of idle machinery and equipment                                       932         --           --
   Other income (expense), net                                                        406         (107)         (88)
   Equity in loss of COMFORCE                                                        --           --           (533)
                                                                                ---------    ---------    ---------
                                                                                    2,275       (2,294)     (10,403)
                                                                                ---------    ---------    ---------

Earnings (loss) from continuing operations
    before income taxes and minority interest                                       1,863        4,227      (15,996)
(Provision) credit  for income taxes                                                   19         (152)         (51)
Minority interest                                                                  (1,109)        (526)        (896)
                                                                                ---------    ---------    ---------
Earnings (loss) from continuing operations                                            773        3,549      (16,943)
Earnings from discontinued operations                                                --           --             10
                                                                                ---------    ---------    ---------
Earnings (loss) before extraordinary credits                                          773        3,549      (16,933)
Extraordinary credits, net discharge of indebtedness                                 --          9,424       14,030
                                                                                ---------    ---------    ---------
Net earnings (loss)                                                                   773       12,973       (2,903)
Dividends applicable to redeemable preferred stock                                   (693)        (621)        (565)
Reduction of retained earnings applicable
     to redeemable common stock                                                      (400)        (390)        (767)
                                                                                ---------    ---------    ---------
Earnings (loss) applicable to common shares                                     ($    320)   $  11,962    ($  4,235)
                                                                                =========    =========    =========

Earnings (loss) per share:
    Basic
       Continuing operations                                                    ($   0.04)   $    0.34    $   (2.70)
       Discontinued operations                                                       --           --           --
                                                                                ---------    ---------    ---------
       Earnings (loss) before extraordinary credits                                 (0.04)        0.34        (2.70)
       Extraordinary credits                                                         --           1.25         2.07
                                                                                ---------    ---------    ---------
                 Net earnings (loss)                                            ($   0.04)   $    1.59    $    (.63)
                                                                                =========    =========    =========

     Weighted average number of shares of common stock outstanding                  7,970        7,525        6,776
                                                                                =========    =========    =========

    Diluted
       Continuing operations                                                    ($   0.04)   $    0.32    $   (2.70)
       Discontinued operations                                                       --           --           --
                                                                                ---------    ---------    ---------
       Earnings (loss) before extraordinary credits                                 (0.04)        0.32        (2.70)
       Extraordinary credits                                                         --           1.19         2.07
                                                                                ---------    ---------    ---------
                 Net earnings (loss)                                            ($   0.04)   $    1.51    $    (.63)
                                                                                =========    =========    =========

     Weighted average number of shares of common stock and
           common stock equivalents outstanding                                     7,970        7,939        6,776
                                                                                =========    =========    =========
</TABLE>
The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.

                                      F-5
<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 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 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 preferred
  stock dividends                       -        -          -            -           -       (565)          -        -       (565)
 Redeemable common
  stock accretion                       -        -          -            -           -       (767)          -        -       (767)
 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)
 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
 Net 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 preferred
  stock dividends                       -        -          -            -           -       (621)          -        -       (621)
 Redeemable common
  stock accretion                       -        -          -            -           -       (390)          -        -       (390)
                                --------- --------   --------    ---------     -------   --------     -------  -------    -------
Balance at December 26, 1996    7,624,766    5,793     40,211       25,719      (6,468)   (86,793)      7,628      (52)   (21,590)
                                --------- --------   --------    ---------     -------   --------     -------  -------    -------
</TABLE>





                                      F-6
<PAGE>

                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT), continued
                        (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 26, 1996    7,624,766    5,793     40,211       25,719      (6,468)   (86,793)      7,628      (52)   (21,590)
 Net earnings                           -        -          -            -           -        773           -        -        773
 Common stock issued
  to pay liabilities              444,717      333      1,606            -           -          -           -        -      1,939
 Net increase in receivable
  from related party,
  including accrued interest            -        -          -            -      (6,153)         -           -        -     (6,153)
 Decrease in unrealized
  appreciation of investments           -        -          -      (10,986)          -          -           -        -    (10,986)
 Exercise of stock
  options and warrants             39,800       30        148            -           -          -           -        -        178
 Redeemable common stock
  obligation paid
  by the issuance of
  additional common shares        115,543       67        612            -           -          -           -        -        679
 Exercise of redeemable common
  stock put option                 72,984        -         55            -           -          -      72,984      (55)         -
 Purchase of redeemable
  preferred stock                       -        -         89            -           -          -           -        -         89
 Redeemable preferred
  stock dividends                       -        -          -            -           -       (693)          -        -       (693)
 Redeemable common
  stock accretion                       -        -          -            -           -       (400)          -        -       (400)
                                 --------- --------   --------    ---------    --------   --------   --------  -------   --------
Balance at December 31, 1997     8,297,810   $6,223    $42,721      $14,733    $(12,621)  $(87,113)    80,612  $  (107)  $(36,164)
                                ========== ========   ========    =========    ========   ========   ========  =======   ========

</TABLE>



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










                                      F-6(a)
<PAGE>

                            ARTRA GROUP INCORPORATED
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (In thousands of dollars)
<TABLE>
<CAPTION>

                                                                                           Fiscal Year
                                                                                --------------------------------
                                                                                   1997        1996        1995
                                                                                --------    --------    --------

<S>                                                                             <C>         <C>         <C>
Cash flows from operating activities:
   Net earnings (loss)                                                          $    773    $ 12,973    ($ 2,903)
      Adjustments to reconcile net earnings (loss)
           to cash flows from operating activities:
         Depreciation of property, plant and equipment                             4,059       3,622       4,120
         Amortization of excess of cost over net assets acquired                     305         305         837
         Decrease  in receivable from related party                                2,816        --          --
         Impairment of goodwill                                                     --          --         6,430
         Extraordinary gain from net discharge of indebtedness                      --        (9,424)    (14,030)
         Gain on disposal of discontinued operations                                --          --        (8,183)
         Amortization of other assets, principally financing costs                 4,754         548         689
         Inventory valuation reserve                                                 172         191         290
         Gain on sale of property, plant and equipment                               (70)         78        --
         Gain on sale of idle machinery  and equipment                              (932)       --          --
         Write-down of idle equipment and machinery                                 --          --         1,503
         Litigation settlement, net                                              (10,416)       --          --
         Gain on sale of COMFORCE common stock                                    (2,531)     (5,818)       --
         Equity in loss of COMFORCE                                                 --          --           533
         Minority interest                                                         1,109         526         896
         Contribution to ARTRA  ESOP                                                --          --            42
         Other, principally common stock issued as compensation                      454         220       1,300
      Changes in assets and liabilities, net of effects of
         businesses acquired and discontinued:
          (Increase) decrease in receivables                                      (1,631)      2,630        (184)
          (Increase) decrease in inventories                                         132       1,476         453
          (Increase) decrease in other current and noncurrent assets                 517        (169)      1,421
          Increase (decrease) in payables and accrued expenses                       321      (5,980)        611
          Increase (decrease) in other current and noncurrent liabilities           (119)     (4,497)        450
                                                                                --------    --------    --------
Net cash flows used by operating activities                                         (287)     (3,319)     (5,725)
                                                                                --------    --------    --------

Cash flows from investing activities:
   Proceeds from sale of COMFORCE common stock                                     1,821       3,717        --
   Net proceeds from litigation settlement                                         9,761        --          --
   Proceeds from sale of property, plant and equipment                               537         132        --
   Additions to property, plant and equipment                                     (3,066)     (2,645)     (2,820)
   Increase  in receivable from related party                                     (8,969)     (1,061)       (218)
   Proceeds from collection of notes receivable                                     --           342       3,000
   Decrease in restricted cash                                                      --           552         772
   Acquistion of AB Specialty, net of deposit                                     (1,131)       --          --
   AB Specialty acquisition deposit                                                 --        (1,183)       --
   Proceeds from sale of  idle machinery and equipment                               932        --          --
   Proceeds from sale of Arcar                                                      --          --        20,318
   Retail fixtures                                                                  --          --          (631)
                                                                                --------    --------    --------
Net cash flows from (used by) investing activities                                  (115)       (146)     20,421
                                                                                --------    --------    --------

</TABLE>


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




                                       F-7
<PAGE>

                            ARTRA GROUP INCORPORATED
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (In thousands of dollars)
<TABLE>
<CAPTION>


                                                                                            Fiscal Year
                                                                                -----------------------------------
                                                                                   1997         1996         1995
                                                                                ---------    ---------    ---------

<S>                                                                             <C>          <C>          <C>
Cash flows from financing activities:
   Net increase (decrease) in short-term debt                                   $  (1,508)   $     286    $   5,488
   Proceeds from long-term borrowings                                             146,891      141,896      136,756
   Reduction of long-term debt                                                   (133,781)    (140,850)    (156,641)
   Proceeds from exercise of stock options and warrants                               178          369           48
   Exercise of redeemable common stock put options                                 (3,379)        (510)        --
   Redemption of detachable put warrants                                           (1,728)        --           --
   Purchase of redeemable preferred stock                                            (426)        --           --
   Other                                                                              (25)          98          (70)
                                                                                ---------    ---------    ---------
Net cash flows from (used by) financing activities                                  6,222        1,289      (14,419)
                                                                                ---------    ---------    ---------

Increase (decrease) in cash and cash equivalents                                    5,820       (2,176)         277
Cash and equivalents, beginning of year                                               171        2,347        2,070
                                                                                ---------    ---------    ---------
Cash and equivalents, end of year                                               $   5,991    $     171    $   2,347
                                                                                =========    =========    =========



Supplemental cash flow information: Cash paid during the year for:
  Interest                                                                      $   7,058    $   5,320    $   5,847
  Income taxes paid (refunded), net                                                   177          157          (22)


Supplemental schedule of noncash investing and financing activities:
    Issue common stock and redeemable common stock
       to pay down current liabilities                                          $   1,939    $   1,274    $   1,040
    Issue common stock to pay
       redeemable common stock put obligation                                         679         --           --
    Issue common stock as additional consideration
       for short-term borrowings                                                     --            661        1,266
    COMFORCE common stock given to lenders
       as additional consideration for short-term borrowings                          169        1,511         --
    BCA Holdings redeemable preferred stock issued in exchange for
       Bagcraft redeemable preferred stock                                           --          8,135         --


</TABLE>

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













                                       F-8
<PAGE>

                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1.       Basis of Presentation and Financial Restructuring


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

The Company's 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,  to fund its debt service and to satisfy liquidity
requirements.  These factors raise substantial doubt about the Company's ability
to continue as a going  concern.  The  financial  statements  do not include any
adjustments that might result from the outcome of this uncertainty.  See Note 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.

