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, 1998

                                       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 January 29, 1999: $36,435,000.

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 January 29, 1999
-------------------------------               ------------------------------- 
Common stock, without par value                          7,864,228


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 November 20, 1998, ARTRA
operated  in one  industry  segment  as a  manufacturer  of  packaging  products
principally  serving the food  industry.  The  packaging  products  business was
conducted by the Company's  wholly-owned  subsidiary,  Bagcraft  Corporation  of
America ("Bagcraft").

Effective August 26, 1998,  ARTRA and its wholly-owned  subsidiary BCA Holdings,
Inc.  ("BCA",  the parent of  Bagcraft),  agreed to sell the business  assets of
Bagcraft. Additionally, the buyer agreed to assume certain Bagcraft liabilities.
The  transaction  was  completed on November 20, 1998 and ARTRA  received  gross
consideration of approximately $88,100,000 in cash. A substantial portion of the
cash  proceeds  received  were used to pay certain  Bagcraft  debt  obligations,
including,  but not limited to amounts owed under  Bagcraft's  credit  agreement
(see Note 8 to the Company's consolidated  financial  statements).  After paying
the Bagcraft  obligations  noted  above,  ARTRA  received  net cash  proceeds of
approximately  $28,000,000  from the sale of  Bagcraft's  assets.  Approximately
$15,200,000 of the cash received was used to pay ARTRA debt obligations.

The Company does not intend to be deemed an  "Investment  Company" as defined by
the Investment Company Act of 1940 and, accordingly,  is actively  investigating
new business opportunities.

At December 31, 1998 ARTRA held approximately 9% 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  discontinued  its jewelry
business and later in 1995 entered the telecommunications and computer technical
staffing and consulting services business.  COMFORCE  subsequently expanded this
business through various acquisitions. 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,  the accounts of COMFORCE and its majority-owned  subsidiaries were
deconsolidated from ARTRA's consolidated financial statements. See Note 5 to the
Company's  consolidated financial statements for a further discussion of ARTRA's
investment in COMFORCE.


Employees

At December 31, 1998, the Company employed approximately 10 persons. The Company
considers its relationships with its employees to be good.


Item 2.  Properties

At December 31, 1998, the only property used by the Company was its headquarters
facility of  approximately  7,000 sq. ft. in Northfield,  Illinois.  In December
1995 the building was  purchased by a trust owned by John Harvey,  the Company's
Chairman  of the board of  directors.  The lease for this  property  expired  in
December 1998 and the Company is currently  renting its  headquarters on a month
to month basis.


Item 3.  Legal Proceedings

The Company and its subsidiaries are the defendants in various  business-related
litigation  and  environmental  matters.  At December  31, 1998 and December 31,
1997, the Company had accrued current  liabilities of $1,500,000 and $1,800,000,
respectively,   for  potential  business-related  litigation  and  environmental
liabilities.  While these  litigation  and  environmental  matters  involve wide
ranges of potential liability,  management does not believe the outcome of these
matters  will  have  a  material  adverse  effect  on  the  Company's  financial
statements.





                                       1
<PAGE>


In  November,  1993,  ARTRA  filed suit in the Circuit  Court of the  Eighteenth
Judicial  Circuit  for the state of Illinois  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").

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 discontinued  Bagcraft subsidiary's Chicago facility has 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.  In May  1998  Bagcraft  paid  $170,000  to  formally
extinguish this claim.

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
1969 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.

In recent  years,  the  Company  has been a party to certain  product  liability
claims  relating  to the former  Synkoloid  subsidiary.  The  Company's  product
liability  insurance has covered all such claims settled to date. As of December
31,  1998,  the Company  anticipates  that its product  liability  insurance  is
adequate to cover any additional pending claims.



                                       2
<PAGE>


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.


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

On November 16, 1998, the Company held annual meeting of shareholders, who 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             Shares
                  Director                     For             Withheld
               --------------               ---------          --------
               Edward A. Celano             7,346,470           10,748
               Howard R. Conant             7,345,580           11,638
               Peter R. Harvey              7,346,014           11,204
               John Harvey                  7,345,964           11,254
               Robert L. Johnson            7,346,520           10,698
               Gerard M. Kenny              7,346,520           10,698
               Maynard K. Louis             7,345,470           11,748
               Mark Santacrose              7,346,370           10,848

 2.      The authorization of the sale of substantially all of the net assets of
         Bagcraft   Corporation  of  America  pursuant  to  an  Assets  Purchase
         Agreement dated as of August 26, 1998.

               For                          5,091,381

               Against                          4,260

               Abstain                          3,606






                                       3
<PAGE>



 3.      The appointment of  PricewaterhouseCoopers  LLP as ARTRA's  independent
         certified  public  accountants  for the fiscal year ending December 31,
         1998. A summary of the voting results is as follows:

               For                          7,336,615

               Against                         18,096

               Abstain                          2,507


                                                         
                                     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, 1998,
the approximate number of holders of its common stock was 2,300.

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:

                                      1998                     1997
                             ---------------------    ------------------------
                               High        Low            High         Low
                             ---------  ----------    ------------  ----------

      First quarter          4 - 1/16    3 - 3/16        6 - 3/8     4 - 1/2
                                        
      Second quarter         3 - 15/16   3               5 - 3/4     3 - 7/8
                                                                   
      Third quarter          4           3 - 1/4         5 - 1/8     3 - 1/2

      Fourth quarter         4 - 1/4     2 - 1/8         4 - 1/16    2 - 1/2



The  Company  did not  pay  dividends  in  1998  or 1997  and has no plan to pay
dividends  on  its  common  stock  in  1999.  There  are no  legal  restrictions
preventing the payment of cash dividends at this time.






                                       4
<PAGE>


Item 6.  Selected Financial Data.

This table is a consolidated  summary of selected  financial data of the Company
for  each  of the  last  five  fiscal  years.  The  operations  of the  Bagcraft
subsidiary  (sold  effective  November 20,  1998) are  included in  discontinued
operations.  The  information  for  fiscal  years  1995  and 1994  presents  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. The  information for fiscal years 1995 and 1994 presents the operations of
the Company's former jewelry business in discontinued operations.

<TABLE>
<CAPTION>
                                                              Fiscal Year Ended (I)        
                                           -----------------------------------------------------------
                                            1998        1997          1996          1995          1994
                                           -----       -----         -----         -----          ----
                                                     (In thousands except per share data)

<S>                                     <C>         <C>         <C>           <C>           <C>     
 Net sales                              $   --      $   --      $     --      $     --      $     --

 Earnings (loss) from
   continuing operations  (A) (B) (C)     (5,707)      1,066          (445)      (11,113)       (5,833)

 Earnings (loss) from                     
   discontinued operations (D) (E)(F)     38,930        (293)        3,994        (5,820)      (23,602)
                                                                               
 Extraordinary credits (G)                  --          --           9,424        14,030         8,965

 Net earnings (loss)                      33,223         773        12,973        (2,903)      (20,470)


 Earnings (loss) per share (H):

    Basic

      Continuing operations                 (.78)       --            (.19)        (1.84)        (1.17)

      Discontinued operations               4.94        (.04)          .53          (.86)        (4.14)

      Extraordinary credits                 --          --            1.25          2.07          1.57

      Net earnings (loss)                   4.16        (.04)         1.59          (.63)        (3.74)


    Diluted

      Continuing operations                 (.78)       --            (.19)        (1.84)        (1.17)

      Discontinued operations               4.94        (.04)          .53          (.86)        (4.14)

      Extraordinary credits                 --          --            1.25          2.07          1.57

      Net earnings (loss)                   4.16        (.04)         1.59          (.63)        (3.74)


Weighted average number of
  shares outstanding

      Basic                                7,891       7,970         7,525         6,776         5,702 

      Diluted                              7,891       7,970         7,939         6,776         5,702


 Total assets                             21,268      73,206        77,379        77,949        93,429

 Long-term debt                             --        50,619        34,207        34,113        19,673

 Debt subsequently discharged               --          --            --            --           9,750

 Cash dividends                             --          --            --            --            --

</TABLE>



                                       5
<PAGE>

________________________________________________

 (A)      Earnings from  continuing  operations for the years ended December 31,
          1998,  December 31, 1997 and December 26, 1996 include  realized gains
          of   $320,000.   $2,531,000   and   $5,818,000,   respectively,   from
          dispositions of COMFORCE common stock.