Effective December 31, 1997, the ARTRA received a settlement relating to certain
litigation  pending 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 Industries Inc. ("Envirodyne") in 1989
by Emerald  Acquisition  Corp.  ("Emerald").  ARTRA  recognized  a gain from the
settlement  agreement  of  $10,416,000,  net of  related  legal  fees and  other
expenses.

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.

In 1997, the Company changed its fiscal year end to December 31. In recent years
the Company had operated on a 52/53 week fiscal year ending the last Thursday of
December.




                                      F-9
<PAGE>


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



2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


A.   Principles of Consolidation

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


B.    Cash Equivalents

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


C.    Inventories

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


D.    Property, Plant and Equipment

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

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


E.    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) was classified as available for sale and was
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




                                      F-10
<PAGE>


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



2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

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 be 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.


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.       Earnings Per Share

The  Company  adopted  SFAS No.  128,  "Earnings  Per  Share" for the year ended
December  31,  1997.  The   pronouncement,   which  specifies  the  computation,
presentation, and disclosure requirements for earnings per share, did not have a
material impact on the Company's financial statements.



                                      F-11
<PAGE>


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



2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

L.       Recently Issued Accounting Pronouncements

During  1997 the  Financial  Accounting  Standards  Board  issued  Statement  of
Financial Accounting  Standards ("SFAS") SFAS No. 130, "Reporting  Comprehensive
Income Summary," and SFAS No. 131,  "Disclosures About Segments of an Enterprise
and Related  Information".  In February 1998 the Financial  Accounting Standards
Board  issued  Statement  of  Financial  Accounting  Standards  ("SFAS") No. 132
"Employers' Disclosures about Pensions and other Postretirement  Benefits". SFAS
No. 130 establishes  standards for reporting  comprehensive  income to present a
measure of all changes in equity that result from renegotiated  transactions and
other economic events of the period other than transactions with owners in their
capacity as owners. Comprehensive income is defined as the change in equity of a
business  enterprise  during a period  from  transactions  and other  events and
circumstances  from  nonowner  sources and  includes  net  income.  SFAS No. 131
specifies revised  guidelines for determining an entity's operating segments and
the type and level of  financial  information  to be  disclosed.  This  standard
requires  that  management  identify  operating  segments  based on the way that
management  disaggregates  the entity for making internal  operating  decisions.
SFAS No. 132  standardizes  the  disclosure  requirements  for pension and other
postretirement benefits.

These new  accounting  principles  are effective  for the Company's  fiscal year
ending  December  31,  1998.  Management  has not  determined  what impact these
standards, when adopted, will have on the Company's financial statements.


3.       CHANGE OF BUSINESS

         AB Specialty

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 $2.3 million.  The
purchased assets  consisted  principally of plant and equipment of approximately
$1.3 million and inventory of approximately $1.1 million. The acquisition of AB,
funded through borrowings under Bagcraft's Credit Agreement,  has been accounted
for by the purchase  method and,  accordingly,  the assets and liabilities of AB
were included in the Company's  financial  statements  at their  estimated  fair
market value at the date of acquisition. The results of operations of AB are not
considered  material to the Company's  consolidated  financial  statements.  The
acquisition of AB is expected to enhance Bagcraft's  specialty bag business.  At
December 26, 1996, other  noncurrent  assets included a deposit of approximately
$1.2 million related to the acquisition of AB.

         Arcar Graphics

Effective  April 8, 1994,  Bagcraft  purchased the business  assets,  subject to
buyer's assumption of certain liabilities,  of Arcar Graphics, Inc. ("Arcar"), a
manufacturer and distributor of waterbase inks, for consideration of $10,264,000
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

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



                                      F-12
<PAGE>


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



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 entered the telecommunications and computer
technical  staffing and  consulting  services  business with the  acquisition of
COMFORCE Telecom Inc.  COMFORCE has subsequently  expanded this business through
various acquisitions.

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  and  consulting
services  business.  In 1995,  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.
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  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.  Due to other  issuances  of
COMFORCE  common  shares,  plus  the  effects  of  other  transactions,  ARTRA's
ownership interest in COMFORCE common stock was reduced to approximately 10% and
14% at December 31, 1997 and December 26, 1996,  respectively.  See Note 6 for a
further  discussion  of  the  accounting  treatment  of  ARTRA's  investment  in
COMFORCE.


         Other

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





                                      F-13
<PAGE>


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



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  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
                                                   --------

          Net sales                                $ 16,932
                                                   ========

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


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


          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
                                                   ========



4.       CONCENTRATION OF RISK

The accounts  receivable  of the Company's  Bagcraft  subsidiary at December 31,
1997 consist primarily of amounts due from companies in the food industry.  As a
result, the collectibility of these receivables is dependent, to an extent, upon
the economic condition and financial stability of the food industry. Credit risk
is minimized as a result of the large  number and diverse  nature of  Bagcraft's
customer base.  Bagcraft's major customers include some of the largest companies
in the food  industry.  At December  31, 1997,  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 1997 sales.







                                      F-14
<PAGE>


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



5.       INVENTORIES

Inventories  (in thousands) consist of:

                                           December 31,  December 26,
                                                1997         1996
                                              -------      -------

                 Raw materials and supplies   $ 5,901      $ 5,582
                 Work in process                  274          287
                 Finished goods                 9,574        9,098
                                              -------      -------
                                              $15,749      $14,967
                                              =======      =======



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.

During 1997 ARTRA sold 219,203  COMFORCE  common shares in the market,  with the
net proceeds of approximately $1,700,000 used for working capital. During 1997 a
lender  received 25,000 COMFORCE common shares held by the Company as additional
consideration  for a short-term  loan. The disposition of these 244,703 COMFORCE
common shares  resulted in realized  gains of  $2,306,000  during the year ended
December 31, 1997, with cost determined by average cost.

In January 1996, the Company's  Board of Directors  approved the sale of 200,000
of  ARTRA's  COMFORCE  common  shares to  certain  officers,  directors  and key
employees of ARTRA for non-interest bearing notes totaling $400,000. The 200,000
COMFORCE  common  shares  sold  collateralize  the  notes.   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



                                      F-15
<PAGE>


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



employees to acquire  200,000 of ARTRA's  COMFORCE  common shares.  Accordingly,
these 200,000  COMFORCE common shares were removed from the Company's  portfolio
of  "Available-for-sale   securities"  and  were  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 that was 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.  Prior to the forth  quarter of 1997 no
options to acquire any of the 200,000 COMFORCE common shares had been exercised.
During the fourth  quarter of 1997,  options to acquire 59,500 of these COMFORCE
common  shares were  exercised  resulting  in a realized  gain of  $225,000.  At
December 31, 1997,  options to acquire  140,500  COMFORCE common shares remained
unexercised and were classified in the Company's  consolidated  balance sheet at
December  31, 1997 as other  receivables  with an  aggregate  value of $281,000,
based upon the value of  proceeds to be  received  upon  future  exercise of the
options.

During 1996 ARTRA sold 193,000  COMFORCE  common shares in the market,  with the
net proceeds of approximately  $3,700,000 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.

At December 31, 1997 ARTRA's remaining investment in COMFORCE (1,525,500 shares,
currently a common stock ownership interest of approximately 10%) was classified
in  the   Company's   consolidated   balance   sheet  in   current   assets   as
"Available-for-sale  securities." At December 31, 1997 the gross unrealized gain
relating to ARTRA's investment in COMFORCE, reflected as a separate component of
shareholders' equity, was $14,733,000.

As  discussed  in Note 8, at December  31,  1997,  1,390,000  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 135,500 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 Note 11
for a further discussion 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).




                                      F-16
<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:

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

Upon the satisfaction of certain conditions of a debt settlement  agreement,  in
March 1995  certain  indebtedness  of  COMFORCE  and  Fill-Mor  was  discharged,
resulting  in an  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
                                                                 =========




                                      F17
<PAGE>


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



8.       NOTES PAYABLE

Notes payable (in thousands) consist of:
                                                December 31,     December 26,
                                                    1997              1996
                                                   -------          -------
    ARTRA 12% promissory notes -
      1997 private placements                     $ 12,850

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

    Amounts due to related parties,
      interest from 10% to 12%                       2,000            3,600

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

    Other, interest from 10% to 15%                    601            4,856
                                                   -------          -------
                                                    15,451           18,631

    Less ARTRA 12% promissory notes
      refinanced in January 1998                    (4,725)             --
                                                   -------          -------
                                                  $ 10,726         $ 18,631
                                                   =======          =======


         Promissory Notes

         1997 Private Placements

In December  1997,  ARTRA  completed  private  placements  of  $5,375,000 of 12%
promissory  notes  due  in  December  1998.  As  additional   consideration  the
noteholders  received  warrants to purchase an aggregate of 107,500 ARTRA common
shares at a price of $3.00 per  share.  The  warrants  expire  in  November  and
December 1999. The  warrantholders  have the right to put these warrants back to
ARTRA at any time during a period  commencing in December 1998 and ending in May
1999, at a price of $1.50 per share.  The cost of this  obligation  ($161,250 if
all warrants are put back to the Company) was accrued in the Company's financial
statements  as a charge  to  interest  expense.  In the event of a  default,  as
defined in the note agreements,  the promissory notes will bear interest at 37%.
The proceeds from the private  placement were used principally to pay down other
debt obligations.

In July 1997, ARTRA completed private placements of $7,475,000 of 12% promissory
notes due in January 1998. As additional  consideration the noteholders received
warrants to purchase an aggregate of 199,311  ARTRA common  shares at a price of
$3.75 per share. The warrants expire in July 1998. The  warrantholders  have the
right to put these warrants back to ARTRA at any time during a period commencing
in January  1998 and ending in August 1999,  at a price of $3.00 per share.  The
cost of this  obligation  ($598,000 if all warrants are put back to the Company)
was  amortized in the  Company's  financial  statements  as a charge to interest
expense  over the period July 1997 (the date of the private  placement)  through
January 1998 (the scheduled  maturity date of the notes).  The promissory  notes
were collateralized principally as follows:

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

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




                                      F-18
<PAGE>


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



The proceeds  from the July 1997  private  placement  were  advanced to Peter R.
Harvey as discussed in Note 19.

The July 1997  private  placement  notes  were  repaid and /or  refinanced  with
proceeds of a January 1998 private placement of 12% notes and with proceeds from
the  litigation  settlement  discussed  in Note 18.  The  January  1998  private
placement notes, in the principal  amount of $5,925,000,  are payable in January
1999. July 1997 private  placement  notes in the principal  amount of $4,725,000
were refinanced by the January 1998 private  placement  notes and,  accordingly,
have been  classified  as long-term  debt at December 31,  1997.  As  additional
consideration the January 1998 private placement  noteholders  received warrants
to purchase an aggregate of 116,500  ARTRA common shares at a price of $4.50 per
share. The warrants expire in January 2000. The warrantholders have the right to
put  these  warrants  back to  ARTRA  at any  time  during  a  six-month  period
commencing  in January  1999 and  ending in July  1999,  at a price of $1.50 per
share. The cost of this obligation ($175,000 if all warrants are put back to the
Company) will be amortized in the Company's financial  statements as a charge to
interest expense.

The December 1997 and January 1998 private placement notes are collateralized by
900,000  shares  of  COMFORCE  common  stock  owned  by the  Company's  Fill-Mor
subsidiary and by ARTRA's interest in all of the common stock of BCA (the parent
of Bagcraft).

In June 1997, ARTRA completed private placements of $4,975,000 of 12% promissory
notes due in December 1997. As additional consideration the noteholders received
warrants to purchase an aggregate of 228,750  ARTRA common  shares at a price of
$3.75 per share. The warrants expire in June 1999. The  warrantholders  have the
right to put these warrants back to ARTRA at any time during a period commencing
in December  1997 and ending in May 1999, at prices of $2.00 to $2.40 per share.
The  cost of this  obligation  ($517,000  if all  warrants  are put  back to the
Company) was  amortized in the  Company's  financial  statements  as a charge to
interest expense over the period June 1997 (the commencement date of the private
placement)  through December 1997 (the maturity date of the notes). The proceeds
from  the  private  placement  were  used  principally  to pay down  other  debt
obligations.  The notes were paid at maturity in December 1997  principally with
proceeds from the December 1997 private placement.


         1996 Private Placement

In April  1996,  ARTRA  commenced  a  private  placement  of  $7,675,000  of 12%
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 $3.75 per share,  as amended.  The warrants  expire April 15, 1999. The
warrantholders  have the right to put these  warrants  back to ARTRA at any time
during the period  April 15, 1997 to October 15,  1998,  at a price of $2.00 per
share. The cost of this obligation ($837,500 if all warrants are put back to the
Company) was  amortized 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).  During 1997,  warrants to purchase  50,000 ARTRA common shares were put
back  to  the  Company  at a cost  of  $100,000.  These  promissory  notes  were
collateralized by ARTRA's interest in all of the common stock of BCA (the parent
of Bagcraft).  The proceeds from the private placement,  completed in July 1996,
were used  principally  to pay down  other debt  obligations.  During the second
quarter of 1997, the Company repaid these  promissory notes with the proceeds of
additional  short-term  borrowings  and with funds  received  from the Company's
Bagcraft  subsidiary  in  accordance  with a May 1997  amendment  to its  credit
agreement (see Note 9).


         Amounts Due To Related Parties

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



                                      F-19
<PAGE>


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



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

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

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

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

In July 1997,  borrowings  from this  lender  were  reduced to  $3,000,000  with
proceeds  advanced to ARTRA from a Bagcraft term loan as discussed in Note 9. In
December  1997  borrowings  from this lender  were  reduced to  $2,000,000  with
proceeds from other short-term borrowings. The borrowings from this director are
collaterallized  by  490,000  shares  of  COMFORCE  common  stock  owned  by the
Company's Fill-Mor subsidiary.

At December 26, 1996,  ARTRA had  outstanding  borrowings of $3,000,000  from an
unaffiliated company then holding approximately 7% of ARTRA's outstanding common
stock.  The loans were evidenced by 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.  Payment on the loans
was due March 31, 1994, however,  the lender did not demand payment. In February
1997,  the lender  received a warrant to purchase an  additional  100,000  ARTRA
common shares at $5.625 per share as consideration  for not demanding payment of
this  obligation.  In April 1997,  the lender  received a warrant to purchase an
additional  100,000 ARTRA common shares at $5.00 per share as consideration  for
not demanding payment of this obligation. In June 1997 outstanding borrowings to
the  unaffiliated  company were reduced to $300,000 with the proceeds from other
short-term borrowings. In July 1997 ARTRA repaid all remaining obligations under
these loans.

In May 1996,  ARTRA borrowed  $100,000 from a private  investor,  evidenced by a
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,  the private
investor was elected to the Company's board of directors.  Effective January 17,
1997, the private investor  exercised his conversion  rights and received 18,182
shares of ARTRA common stock as payment of the principal balance of his note.



                                      F-20
<PAGE>


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



         Bank Notes Payable

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


         Other

At  December  31,  1997 and  December  26,  1996,  ARTRA  also  had  outstanding
short-term  borrowings from other  unrelated  parties  aggregating  $601,000 and
$1,990,000, with interest rates varying between 10 % and 15%.

At December 26, 1996, ARTRA was the obligor under two demand notes, issued to an
unaffiliated  company, in the principal amount of $2,266,000,  including accrued
interest.  The notes were issued in October,  1990 with interest at 15%. In July
1997, ARTRA paid all outstanding  interest on these demand notes and reduced the
principal amount outstanding under the demand notes to approximately $1,500,000.
In October  1997,  the lender  agreed to accept  357,720  ARTRA common shares in
payment of the principal  amount due on these notes.  In January 1998 the lender
returned the 357,720 ARTRA common  shares to the Company for cash  consideration
of approximately $1,600,000.

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.

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

The weighted average interest rate on all short-term  borrowings at December 31,
1997 and December 26, 1996 was 11.5% and 11.3%, respectively.








                                      F-21
<PAGE>


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



9.       LONG-TERM DEBT

         Long-term debt (in thousands) consists of:

                                                    December 31,   December 26,
                                                        1997           1996
                                                      --------       --------
 Bagcraft:
     Credit Agreement:
        Term Loan A, interest at
           the lender's index rate plus .25%          $ 20,000       $ 20,000

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

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

        Revolving credit loan, interest at
           the lender's index rate                       9,313          7,990

        Unamortized discount                            (1,425)        (1,752)

     City of Baxter Springs, Kansas
        loan agreements,
        interest at varying rates                        9,968         10,681
                                                      --------       --------
                                                        50,356         36,919
     ARTRA 12% promissory notes
        refinanced in January 1998                       4,725            --
                                                      --------       --------

                                                        55,081         36,919
        Current scheduled maturities                    (4,462)        (2,712)
                                                      --------       --------
                                                      $ 50,619       $ 34,207
                                                      ========       ========



         Bagcraft

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

In December 1996, the Credit Agreement was amended and restated  whereby,  among
other  things,  the  maturity  date of the  Credit  Agreement  was  extended  to
September 30, 2002 and certain loan covenants were amended. Term Loan A and Term
Loan B, as previously  defined in the Credit Agreement were  consolidated into a
new  $20,000,000  term loan with  interest at the lender's  index rate plus .25%
(8.75% at December 31, 1997 and 8.5% at December 26, 1996).  Principal  payments
under the term loan were  modified  to  provide  for annual  principal  payments
(payable in quarterly  installments) in the amount of $2,000,000 in 1997 through
1999;  $3,000,000  in 2000 and 2001;  and  $8,000,000  in 2002.  The amended and
restated Credit  Agreement  reduced the interest on the revolving credit loan to
the lender's index rate and also provided for a $3,000,000 capital  expenditures
line of credit with interest at the lender's index rate plus .25%.

The amount available to Bagcraft under the revolving credit loan is subject to a
borrowing  base,  as  defined  in  the  Credit  Agreement,  up to a  maximum  of
$18,000,000.   At  December  31,  1997  and  December  26,  1996,  approximately




                                      F-22
<PAGE>


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



$4,400,000 and  $6,200,000,  respectively,  was available and unused by Bagcraft
under the revolving credit loan.  Borrowings under the revolving credit loan are
payable upon maturity of the Credit Agreement, unless accelerated under terms of
the Credit  Agreement.  At December 31, 1997 and December 26, 1996, the interest
rate on the revolving credit loan was 8.5% and 8.25%, respectively.