 (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 Notes 15
          and 16 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)      Earnings from  discontinued  operations for the year December 31, 1998
          includes  a net gain on  disposition  of the  Bagcraft  subsidiary  of
          $35,985,000  (see  Note  3 to  the  Company's  consolidated  financial
          statements).

 (E)      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.  The loss from discontinued  operations for the year
          ended  December 28, 1995 includes a gain on sale of  Bagcraft's  Arcar
          subsidiary of $8,483,000.

 (F)      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 goodwill at COMFORCE's New Dimensions subsidiary.

 (G)      The 1996, 1995 and 1994 extraordinary credits represent gains from net
          discharge of bank indebtedness.

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

 (I)      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.







                                       6
<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 changed significantly during the fourth quarter of fiscal year 1998.
It exited its one industry segment,  the packaging products business,  conducted
by its  discontinued  Bagcraft  subsidiary,  and is actively  investigating  new
business opportunities.  The Company's consolidated financial statements for the
years ended  December 31, 1997 and December 26, 1996 have been  reclassified  to
report  separately  the results of  operations  of the  Bagcraft  subsidiary  in
discontinued operations.


Year Ended December 31, 1998  vs. Year Ended December 31, 1997

         Continuing Operations

Selling,  general and  administrative  expenses from continuing  operations were
$2,660,000  for the year ended  December 31, 1998 as compared to $5,708,000  for
the year ended  December 31,  1997.  The 1998  decrease in selling,  general and
administrative  expenses was  principally  attributable  to the 1997 net related
party compensation/expense  reimbursement costs of $2,816,000 (see discussion of
Peter R. Harvey advances below).

Interest expense from continuing operations for the year ended December 31, 1998
decreased  $2,786,000 as compared to the year ended  December 31, 1997. The 1998
decrease  is  principally  attributable  to fees and costs  associated  with the
Company's 1997 loan agreements.

During 1998, certain officers,  directors and/or key employees exercised options
to acquire  84,750  COMFORCE  common shares from ARTRA,  resulting in a realized
gain of  $320,000.  These  COMFORCE  common  shares  had been  removed  from the
Company's  portfolio of  "Available-for-sale  securities" in 1996. See Note 5 to
the  Company's  financial  statements  for the year ended  December 31, 1998 for
additional information about this transaction.

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.

Effective  December 31, 1997, ARTRA settled 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.


         Discontinued Operations

Earnings from discontinued operations of $38,930,000 for the year ended December
31, 1998 consisted of earnings from operations of $2,945,000 at the discontinued
Bagcraft  subsidiary and a net gain on disposal of Bagcraft of $35,985,000.  The
loss from  discontinued  operations of $293,000 for the year ended  December 31,
1997 consisted of an operating  loss at the  discontinued  Bagcraft  subsidiary.
Earnings from operations in 1998 are  principally  attributable to a significant
reduction in interest expense due to the February 1998 amendment and restatement
of  Bagcraft's  Credit  Agreement,   as  well  as  decreased   depreciation  and
amortization expense.


 
                                      7
<PAGE>


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

         Continuing Operations

Selling,  general and  administrative  expenses from continuing  operations were
$5,708,000  for the year ended  December 31, 1997 as compared to $2,042,000  for
the 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).

Interest expense from continuing operations for the year ended December 31, 1997
increased  $1,977,000 as compared to the year ended  December 26, 1996. The 1997
increase  is  principally  attributable  to fees and costs  associated  with the
Company's 1997 loan agreements.

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, ARTRA settled 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.