Borrowings under the Credit Agreement are collateralized by the common stock and
substantially all of the assets of Bagcraft.  The Credit Agreement,  as amended,
contains various restrictive covenants,  that among other restrictions,  require
Bagcraft to maintain minimum levels of tangible net worth and liquidity  levels,
and limit future capital expenditures and restricts  additional loans,  dividend
payments and payments to related  parties.  In  addition,  the Credit  Agreement
prohibits changes in ownership of Bagcraft. At December 31, 1997 Bagcraft was in
compliance with the provisions of its Credit Agreement.

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

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

Effective  February  27,  1998,  the Credit  Agreement  was amended and restated
whereby,  among other things,  certain loan  covenants were amended and payments
under the Term Loans were  modified  to provide  for annual  principal  payments
(payable in quarterly installments) as follows:

         Term Loan A - $1,200,000  in 1998;  $1,800,000  in 1999;  $5,500,000 in
                       2000 and 2001; and $6,000,000 in 2002.
         Term Loan B - $50,000 in 1998 - 2002; and $4,750,000 in 2002.
         Term Loan C - $75,000 in 1998 - 2003; and $7,050,000 in 2004.

Amounts  outstanding  under the Credit  Agreement have been reflected in current
maturities  and long-term  debt at December 31, 1997 according to terms of these
amended maturities.

As  additional  compensation  for  borrowings  under the  Credit  Agreement,  in
December 1993, the lender received a detachable warrant ("Warrant"),  originally
expiring  in  December  1998,  allowing  the holder to purchase up to 10% of the
fully diluted common equity of Bagcraft at a nominal value. The determination of
the  repurchase  price of the Warrant is to be based on the  Warrant's  pro rata
share of the highest of book value, appraised value or market value of Bagcraft.
In connection with the February 1, 1996 amendment to the Credit  Agreement,  the
warrant  agreement was amended to permit the holder to purchase 13% of the fully
diluted common equity of Bagcraft at the original  nominal purchase price and to
extend the expiration  date to December 17, 1999. In January 1997, in accordance
with the December 1996 amendment to the Credit Agreement,  Bagcraft  repurchased
50% of the Warrant  (6.5% of the fully  diluted  common  equity of Bagcraft) for
$1,500,000.  The  warrant  has  been  subsequently  amended,  most  recently  in
accordance  with the February 27, 1998  amendment  to the Credit  Agreement,  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 warrant's  expiration
date to February  27, 2003.  Under  certain  conditions  Bagcraft is required to
repurchase the Warrant from the lender.



                                      F-23
<PAGE>


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



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  31, 1997 and  December  26, 1996,
         Bagcraft had  outstanding  borrowings  of  $4,900,000  and  $5,600,000,
         respectively, under this loan agreement.

         A  $5,000,000   subordinated   promissory   note  payable  as  follows:
         $2,425,000 due in 1998;  and  $2,425,000 due in 1999. The  subordinated
         promissory note is non-interest  bearing,  subject to certain repayment
         provisions as defined in the  agreement  (as amended).  At December 31,
         1997 and December 26, 1996,  Bagcraft  had  outstanding  borrowings  of
         $4,850,000 under this loan agreement.

         Two separate $250,000 subordinated  promissory notes payable in varying
         installments  through  January 20, 2025.  The  subordinated  promissory
         notes are non-interest bearing, subject to certain repayment provisions
         as defined in the  agreement.  At December  31, 1997 and  December  26,
         1996,  Bagcraft had  outstanding  borrowings  of $218,000 and $231,000,
         respectively, under this loan agreement.


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


         ARTRA

As discussed in Note 8, $7,475,000 of ARTRA 12% promissory  notes due in January
1998 were repaid and /or refinanced  principally with proceeds of a January 1998
private placement of 12% notes payable in January 1999.  Private placement notes
in the  principal  amount of  $4,725,000  refinanced by the January 1998 private
placement notes have been classified as long-term debt at December 31, 1997.


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.

At December  31, 1997 the  aggregate  amount of yearly  maturities  of long-term
debt,  exclusive of debt discharged,  is: 1998,  $4,462,000;  1999,  $9,787,000;
2000, $6,337,000; 2001, $6,337,000; 2002, $16,150,000; thereafter, $13,433,000.


10.      REDEEMABLE COMMON STOCK

In recent  years ARTRA had entered into  various  agreements  under which it has
sold its common  shares  along with options that  required  ARTRA to  repurchase
these  shares at the option of the holder at a premium  over the  initial  sales
price.  The  increment  in the option  price  over the  initial  sales  price of
redeemable common stock was reflected in the Company's financial statements by a
charge to retained earnings. At December 26, 1996 options were outstanding that,
if exercised,



                                      F-24
<PAGE>


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



would have required ARTRA to repurchase 98,734 shares of its common stock for an
aggregate amount of $3,657,000.  At December 31, 1997, there were no outstanding
options which would require ARTRA to repurchase shares of its common stock.

During 1987,  ARTRA entered into an agreement with a private  corporation  under
which it sold its common shares along with a put option that  required  ARTRA to
repurchase  these shares at the option of the holder.  A major  shareholder  and
executive  officer of the  private  corporation  is an ARTRA  director.  The put
option  agreement had been extended from time to time, most recently in November
1992, to expire on December 31, 1997. The private corporation received the right
to sell to ARTRA 23,004  shares of ARTRA common stock at an initial put price of
$56.76 pre share. The option price increased by an amount equal to 15% per annum
for each day from March 1, 1991 to the date of payment by ARTRA. At December 26,
1996, the option price was $83.45 per share.

As additional  consideration  for its guaranty of $2,500,000 of ARTRA bank notes
during the period March 1989 through March 1994, the private  corporation  noted
above received 49,980 ARTRA common shares. On March 31, 1994, ARTRA entered into
a series  of  agreements  with  its bank  lender  and  with  the  above  private
corporation.  Per terms of the  agreements,  the private  corporation  purchased
$2,500,000  of ARTRA notes from ARTRA's  bank and the bank  released the private
corporation from its $2,500,000 loan guaranty.  As consideration  for purchasing
$2,500,000 of ARTRA bank notes,  the private  corporation  received a $2,500,000
ARTRA note payable and an option to put back to ARTRA its 49,980 shares of ARTRA
common stock at a price of $15.00 per share. The option price increased by $2.25
per share  annually  ($21.19 per share at December 26,  1996).  During the first
quarter  of 1996 the  ARTRA  bank  notes  were  discharged  (see Note 7) and the
$2,500,000 note payable to the private  corporation and related accrued interest
was  paid  in  full  principally   with  proceeds  from  additional   short-term
borrowings.

In December  1997, the private  corporation  exercised the put options and ARTRA
repurchased 72,984 shares of its common stock for a total of $3,379,000.

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












                                      F-25
<PAGE>


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



11.      REDEEMABLE PREFERRED STOCK

           Redeemable preferred stock (in thousands) consists of:
<TABLE>
<CAPTION>
                                                              December 31,   December 26,
                                                                   1997            1996
                                                                 -------         -------
      <S>                                                       <C>             <C>
      Currently payable:
        Bagcraft redeemable preferred stock
          payable to a related party,
          cumulative $.01 par value,
          13.5%; including accumulated dividends;
          redeemable in 1997 with a liquidation
          preference equal to $100 per share;
          issued 8,650 shares                                   $  2,124        $  2,007

        BCA Holdings preferred stock, Series B,
          $1.00 par value, 6% cumulative,
          including accumulated dividends;
          redeemable in 1997 with a liquidation
          preference of $1,000 per share;
          8,135 shares authorized; issued 7,847.79
          shares in 1997 and 8,135 shares in 1996                  9,831           9,093
                                                                 -------         -------
                                                                $ 11,955        $ 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 $859 in 1997 and $1,271 in 1996;
          redeemable March 1, 2000 at $1,000
          per share plus accrued dividends;
          authorized 2,000,000 shares all series;
          issued 3,583.62 shares in 1997
          and 3,750 shares in 1996                              $  4,799        $  4,315

        BCA Holdings preferred stock, Series A,
          $1.00 par value, 6% cumulative,
          including accumulated dividends;
          redeemable in 1997 with a liquidation
          preference of $1,000 per share;
          10,000 shares authorized;
          issued 3,456.18 shares in 1997
          and 3,675 shares in 1996                                 4,311           4,363
                                                                 -------         -------
                                                                $  9,110        $  8,678
                                                                 =======         =======
</TABLE>

On September 27, 1989,  ARTRA received a proposal to purchase BCA, the parent of
Bagcraft,  from Sage Group,  Inc.  ("Sage"),  a privately owned corporation that
owned 100% of the outstanding common stock of BCA. Sage was merged with and into
Ozite  Corporation  ("Ozite")  on August  24,  1990.  Peter R.  Harvey,  ARTRA's
President, and John Harvey, ARTRA's Chairman of the Board of Directors, were the
principal  shareholders  of  Sage  and  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.

In August and September 1997 ARTRA  repurchased  166.38 shares of ARTRA Series A
redeemable  preferred  stock  with a  carrying  value  of  $209,000  for cash of
$120,000. The redeemable preferred stock purchase resulted in a gain of $89,000,




                                      F-26
<PAGE>


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



which was reflected in the Company's condensed consolidated financial statements
as a credit to additional paid-in capital.  The Series A Preferred Stock accrues
dividends  at the rate of 6% per  annum and is  redeemable  by ARTRA on March 1,
2000  at a price  of  $1,000  per  share  plus  accrued  dividends.  Accumulated
dividends of  $2,074,000  and  $1,836,000  were accrued at December 31, 1997 and
December 26, 1996, respectively.


         Bagcraft/BCA Holdings

In 1987,  Bagcraft  obtained  financing  from a subsidiary  of Ozite through the
issuance of a $5,000,000  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 subordinated  note
and accrued  interest  thereon  were paid in full from  proceeds  of  Bagcraft's
Credit  Agreement.  Per  agreement  with the  noteholder,  the accrued  interest
outstanding  on the note of $3,000,000  was remitted to ARTRA and the noteholder
received  an  additional  3,000  shares BCA Series A  preferred  stock  having a
liquidation value of $3,000,000.  Accumulated dividends of $854,000 and $688,000
were accrued at December 31, 1997 and December 26, 1996, respectively.

In 1987,  Bagcraft issued to a subsidiary of Ozite $5,000,000 of preferred stock
(50,000  shares  of  13.5%  cumulative,   redeemable   preferred  stock  with  a
liquidation  preference equal to $100 per share)  redeemable by Bagcraft in 1997
at a price of $100 per share plus accrued dividends. Dividends, which accrue and
are payable semiannually on June 1 and December 1 of each year, are reflected in
the Company's  consolidated  statement of operations as minority  interest.  The
holder has  agreed to forego  dividend  payments  as long as such  payments  are
prohibited  by  Bagcraft's  lenders.  Accumulated  dividends of  $1,259,000  and
$1,142,000   were   accrued  at  December   31,  1997  and  December  26,  1996,
respectively.  The  Bagcraft  preferred  stock was  originally  scheduled  to be
redeemable on June 1, 1997 and is currently redeemable on demand.

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 was  originally  scheduled to be redeemable on
June 1, 1997 and is currently  redeemable  on demand.  Accumulated  dividends of
$1,984,000 and $958,000 were accrued at December 31, 1997 and December 26, 1996,
respectively.

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

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

As discussed in Note 19,  effective  January 31, 1998, Peter R. Harvey exchanged
certain  ARTRA/BCA  preferred  stock to  retire  advances  from  ARTRA  totaling
$12,787,000.




                                      F-27
<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 years
ended December 31, 1997 and 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, the Company's  earnings  applicable to common shares
would have been reduced to the pro forma amounts indicated below:

                                              Year Ended December 26, 1996
                                              ----------------------------
                                              As Reported        Pro forma
                                              -----------        ---------

      Earnings applicable to
         common  shares (in thousands)         $11,962             $10,512
                                               =======             =======
      Earnings per share
         Basic                                   $1.59               $1.40
                                                 =====               =====
         Diluted                                 $1.51               $1.32
                                                 =====               =====



                                      F-28
<PAGE>


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



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                      -


Information regarding stock option plans for the three years in the period ended
December 31, 1997 is as follows:




                                         1997            1996           1995
                                     ----------      ----------     ----------

Options outstanding
   at beginning of year                 917,850         431,500        445,460
Options granted                            --           532,750           --
Options exercised                        (4,800)        (40,400)       (12,100)
Options canceled                           --            (6,000)        (1,860)
                                     ----------      ----------     ----------
Options outstanding
   at end of year                       913,050         917,850        431,500
                                     ==========      ==========     ==========
Options exercisable
   at end of year                       913,050         917,850        431,500
                                     ==========      ==========     ==========
Options available for grant
   at end of year                     1,467,250       1,467,250           --
                                     ==========      ==========     ==========

Weighted average option prices:
   Outstanding at beginning of year     $ 4.61          $ 3.89         $ 5.80
   Options granted                        --            $ 5.25            --
   Options exercised                    $ 3.70          $ 5.01         $ 4.00
   Options canceled                       --            $10.00         $20.50
   Outstanding at end of year           $ 4.61          $ 4.61         $ 3.89
   Exercisable at end of year           $ 4.61          $ 4.61         $ 3.89


Significant  option groups outstanding at December 31, 1997 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          8

          01-08-93        145,800         145,800         $ 3.75          5

          06-22-92          6,000           6,000         $ 5.25          4

          09-19-91         52,967          52,967         $ 3.65          3

          12-19-90        176,033         176,033         $ 3.65          2





                                      F-29
<PAGE>


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



         Warrants

At December 31, 1997, warrants were outstanding to purchase a total of 1,711,032
common  shares at prices  ranging  from $3.50 per share to $8.00 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 1997 ARTRA issued  warrants to purchase an aggregate of 1,196,894  shares
of its common  stock at prices  ranging from $3.00 per share to $5.75 per share,
principally to certain lenders as additional  compensation for short-term loans.
The warrants expire at various dates from 1998 to 2001. The warrantholders  have
the right to put these  warrants back to ARTRA at prices from $1.50 to $3.00 per
share during  certain six month periods as defined (see Note 8). At December 31,
1997,  warrantholders had the right to put warrants to purchase 1,213,644 shares
of ARTRA common stock back to the Company for total consideration of $2,966,000.
Additionally,  during 1997  warrants to purchase  35,000  shares of ARTRA common
stock at prices ranging from $4.00 per share to $6.00 per share were  exercised,
warrants to purchase 114,000 shares of ARTRA common stock at prices ranging from
$5.00  per  share  to  $6.00  per  share  were  put  back  to  ARTRA  for  total
consideration  of $228,000  and  warrants to  purchase  159,193  shares of ARTRA
common stock at prices  ranging from $5.00 per share to $9.875 per share expired
unexercised.

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. Additionally during 1996
warrants to purchase  37,500 shares of ARTRA common stock at prices ranging from
$3.75 per share to $5.00 per share  were  exercised  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 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.  Additionally during 1996 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.


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 31, 1997,
future  minimum lease payments  under  operating  leases that have an initial or
remaining noncancellable term of more than one year (in thousands) are:

                Year
                ----
                1998               $   880
                1999                   502
                2000                   265
                2001                   252
                2002                   219
                After 2002             619
                                   -------
                                   $ 2,737
                                   =======

Rental expense was $1,295,000,  $975,000 and $861,000 in fiscal years 1997, 1996
and 1995,  respectively.  Effective  December 1995,  John Harvey,  the Company's
Chairman of the board of directors  purchased  the building in which the Company
leases office for its corporate headquarters. The lease expired in December 1997
and has been extended on a month-to-month  basis.  Rental expense for this lease
was  $126,000  annually  for the years ended  December 31, 1997 and December 26,
1996.




                                      F-30
<PAGE>


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



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.  The  shortfall  for the
contract  year ended  September  30,  1996 was  incorporated  into the  purchase
requirement for the contract year the contract year ended September 30, 1997. In
January 1997 the agreement was amended to revise the original  minimum  purchase
requirements and the annual contract period. The minimum dollar amounts required
for each of the  remaining  years  ending  October  31 are  $4,500,000  in 1998;
$3,375,000  in 1999;  and  $2,250,000  in 2000.  Bagcraft has issued a letter of
credit of $1,000,000 in conjunction  with this agreement.  Ink purchases for the
contract  year the contract  year ended  September 30, 1997 exceeded the minimum
requirement.   In  conjunction  with  a  prior   self-insurance  plan,  Bagcraft
maintained a $875,000 letter of credit at December 31, 1997.

The Company and its subsidiaries are the defendants in various  business-related
litigation  and  environmental  matters.  At December  31, 1997 and December 26,
1996, the Company had accrued current  liabilities of $1,800,000 and $1,900,000,
respectively,   for  potential  business-related  litigation  and  environmental
liabilities.  While these  litigation  and  environmental  matters  involve wide
ranges of potential liability,  management does not believe the outcome of these
matters  will  have  a  material  adverse  effect  on  the  Company's  financial
statements.  However,  ARTRA  may not have  available  funds to pay  liabilities
arising out of these  business-related  litigation and environmental matters or,
in certain instances, to provide for its legal defense.

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

Bagcraft has been notified by the EPA that it is a potentially responsible party
for the  disposal  of  hazardous  substances  at the Ninth  Avenue site in Gary,
Indiana.  This site is listed on the EPA's National  Priorities list. A group of
defendant PRPs, known as the Ninth Avenue Remedial Group, settled with the USEPA
and agreed to remediate the site.  This Group  subsequently  sued numerous third
party defendants,  including Bagcraft, alleged also to be responsible parties at
the site. The plaintiffs have produced only limited testamentary  evidence,  and
no  documentary  evidence,  linking  Bagcraft to this site,  and the Company has
neither discovered any records which indicate, nor located any current or former
employees who have advised,  that Bagcraft deposited hazardous substances at the
site. In October 1997 Bagcraft paid $40,000 to formally extinguish this claim.

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

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



                                      F-31
<PAGE>


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



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 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.



                                      F-32
<PAGE>


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



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.


14.      INCOME TAXES

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


                                               1997      1996     1995
                                              -----     -----    -----

          Continuing operations               $ (19)    $ 152    $  51
          Extraordinary credit                   --       200       --
          Discontinued  operations               --        --       17
                                              -----     -----    -----
                                              $ (19)    $ 352    $  68
                                              =====     =====    =====


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


                                         1997         1996        1995
                                        -----        -----       -----

          Current:
              Federal                     $--        $ 200         $--
              State                       (19)         152          68
                                        -----        -----       -----
                                        $ (19)       $ 352       $  68
                                        =====        =====       =====


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 credit in due to the utilization of
tax loss  carryforwards,  except for Federal alternative minimum tax incurred in
1996.