         Discontinued Operations

The loss from  discontinued  operations of $293,000 for the year ended  December
31,  1997  consisted  of a loss from  operations  at the  discontinued  Bagcraft
subsidiary.  Earnings from  discontinued  operations of $3,994,000  for the year
ended  December  26,  1996   consisted  of  earnings  from   operations  at  the
discontinued Bagcraft subsidiary. The 1997 loss from discontinued operations was
principally  attributable  to decreased  operating  margins at the  discontinued
Bagcraft subsidiary and additional interest charges and fees attributable to the
December 1996 amendment and restatement of Bagcraft's Credit Agreement.


 Liquidity and Capital Resources

         Cash and Cash Equivalents and Working Capital

The Company's  unrestricted  cash and cash equivalents  increased  $5,762,000 to
$11,753,000 at December 31, 1998. The Company had  consolidated  working capital
of $6,813,000 at December 31, 1998 as compared to a consolidated working capital
deficiency  of $435,000  at  December  31,  1997.  In November  1998 the Company
received cash proceeds from the sale of the assets of the discontinued  Bagcraft
subsidiary  and used a significant  portion of them to pay off borrowings due on
its various loan agreements.

The Company does not intend to be deemed an  "Investment  Company" as defined by
the Investment Company Act of 1940 and, accordingly,  is actively  investigating
new business opportunities. In order to finance new business opportunities,  the
Company  could  use  sources  such  as  its  cash  and  cash  equivalents,   its
available-for-sale  securities,  borrowings from various  potential  sources and
issuances of the Company's equity securities.


         Status of Debt Agreements and Operating Plan

         ARTRA Corporate

At December 31, 1997 the Company's  corporate entity had outstanding  short-term
indebtedness   of   $15,451,000.   In  November  and  December  1998,  all  such
indebtedness,  as well certain  additional  1998 borrowings were repaid with net
proceeds  from the sale of the assets of the  discontinued  Bagcraft  subsidiary
(see discussion below).




                                       8
<PAGE>


         Promissory Notes

         1998 Private Placement

In January  1998,  ARTRA  completed a private  placement  of  $5,975,000  of 12%
promissory  notes  due  January  14,  1999.  As  additional   consideration  the
noteholders  received  warrants to purchase an aggregate of 119,500 ARTRA common
shares at a price of $3.00 per share.  The warrants expire January 14, 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  ($179,250  if all
warrants  are put back to the Company)  was accrued in the  Company's  financial
statements  as a charge to  interest  expense.  The  proceeds  from the  private
placement were used principally to pay down other debt obligations.  These notes
were repaid in November  1998 with net  proceeds  from the sale of assets of the
discontinued Bagcraft subsidiary.


         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.  These notes were repaid in November
1998 with net  proceeds  from the sale of assets  of the  discontinued  Bagcraft
subsidiary.

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 August 1999. 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 proceeds from the
July 1997 private placement were advanced to Peter R. Harvey. See discussion and
disposition of Mr. Harvey's  advances in Note 16 to the  consolidated  financial
statements.

The July 1997  private  placement  notes  were  repaid and /or  refinanced  with
proceeds of the January  1998 private  placement of 12% notes and with  proceeds
from  the  litigation  settlement  discussed  in  Note  11 to  the  consolidated
financial statements.


         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%. 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 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%.
As  additional  compensation  for the loan,  the  director  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%. 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
certain ARTRA debt obligations.




                                       9
<PAGE>


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 director  received a warrant to purchase  333,333  ARTRA common  shares at a
price of $5.00 per share. The director 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 was 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
director 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  director  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, 1999, 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.  In  December  1997
borrowings  from this lender were reduced to $2,000,000 with proceeds from other
short-term borrowings.

In April 1998, the $2,000,000 in outstanding  borrowings from the above director
was  extended  by  a  demand  note  bearing   interest  at  10%.  As  additional
compensation,  the director  received a warrant to purchase  50,000 ARTRA common
shares at a price of $3.25 per share.

In August 1998,  ARTRA  borrowed an additional  $500,000 from the above director
evidenced  by a note,  due  December  20,  1998,  bearing  interest  at 15%.  As
additional  compensation,  the  director  received a warrant to purchase  20,000
ARTRA common shares at a price of $3.94 per share.

All  borrowings  from this  director  were repaid with proceeds from the sale of
assets of the discontinued Bagcraft subsidiary.

The borrowings from this director were  collaterallized  by a secondary interest
in all of the common stock of BCA (the parent of Bagcraft).


         Other

At December 31, 1997,  ARTRA also had  outstanding  short-term  borrowings  from
other  unrelated  parties  aggregating  $601,000,  with  interest  rates varying
between 10 % and 12%.

In April 1998 the Company and its Fill-Mor subsidiary entered into a margin loan
agreement  with  a  financial  institution  which  provided  for  borrowings  of
$1,000,000,  with interest at 8.5%.  Borrowings  under the loan  agreement  were
collateralized by 490,000 shares of COMFORCE common stock owned by the Company's
Fill-Mor subsidiary. The proceeds of the loan were used for working capital.

In October 1997 a lender agreed to accept 357,270 ARTRA common shares in payment
of the principal amount of approximately $1,500,000 due on certain demand notes.
In January  1998 the lender  returned  the 357,270  ARTRA  common  shares to the
Company for cash consideration of approximately $1,500,000.



                                       10
<PAGE>


         Advances to Peter R. Harvey

As  discussed in Note 16 to the  Company's  consolidated  financial  statements,
ARTRA had total  advances  due from its  president,  Peter R.  Harvey,  of which
$18,226,000 remained outstanding at December 31, 1997, before the offset of such
advances as discussed  below.  These  advances  provided for interest at varying
rate from 10.5% to 12%. This receivable from Peter R. Harvey had been classified
as a reduction of common shareholders' equity.

Commencing January 1, 1993 to date,  interest on the advances to Peter R. Harvey
had been accrued and fully reserved.

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.



         Redeemable Preferred Stock

As discussed in Note 9 to the Company's consolidated financial statements, ARTRA
has outstanding  redeemable  preferred stock with a carrying value of $2,857,000
at December 31, 1998. Certain  redeemable  preferred stock issues of the BCA and
Bagcraft subsidiaries are included in liabilities of discontinued  operations at
December  31,  1998  (also see note 3 to the  Company's  consolidated  financial
statements).


         Bagcraft

At December 31, 1997,  the  discontinued  Bagcraft  subsidiary  had  outstanding
borrowings under its credit agreement ("Credit Agreement") totaling $40,388,000.
The Credit  Agreement,  amended and restated  February 27, 1998,  provided for a
revolving  loan  agreement  and three term  loans.  Amounts due under the Credit
Agreement were repaid with proceeds from the sale of assets of the  discontinued
Bagcraft subsidiary.

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, consisted of certain
loan agreements  payable by Bagcraft directly to the City of Baxter Springs.  At
December  31,  1997,  the  outstanding  borrowings  under  these  loans  totaled
$9,968,000.  Obligations  due under these loans were assumed by the buyer of the
assets of the discontinued Bagcraft subsidiary.


         Capital Expenditures

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


         Investment in COMFORCE Corporation

ARTRA,  along with its wholly  owned  Fill-Mor  subsidiary,  owns a  significant
minority interest in COMFORCE Corporation ("COMFORCE"),  consisting of 1,525,000
shares or  approximately  9% of the  outstanding  common stock of COMFORCE as of
December 31, 1998 with an aggregate value as of that date of $8,200,000.




                                       11
<PAGE>


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

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.

In January 1996, the Company's  Board of Directors  approved the sale of 200,000
of  ARTRA's  COMFORCE  common  shares to  certain  officers,  directors  and key
employees of ARTRA for non-interest  bearing notes totaling $400,000.  The notes
are  collateralized  by the related  COMFORCE common shares.  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 had concluded  that, for reporting  purposes,  it had  effectively  sold
options to certain  officers,  directors and key employees to acquire 200,000 of
ARTRA's  COMFORCE  common  shares.  Accordingly,  in January 1996 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  condensed
consolidated  balance  sheet 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 fourth 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.  During 1998,  options to
acquire  84,750 of these COMFORCE  common shares were  exercised  resulting in a
realized  gain of  $320,000.  At December 31,  1998,  options to acquire  55,750
COMFORCE common shares remained unexercised and were classified in the Company's
consolidated  balance  sheet as other  receivables  with an  aggregate  value of
$112,000,  based upon the value of proceeds to be received upon future  exercise
of the options.