                                      F-33
<PAGE>


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



14.      INCOME TAXES, continued

In 1997,  1996 and 1995,  the  effective  tax rates from  operations,  including
discontinued operations were 1.0%, 2.5% and (3.9)%, respectively, as compared to
the statutory Federal rate, which are reconciled (in thousands) as follows:


                                                  1997       1996       1995
                                               -------    -------    -------

    Provision (credit) for income taxes
        using statutory rate                   $   633    $ 4,709    $  (600)
    State and local taxes,
        net of Federal benefit                     (19)       152         68
    Current year tax loss not utilized          (1,680)      --         --
    Deferred finance fee                           919        127       --
    Amortization of goodwill                       104        104        155
    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
     Other                                          24         27         35
                                               -------    -------    -------
                                               $   (19)   $   352    $    68
                                               =======    =======    =======












                                      F-34
<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 31, 1997 and December 26,
1996 and their approximate tax effects (in thousands) are as follows:
<TABLE>
<CAPTION>

                                                                 1997                      1996
                                                        ----------------------    ----------------------
                                                        Temporary       Tax       Temporary       Tax
                                                        Difference  Difference    Difference   Difference
                                                        ----------  ----------    ----------   ----------
<S>                                                       <C>         <C>           <C>         <C>
     Trade accounts receivable                            $   --      $   --        $   --      $    100
     Investment in Emerald Acquisition Corporation            --          --          10,600       4,100
     Investment in COMFORCE Corporation                     36,000      14,000        39,500      15,400
     Accrued personnel costs                                 1,200         500         1,600         600
     Restructuring reserve                                     600         200           100        --
     Environmental reserve                                     300         100           500         200
     Other                                                   3,400       1,300           600         200
     Capital loss carryforward                               3,500       1,400         2,100         800
     Net operating loss                                     40,000      15,600        35,900      14,000
                                                                      --------                  --------
               Total deferred tax assets                                33,100                    35,300
                                                                      --------                  --------
     Inventories                                            (1,900)       (700)       (4,500)     (1,700)
     Accumulated depreciation                               (5,100)     (2,000)       (6,400)     (2,500)
     Other                                                    (800)       (300)       (1,000)       (300)
                                                                      --------                  --------
               Total deferred tax liabilities                            3,000                    (4,500)
                                                                      --------                  --------
               Valuation allowance                                     (30,100)                  (30,800)
                                                                      --------                  --------
               Net deferred tax asset                                 $   --                    $   --
                                                                      ========                  ========


</TABLE>


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

At December 31, 1997,  the Company and its  subsidiaries  had Federal income tax
loss carryforwards of approximately  $40,000,000  expiring principally in 2002 -
2013,  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.




                                      F-35
<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 $609,000,  $513,000 and
$477,000 in 1997, 1996 and 1995, 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 31, 1997,  Bagcraft recorded other
noncurrent  assets and other noncurrent  liabilities of $426,000,  and $850,000,
respectively  related to the deferred  compensation plan. Deferred  compensation
expense  relating to this plan  amounted to $263,000  and $170,000 for the years
ended December 31, 1997 and December 26, 1996, respectively.

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.

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

The  Company  adopted  SFAS No.  128,  "Earnings  per Share," for the year ended
December 31, 1997.  Adoption of this  pronouncement,  which was applied to prior
periods  presented,  did not have a material  impact on the Company's  financial
statements.

Basic earnings (loss) per share is computed by dividing the income  available to
common  shareholders,  net earnings  (loss),  less  redeemable  preferred  stock
dividends and redeemable common stock accretion,  by the weighted average number
of shares of common stock outstanding during each period.

Diluted  earnings (loss) per share is computed by dividing the income  available
to common  shareholders,  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, during each period.










                                      F-36
<PAGE>


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



Earnings (loss) per share for each of the three fiscal years in the period ended
December  31,  1997 was  computed  as follows  (in  thousands,  except per share
amounts):
<TABLE>
<CAPTION>

                                                               Year Ended             Year Ended              Year Ended
                                                           December 31, 1997       December 26, 1996       December 28, 1995
                                                         --------------------    --------------------    --------------------
                                                           Basic      Diluted      Basic     Diluted       Basic     Diluted
                                                         --------    --------    --------    --------    --------    --------

     AVERAGE SHARES OUTSTANDING:
<S>                                                      <C>         <C>         <C>         <C>         <C>         <C>
       Weighted average shares outstanding                  7,970       7,970       7,525       7,525       6,776       6,776
       Common stock equivalents
           (options/warrants)                                --          --          --           414        --          --
                                                         --------    --------    --------    --------    --------    --------
                                                            7,970       7,970       7,525       7,939       6,776       6,776
                                                         ========    ========    ========    ========    ========    ========

     EARNINGS (LOSS):
       Earnings (loss) from continuing
          operations                                     $    773    $    773    $  3,549    $  3,549    $(16,943)   $(16,943)
       Dividends applicable to
          redeemable preferred stock                         (693)       (693)       (621)       (621)       (565)       (565)
       Redeemable common stock accretion                     (400)       (400)       (390)       (390)       (767)       (767)
                                                         --------    --------    --------    --------    --------    --------
       Earnings (loss) from continuing
          operations applicable to
          common shareholders                                (320)       (320)      2,538       2,538     (18,275)    (18,275)
       Earnings from discontinued operations                 --          --          --          --            10          10
                                                         --------    --------    --------    --------    --------    --------
       Earnings (loss)  before
          extraordinary credit                               (320)       (320)      2,538       2,538     (18,265)    (18,265)
       Extraordinary credit                                  --          --         9,424       9,424      14,030      14,030
                                                         ========    ========    ========    ========    ========    ========
       Net earnings (loss)                               $   (320)   $   (320)   $ 11,962    $ 11,962    $ (4,235)   $ (4,235)
                                                         ========    ========    ========    ========    ========    ========


     PER SHARE AMOUNTS:
       Earnings (loss) from
          continuing operations
          applicable to common shares                    $  (0.04)   $  (0.04)   $   0.34    $   0.32    $  (2.70)   $  (2.70)
       Earnings (loss) from
          discontinue operations                             --          --          --          --          --          --
                                                         --------    --------    --------    --------    --------    --------
       Earnings (loss) before
          extraordinary  credit                             (0.04)      (0.04)       0.34        0.32       (2.70)      (2.70)
       Extraordinary credits                                 --          --          1.25        1.19        2.07        2.07
                                                         ========    ========    ========    ========    ========    ========
       Net earnings (loss) applicable
          to common shares                               $  (0.04)   $  (0.04)   $   1.59    $   1.51    $  (0.63)   $  (0.63)
                                                         ========    ========    ========    ========    ========    ========

</TABLE>

17.      INDUSTRY SEGMENT INFORMATION

At December 31, 1997, 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,  effective  October  17,  1995,  COMFORCE  entered the
telecommunications  and  computer  technical  staffing and  consulting  services
business with the acquisition of COMFORCE Telecom Inc. COMFORCE has subsequently
expanded this business through various acquisitions.




                                      F-37
<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
1997, 1996 and 1995.


18.      LITIGATION

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 had a right to appeal the District Court's decision.  This appeal had 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,  and breach of contract and promissory estoppel. In the State
Court Action,  ARTRA sought  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 appealed this decision.

Effective  December 31, 1997, the above parties  reached a settlement  agreement
and all pending  litigation  was  dismissed.  ARTRA  recognized  a gain from the
settlement  agreement  of  $10,416,000,  net of  related  legal  fees and  other
expenses.

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.





                                      F-38
<PAGE>


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



19.      RELATED PARTY TRANSACTIONS

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

                                                      December 31,  December 26,
                                                            1997        1996
                                                         --------    --------

     Total advances, including accrued interest          $ 18,226    $  7,998
     Less interest for the period
          January 1,1993 to date,
          accrued and fully reserved                       (2,789)     (1,530)
                                                         --------    --------
                                                           15,437       6,468
     Less compensation/expense reimbursement               (2,816)       --
                                                         --------    --------

           Net advances                                  $ 12,621    $  6,468
                                                         ========    ========


ARTRA had total  advances  due from its  president,  Peter R.  Harvey,  of which
$18,226,000 and $7,998,000,  including accrued interest, remained outstanding at
December 31, 1997 and December 26, 1996,  respectively.  A $7,500,000  July 1997
advance,  as  discussed  below,  provided  for  interest at 12%.  The  remaining
advances of  $10,726,000  and  $7,998,000  at December 31, 1997 and December 26,
1996,  respectively,  bear interest at the prime rate plus 2% (10.5% at December
31, 1997 and 10.25% December 26, 1996, respectively). This receivable from Peter
R. Harvey has been classified as a reduction of common shareholders' equity.

Commencing January 1, 1993 to date,  interest on the advances to Peter R. Harvey
has been accrued and fully reserved.  interest accrued and fully reserved on the
advances to Peter R. Harvey for the years ended  December  31, 1997 and December
26, 1996 totaled $1,259,000 and $479,000, respectively.

In July 1997,  ARTRA advanced an additional  $7,500,000 to Peter R. Harvey.  Mr.
Harvey provided ARTRA with additional  collateral for his advances consisting of
652.285 shares of ARTRA redeemable preferred stock (a 18.2% interest at December
31, 1997),  1,784.02 shares of BCA Series A redeemable  preferred stock (a 51.6%
interest at December  31,  1997) and 6,488.8  shares of BCA Series B  redeemable
preferred  stock (a 82.7%  interest at December 31,  1997).  These ARTRA and BCA
redeemable  preferred shares were pledged by ARTRA as partial collateral for the
July 1997 private placement of ARTRA promissory notes that funded the advance to
Mr. Harvey.  As of December 31, 1997, this additional  collateral had a carrying
value in ARTRA's  consolidated balance sheet of approximately  $11,200,000.  The
advances were funded with the proceeds  from the July 1997 private  placement of
ARTRA notes as discussed in Note 8.

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.