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.

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.


         Litigation

The Company and its subsidiaries are the defendants in various  business-related
litigation and environmental  matters. See Note 11 to the Company's consolidated
financial  statements.  At December 31, 1998 and December 31, 1997,  the Company
had accrued current liabilities of $1,500,000 and $1,800,000,  respectively, for
potential business-related litigation and environmental liabilities. While these
litigation and environmental matters involve wide ranges of potential liability,
management  does not believe the outcome of these  matters  will have a material
adverse effect on the Company's financial statements.




                                       12
<PAGE>


         Net Operating Loss Carryforwards

At December 31, 1998,  the Company and its  subsidiaries  had Federal income tax
loss carryforwards of approximately  $10,000,000  expiring principally in 2010 -
2012,  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 has passed  increased
costs to its customers by increasing sales prices over time.


Recently Issued Accounting Pronouncements

Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards  ("SFAS")  No. 130,  "Reporting  Comprehensive  Income".  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.  Required changes
are reported in the consolidated statement of operations.

During 1997 the Financial  Accounting  Standards  Board ("FASB") issued SFAS No.
131, "Disclosures About Segments of an Enterprise and Related  Information".  In
February  1998 the  FASB  issued  SFAS No.  132  "Employers'  Disclosures  about
Pensions  and other  Postretirement  Benefits.  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  desegregates the
entity for making internal  operating  decisions.  SFAS No. 132 standardizes the
disclosure requirements for pension and other postretirement benefits.

As a result of the November 1998 sale of the assets of the discontinued Bagcraft
subsidiary,  the Company exited its only industry  segment,  a  manufacturer  of
packaging  products  principally  serving the food  industry.  Accordingly,  the
guidelines of SFAS No. 131 -  Disclosures  About  Segments of an Enterprise  and
Related Information are not applicable to the Company's financial  statements as
of December 31, 1998. The Company  typically does not offer the types of benefit
programs  that fall under the  guidelines  of Statement of Financial  Accounting
Standards   No.  132  -  Employers'   Disclosures   about   Pensions  and  other
Postretirement Benefits.

In June  1998,  the  FASB  issued  SFAS  No.  133,  "Accounting  for  Derivative
Instruments and Hedging Activities." This statement  establishes  accounting and
reporting standards for derivative  instruments and requires  recognition of all
derivatives as assets or liabilities in the statement of financial  position and
measurement of those  instruments at fair value.  The statement is effective for
fiscal years beginning  after June 15, 1999.  Management has not determined what
impact  this  standard,  when  adopted,  will  have on the  Company's  financial
statements.





                                       13
<PAGE>



Year 2000 Compliance

The Year 2000 ("Y2K") 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. We anticipate that the Year 2000 Issue
will not have a material adverse effect on our financial  position or results of
operations.  We have not incurred any  significant  costs for Y2K  compliance to
date and do 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.














                                       14
<PAGE>



                                    PART III

Item 10. Directors and Executive Officers of the Registrant

Information  called for by Item No. 10 of Part III is  incorporated by reference
to the definitive Proxy Statement for the 1999 Annual Meeting of Shareholders to
be filed with the  Commission  within 120 days of the end of the Company's  last
fiscal year.


Item 11. Executive Compensation

Information  called for by Item No. 11 of Part III is  incorporated by reference
to the definitive Proxy Statement for the 1999 Annual Meeting of Shareholders to
be filed with the  Commission  within 120 days of the end of the Company's  last
fiscal year.


Item 12. Security Ownership of Certain Beneficial Owners and Management

Information  called for by Item No. 12 of Part III is  incorporated by reference
to the definitive Proxy Statement for the 1999 Annual Meeting of Shareholders to
be filed with the  Commission  within 120 days of the end of the Company's  last
fiscal year.


Item 13. Certain Relationships and Related Transactions

Information  called for by Item No. 13 of Part III is  incorporated by reference
to the definitive Proxy Statement for the 1999 Annual Meeting of Shareholders to
be filed with the  Commission  within 120 days of the end of the Company's  last
fiscal year.












                                       15

<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.

                   On November 20, 1998, the Registrant filed Form 8-K to report
                   the  sale of the  business  assets,  subject  to the  buyer's
                   assumption  of  certain  liabilities,   of  the  Registrant's
                   Bagcraft Corporation of America subsidiary.





















                                       16
<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:     /s/ JOHN HARVEY
                                                    -----------------------
                                                           John Harvey
                                                      Chairman and Director
Dated:  February  1,  1999                           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.


    /s/ JOHN HARVEY             Chairman and Director          February 1, 1999
--------------------------
      John Harvey               Chief Executive Officer

  /s/ PETER R. HARVEY           President and Director         February 1, 1999
--------------------------
    Peter R. Harvey             Chief Operating Officer

  /s/ JAMES D. DOERING          Vice President /Treasurer      February 1, 1999
--------------------------
    James D. Doering            Chief Financial Officer

  /s/ EDWARD A. CELANO          Director                       February 1, 1999
--------------------------
    Edward A. Celano

  /s/ HOWARD R. CONANT          Director                       February 1, 1999
--------------------------
    Howard R. Conant

 /s/ ROBERT L. JOHNSON          Director                       February 1, 1999
--------------------------
   Robert L. Johnson

  /s/ GERARD M. KENNY           Director                       February 1, 1999
--------------------------
    Gerard M. Kenny

  /s/ MAYNARD K. LOUIS          Director                       February 1, 1999
--------------------------
    Maynard K. Louis

 /s/ MARK F. SANTACROSE         Director                       February 1, 1999
--------------------------
   Mark F. Santacrose

    /s/ JOHN K. TULL            Director                       February 1, 1999
--------------------------
      John K.Tull

 /s/ LAWRENCE D. LEVIN          Controller                     February 1, 1999
--------------------------
   Lawrence D. Levin



                                       17
<PAGE>




                          INDEX TO FINANCIAL STATEMENTS






                                                                    Page
                                                                    ----

ARTRA GROUP INCORPORATED AND SUBSIDIARIES

Report of Independent Accountants                                   F- 2

  Consolidated Balance Sheets as of December 31, 1998
      and December 31, 1997                                         F- 3

  Consolidated Statements of Operations
      for each of the three fiscal years in the 
      period ended December 31, 1998                                F- 5

  Consolidated Statements of Changes in Shareholders'  
      Equity (Deficit) for each of the three fiscal years 
      in the period ended December 31, 1998                         F- 6

  Consolidated Statements of Cash Flows
      for each of the three fiscal years
      in the period ended December 31, 1998                         F- 8

  Notes to Consolidated Financial Statements                       F- 10


Schedules:

  II.  Valuation and Qualifying Accounts                           F- 31




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

In our opinion,  the  accompanying  consolidated  balance sheets and the related
consolidated statements of operations and changes in shareholders' equity and of
cash flows present fairly, in all material  respects,  the financial position of
ARTRA GROUP Incorporated and its subsidiaries at December 31, 1998 and 1997, and
the results of their operations and their cash flows for each of the three years
in the period ended  December 31, 1998, in conformity  with  generally  accepted
accounting principles.  These financial statements are the responsibility of the
Company's  management;  our  responsibility  is to  express  an opinion on these
financial  statements  based on our  audits.  We  conducted  our audits of these
statements  in accordance  with  generally  accepted  auditing  standards  which
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,  assessing the  accounting  principles
used and  significant  estimates made by management,  and evaluating the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for the opinion expressed above.