As collateral  for amounts due from Peter R. Harvey,  in prior years the Company
had received the pledge of 1,523 shares of ARTRA  redeemable  preferred stock (a
42.5%  interest  at  December  31,  1997,  with  a  carrying  value  in  ARTRA's
consolidated  balance sheet of approximately  $2,000,000) 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




                                      F-39
<PAGE>


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



at $800,000 to  $1,000,000.  During 1995,  Peter R. Harvey entered into a pledge
agreement with ARTRA whereby Mr. Harvey pledged additional collateral consisting
of  42,067  shares  of ARTRA  common  stock  and  707,281  shares  of Pure  Tech
International, Inc., a publicly traded corporation. Per terms of a February 1996
discharge  of  bank  indebtedness  (see  Note  5),  ARTRA  received   additional
collateral  from Mr.  Harvey  consisting  of a $2,150,000  security  interest in
certain real estate,  subordinated to the bank's $850,000  security  interest in
this real estate. In March 1997, the bank sold its interest in Mr. Harvey's note
and the related collateral to a private investor.  ARTRA retained its $2,150,000
security  interest the real estate,  subordinated to the  noteholder's  $850,000
security interest in this real estate.

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

Peter R. Harvey has received  only nominal  compensation  for his services as an
officer or director of ARTRA or any of its  subsidiaries  for the period October
1990 through  December 1997.  Additionally,  Mr. Harvey had 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,  were fully
satisfied. Additionally, since December 31, 1986, Peter R. Harvey has guaranteed
in excess of  $100,000,000  of ARTRA  obligations  to private and  institutional
lenders,  and has also  incurred  significant  expenses  on  behalf  of ARTRA in
defending ARTRA against certain litigation.

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).

In March  1998,  ARTRA's  Board of  Directors  ratified a proposal to settle Mr.
Harvey's advances as follows:

          Effective December 31, 1997, Mr. Harvey's net advances from ARTRA were
          offset by  $2,816,000 ($5,605,000 net of interest accrued and reserved
          for the  period   1993 - 1997)  to  $12,621,000.  This  offset of  Mr.
          Harvey's advances  represented a combination of compensation for prior
          year  guarantees  of ARTRA  obligations  to private and  institutional
          lenders,  compensation  in excess of the nominal  amounts  Mr.  Harvey
          received  for the years  1995 - 1997 and  reimbursement  for  expenses
          incurred to defend ARTRA against certain litigation.




                                      F-40
<PAGE>


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



          Effective January 31, 1998, Mr. Harvey's  remaining  advances totaling
          $12,787,000 were paid with  consideration  consisting of the following
          ARTRA/BCA preferred stock held by Mr. Harvey:


                                                                 Face Value
                                                                    Plus
                   Security                                   Accrued Dividends
 ------------------------------------------------------       -----------------
 ARTRA redeemable preferred stock, 1,734.28 shares              $  2,751,000
 BCA Holdings Series A preferred stock, 1,784.029 shares           2,234,000
 BCA Holdings Series B preferred stock,  6,172 shares              7,802,000
                                                                ------------
                                                                $ 12,787,000
                                                                ============


In conjunction  with COMFORCE's  October 1995  acquisition of COMFORCE  Telecom,
ARTRA agreed to assume  substantially all pre-existing  COMFORCE liabilities and
indemnify  COMFORCE  in  the  event  any  future  liabilities  arise  concerning
pre-existing environmental matters and business related litigation. Accordingly,
at December 31, 1997 and December 26, 1996, respectively,  $218,000 and $348,000
of such  pre-existing  Lori liabilities were classified in ARTRA's  consolidated
balance sheet at as current liabilities of discontinued operations.

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 31, 1997 and December 26, 1996, respectively,  $218,000 and $348,000
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.














                                      F-41
<PAGE>

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

                            ARTRA GROUP INCORPORATED
                                 BALANCE SHEETS
                         (Registrant Only In Thousands)



                                                      December 31,  December 26,
                                                           1997        1996
                                                         --------    --------

                    ASSETS
Current assets:
   Cash                                                  $  5,986    $    162
   Receivables                                                362         430
   Other current assets                                       397         453
                                                         --------    --------
                                                            6,745       1,045
                                                         --------    --------

Property, plant and equipment                                  41          33
Less accumulated depreciation and amortization                 41          33
                                                         --------    --------
                                                              --          --
                                                         --------    --------

Investments in and advances to (from) affiliates          (15,274)      8,266
                                                         --------    --------
                                                         $  6,745    $  9,311
                                                         ========    ========


                    LIABILITIES
Current liabilities:
   Notes payable                                         $ 15,451    $ 16,131
   Accounts payable                                            35          25
   Accrued expenses                                         7,096       6,508
   Income taxes                                               254         265
                                                         --------    --------
                                                           22,836      22,929
                                                         --------    --------

Investments in and advances from affiliates                15,274         --
                                                         --------    --------

Redeemable common stock                                       --        3,657
                                                         --------    --------

Redeemable preferred stock                                  4,799       4,315
                                                         --------    --------

          SHAREHOLDERS' EQUITY (DEFICIT)
Common stock                                                6,223       5,793
Additional paid-in capital                                 42,721      40,211
Unrealized appreciation of investments                     14,733      25,719
Receivable from related party,
  including accrued interest                              (12,621)     (6,468)
Accumulated deficit                                       (87,113)    (86,793)
                                                         --------    --------
                                                          (36,057)    (21,538)
Less treasury stock, at cost                                  107          52
                                                         --------    --------
                                                          (36,164)    (21,590)
                                                         --------    --------
                                                         $  6,749    $  9,311
                                                         ========    ========


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




                                      F-42
<PAGE>

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

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



                                                          Fiscal Year
                                                ------------------------------
                                                   1997       1996       1995
                                                --------   --------   --------

Selling, general and administrative expenses    $  5,661   $  1,998   $  1,760
Depreciation and amortization                          7         19         27
Interest expense                                   6,130      3,997      4,953
Equity in (earnings) loss of affiliates             (863)    (7,745)     7,817
Litigation settlement                            (10,416)      --         --
Other expense, net                                   (11)         1        424
                                                --------   --------   --------
Earnings (loss) from continuing operations
   before income taxes                              (508)     1,730    (14,981)
Benefit (charge) equivalent to  income taxes       1,281      1,819     (1,962)
                                                --------   --------   --------

Earnings (loss) from continuing operations           773      3,549    (16,943)

Equity in earnings of discontinued affiliate        --         --           10
                                                --------   --------   --------
Loss before extraordinary credits                    773      3,549    (16,933)
                                                --------   --------   --------

Extraordinary credits,
  net discharge of indebtedness                     --        9,424     14,030
                                                --------   --------   --------

Net earnings (loss)                             $    773   $ 12,973   ($ 2,903)
                                                ========   ========   ========




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






















                                      F-43
<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
                                                                                --------------------------------
                                                                                  1997        1996        1995
                                                                                --------    --------    --------
<S>                                                                             <C>         <C>         <C>
Cash flows from operating activities:
   Net earnings (loss)                                                          $    773    $ 12,973    ($ 2,903)
     Adjustments to reconcile net loss
      to cash flows from operating activities:
        Decrease in receivable from related party                                  2,816        --          --
        Extraordinary gain from net discharge of indebtedness                       --        (9,424)    (14,030)
        Equity in loss of affiliates                                                (863)     (7,745)      7,817
        Litigation settlement                                                    (10,416)       --          --
        Equity in (earnings) loss of discontinued operations                        --          --           (10)
       Other, principally common stock issued as compensation                        462         239       1,370
       Changes in assets and liabilities:
            Increase (decrease) in other current and noncurrent assets             2,294      (1,315)         32
            Increase in other current and noncurrent liabilities                  (1,114)      1,696       1,738
                                                                                --------    --------    --------
Net cash flows used by operating activities                                       (6,048)     (3,576)     (5,986)
                                                                                --------    --------    --------

Cash flows from investing activities:
   Increase in receivable from related party                                      (8,969)     (1,061)       (218)
   Proceeds from litigation settlement                                             9,761        --          --
   Proceeds from collection of notes receivable                                     --           342       3,000
   Dividends and advances from (to) subsidiaries                                  13,417       4,473        --
   Additions to property, plant and equipment                                         (8)         (8)         (6)
                                                                                --------    --------    --------
Net cash flows from investing activities                                          14,201       3,746       2,776
                                                                                --------    --------    --------

Cash flows from financing activities:
   Proceeds from exercise of stock options and warrants                              178         369          48
   Net increase (decrease) in short-term borrowings                                  992      (2,214)      5,488
   Purchase of redeemable preferred stock                                           (120)       --          --
   Exercise of redeemable common stock options                                    (3,379)       (510)        (70)
                                                                                --------    --------    --------
Net cash flows from (used by) financing activities                                (2,329)     (2,355)      5,466
                                                                                --------    --------    --------

Net increase (decrease) in cash                                                    5,824      (2,185)      2,256
Cash balance beginning of year                                                       162       2,347          91
                                                                                --------    --------    --------
Cash balance end of year                                                        $  5,986    $    162    $  2,347
                                                                                ========    ========    ========


Supplemental schedule of noncash investing and financing activities:
   Issue common stock and redeemable common stock
       to pay down current liabilities                                          $  1,672    $  1,274    $  1,040
    Issue common stock as additional consideration
       for short-term borrowings                                                    --           661       1,266
    Issue common stock to pay
       redeemable common stock obligation                                            679        --          --


</TABLE>

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






                                      F-44
<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 Form10-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 9 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 and its majority owned  subsidiaries  file a consolidated  income
tax return. 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.











                                      F-45
<PAGE>



                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES
                 SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
    for each of the three fiscal years in the period ended December 31, 1997
                                 (in thousands)

<TABLE>
<CAPTION>


           Column A                                   Column B                Column C                 Column D        Column E
        ----------------                          ---------------   -----------------------------    -----------      ------------
                                                                               Additions
                                                                    -----------------------------
                                                                         (1)              (2)
                                                    Balance at        Charged to       Charged to
                                                   Beginning of       Costs and           Other       Deductions       Balance at
          Description                                  Period           Expenses        Accounts      (Describe)      nd of Period
        ---------------                           ---------------   ---------------  ------------    ----------       -------------

<S>                                                    <C>              <C>                           <C>                 <C>
For the fiscal year ended December 26, 1996:
   Deducted from assets to which they apply:
      Allowance for inventory valuation                $     249        $      172                    $   (144)(B)        $     277
                                                       =========        ==========                    ========            =========
      Allowance for doubtful accounts                  $     512        $       63                    $   (300)(A)        $     275
                                                       =========        ==========                    ========            =========

For the fiscal year ended December 26, 1996:
   Deducted from assets to which they apply:
      Allowance for inventory valuation                $     290        $      191                    $   (232)(B)        $     249
                                                       =========        ==========                    ========            =========
      Allowance for doubtful accounts                  $     250        $      365                    $   (103)(A)        $     512
                                                       =========        ==========                    ========            =========


For the fiscal year ended December 28, 1995:
   Deducted from assets to which they apply:
      Allowance for inventory valuation                $     207        $      315                    $   (232)(C)        $     290
                                                       =========        ==========                    ========            =========

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

      Allowance for doubtful accounts                        819               487                      (1,056)(C)              250
                                                       ---------        ----------                    --------            ---------
                                                       $   1,654        $      778                    $ (2,182)           $     250
                                                       =========        ==========                    ========            =========

</TABLE>

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






                                      F-46
<PAGE>



                                INDEX OF EXHIBITS



     (A) Exhibits included herein:

         EXHIBIT  3        Articles of Incorporation and By-laws



         EXHIBIT 10        Material contracts

                             10.1     SECOND   AMENDED   AND   RESTATED   CREDIT
                                      AGREEMENT,  dated as of February 27, 1998,
                                      by and  between  BAGCRAFT  CORPORATION  OF
                                      AMERICA,  as Borrower and GENERAL ELECTRIC
                                      CAPITAL  CORPORATION,   as  Agent  and  as
                                      Lender.

                             10.2     WARRANT  NO.3 To Purchase  Common Stock of
                                      BAGCRAFT CORPORATION OF AMERICA.

                             10.3     Settlement Agreement made and entered into
                                      as of December 31, 1997 by and among ARTRA
                                      Group Incorporated ("ARTRA"), Peter Harvey
                                      and  John  Harvey,  and  Salomon  Brothers
                                      Holding   Company  Inc.  and  any  of  its
                                      successors  (collectively "SBHC"), Salomon
                                      Brothers   Inc  ("SBI"),   a   corporation
                                      organized  under  the laws of the State of
                                      Delaware  (along  with  SBHC,  "Salomon"),
                                      D.P. Kelly & Associates,  L.P. ("DPK"),  a
                                      Delaware Limited  Partnership,  Charles K.
                                      Bobrinskoy,  Donald  P.  Kelly,  James  L.
                                      Massey,  William Rifkin  (erroneously sued
                                      in  the  actions   defined  below  as  the
                                      "Original  Action",  the "Federal  Action"
                                      and  the  "Elghanian  Action"  as  William
                                      Rifkind),     Michael     J.     Zimmerman
                                      (collectively without Salomon and DPK, the
                                      "Individual    Defendants"),    Envirodyne
                                      Industries,    Inc.   and   any   of   its
                                      predecessors  ("Envirodyne"),  and Emerald
                                      Acquisition Corporation ("Emerald").


         EXHIBIT 21        Subsidiaries.


         EXHIBIT 23        Consent of Independent Accountants.











                                      E-1
<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

                             10.4     THIRD  AMENDMENT  TO AMENDED AND  RESTATED
                                      CREDIT  AGREEMENT,  dated  as of July  17,
                                      1997, by and between BAGCRAFT  CORPORATION
                                      OF  AMERICA,   as  Borrower   and  GENERAL
                                      ELECTRIC CAPITAL CORPORATION, as Agent and
                                      as   Lender,   filed  as  an   exhibit  to
                                      Registrant's  Form 10-Q,  for the  quarter
                                      ended June 26, 1997.

                             10.5     FOURTH  AMENDMENT  TO WARRANT  dated as of
                                      July 17,  1997,  by and  between  BAGCRAFT
                                      CORPORATION   OF   AMERICA   and   GENERAL
                                      ELECTRIC CAPITAL CORPORATION Lender, filed
                                      as an exhibit to  Registrant's  Form 10-Q,
                                      for the quarter ended June 26, 1997.

                             10.6     FOURTH  AMENDMENT  TO AMENDED AND RESTATED
                                      CREDIT  AGREEMENT,  dated  as of July  25,
                                      1997, by and between BAGCRAFT  CORPORATION
                                      OF  AMERICA,   as  Borrower   and  GENERAL
                                      ELECTRIC CAPITAL CORPORATION, as Agent and
                                      as   Lender,   filed  as  an   exhibit  to
                                      Registrant's  Form 10-Q,  for the  quarter
                                      ended June 26, 1997.

                             10.7     TERM PROMISSORY NOTE, dated as of June 10,
                                      1997, between ARTRA GROUP Incorporated and
                                      Howard R.  Conant,  filed as an exhibit to
                                      Registrant's  Form 10-Q,  for the  quarter
                                      ended June 26, 1997.

                             10.8     WARRANT TO PURCHASE  COMMON STOCK of ARTRA
                                      GROUP  Incorporated,  dated June 10, 1997,
                                      issued to Howard  R.  Conant,  filed as an
                                      exhibit to Registrant's Form 10-Q, for the
                                      quarter ended June 26, 1997.

                             10.9     SECOND  AMENDMENT  TO AMENDED AND RESTATED
                                      CREDIT  AGREEMENT,  dated  as of  May  15,
                                      1997, by and between BAGCRAFT  CORPORATION
                                      OF  AMERICA,   as  Borrower   and  GENERAL
                                      ELECTRICCAPITAL  CORPORATION, as Agent and
                                      as Lender.







                                      E-2
<PAGE>



                             10.10    THIRD AMENDMENT TO WARRANT dated as of May
                                      15,   1997,   by  and   between   BAGCRAFT
                                      CORPORATION   OF   AMERICA   and   GENERAL
                                      ELECTRIC CAPITAL CORPORATION.

                             10.11    TERM  PROMISSORY  NOTE,  dated as of April
                                      21, 1997, between ARTRA GROUP Incorporated
                                      and Howard R. Conant,  filed as an exhibit
                                      to Registrant's Form 10-Q, for the quarter
                                      ended March 27, 1997.

                             10.12    AMENDED   AND   RESTATED    STOCK   PLEDGE
                                      AGREEMENT,  dated  as of April  21,  1997,
                                      between   Fill-Mor   Holding,    Inc.,   a
                                      wholly-owned  subsidiary  of  ARTRA  GROUP
                                      Incorporated and Howard R. Conant filed as
                                      an exhibit to Registrant's  Form 10-Q, for
                                      the quarter ended March 27, 1997.

                             10.13    WARRANT TO PURCHASE  COMMON STOCK of ARTRA
                                      GROUP Incorporated,  dated April 21, 1997,
                                      issued  to Howard  R.  Conant  filed as an
                                      exhibit to Registrant's Form 10-Q, for the
                                      quarter ended March 27, 1997.

                             10.14    FIRST  AMENDMENT  TO AMENDED AND  RESTATED
                                      CREDIT AGREEMENT, dated as of May 5, 1997,
                                      by and  between  BAGCRAFT  CORPORATION  OF
                                      AMERICA,  as Borrower and GENERAL ELECTRIC
                                      CAPITAL  CORPORATION,   as  Agent  and  as
                                      Lender filed as an exhibit to Registrant's
                                      Form 10-Q, for the quarter ended March 27,
                                      1997.

                             10.15    SECOND  AMENDMENT  TO WARRANT  dated as of
                                      May  5,  1997,  by  and  between  BAGCRAFT
                                      CORPORATION   OF   AMERICA   and   GENERAL
                                      ELECTRIC CAPITAL  CORPORATION  filed as an
                                      exhibit to Registrant's Form 10-Q, for the
                                      quarter ended March 27, 1997.

                             10.16    Term  Promissory  Note,  dated as of March
                                      26, 1997, between ARTRA GROUP Incorporated
                                      and Howard R. Conant,  filed as an exhibit
                                      to  Registrant's  Form  10-K  for the year
                                      ended December 26, 1996.

                             10.17    Term  Promissory  Note,  dated as of March
                                      26, 1997, between ARTRA GROUP Incorporated
                                      and Stephalex  International,  Inc., filed
                                      as an  exhibit to  Registrant's  Form 10-K
                                      for the year ended December 26, 1996.

                             10.18    Option  Agreement,  dated as of March  26,
                                      1997,   by   and   between   ARTRA   GROUP
                                      Incorporated  and Howard R. Conant,  filed
                                      as an  exhibit to  Registrant's  Form 10-K
                                      for the year ended December 26, 1996.

                             10.19    Option  Agreement,  dated as of March  26,
                                      1997,   by   and   between   ARTRA   GROUP
                                      Incorporated and Stephalex  International,
                                      Inc.,  filed as an exhibit to Registrant's
                                      Form 10-K for the year ended  December 26,
                                      1996.

                             10.20    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.




                                      E-3
<PAGE>



                             10.21    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.

                             10.22    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.

                             10.23    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.

                             10.24    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.

















                                      E-4