In our  report  on the 1997  financial  statements,  dated  March 26,  1998,  we
expressed an opinion that indicated  substantial  doubt as to the ability of the
Company to  continue  as a going  concern.  This was the  result of the  Company
suffering  recurring  losses and experiencing  difficulty in obtaining  adequate
financing  to replace its existing  credit  arrangements  and satisfy  liquidity
requirements.  As  described  in Note 3, as a result of the  disposition  of the
business assets of Bagcraft Corporation of America, the Company has been able to
retire a  significant  portion  of its  obligations.  Accordingly,  our  present
opinion on the 1997 financial  statements as presented  herein is different from
that expressed in our previous report.


PricewaterhouseCoopers LLP


Chicago, Illinois
February 1, 1999








                                      F-2
<PAGE>

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


                                                     December 31,   December 31,
                                                          1998           1997
                                                     ------------   ------------

ASSETS
Current assets:
   Cash and equivalents                                  $11,753         $5,991
   Restricted cash and equivalents                         1,045              -
   Receivables, less allowance for 
     doubtful accounts of  $275  in 1997                     171         10,004
   Inventories                                                 -         15,749
   Available-for-sale securities                           8,200         12,013
   Other                                                      99            774
                                                     ------------   ------------
               Total current assets                       21,268         44,531
                                                     ------------   ------------

Property, plant and equipment
    Land                                                       -            417
    Buildings                                                  -         12,742
    Machinery and equipment                                    -         35,657
    Construction in progress                                   -            675
                                                     ------------   ------------
                                                               -         49,491
Less accumulated depreciation and amortization                 -         24,397
                                                     ------------   ------------
                                                               -         25,094
                                                     ------------   ------------

Other assets:
   Excess of cost over net assets acquired,
      net of accumulated amortization
      of $2,388 in 1997                                        -          2,729
   Other                                                       -            852
                                                     ------------   ------------
                                                               -          3,581
                                                     ------------   ------------
                                                         $21,268        $73,206
                                                     ============   ============



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 31,
                                                        1998            1997
                                                    ------------    ------------

LIABILITIES
Current liabilities:
   Notes payable, including amounts due to
     related parties  of  $2,000 in 1997               $      -      $   10,726
   Current maturities of long-term debt                       -           4,462
   Accounts payable                                           -           5,841
   Accrued expenses                                         568           8,692
   Income taxes                                           1,854             324
   Common stock put warrants                              1,705           2,966
   Redeemable preferred stock                                 -          11,955
   Liabilities of discontinued operations                10,328               -
                                                    ------------    ------------
               Total current liabilities                 14,455          44,966
                                                    ------------    ------------

Long-term debt                                                -          50,619
Other noncurrent liabilities                                  -           4,675
Commitments and contingencies

Redeemable preferred stock                                2,857           9,110


SHAREHOLDERS' EQUITY (DEFICIT)
Common stock, no par value;  
   authorized 20,000,000 shares;
   issued 8,302,110 shares in 1998 
   and 8,297,810 shares in 1997                           6,227           6,223
Additional paid-in capital                               42,734          42,721
Unrealized appreciation of investments                   10,920          14,733
Receivable from related party, 
   including accrued interest                                 -         (12,621)
Accumulated deficit                                     (54,300)        (87,113)
                                                    ------------    ------------
                                                          5,581         (36,057)
Less treasury stock, 437,882 shares in 1998
   and 80,612 shares in 1997, at cost                     1,625             107
                                                    ------------    ------------
                                                          3,956         (36,164)
                                                    ------------    ------------
                                                        $21,268         $73,206
                                                    ============    ============



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
                                                      --------------------------------
                                                        1998        1997        1996
                                                      --------    --------    --------
<S>                                                   <C>         <C>         <C>
Net sales                                             $   --      $   --      $   --
                                                      --------    --------    --------
Costs and expenses:
   Cost of goods sold,
     exclusive of depreciation and amortization           --          --          --
   Selling, general and administrative                   2,660       5,708       2,042
   Depreciation and amortization                          --             7          19
                                                      --------    --------    --------
                                                         2,660       5,715       2,061
                                                      --------    --------    --------
Operating loss                                          (2,660)     (5,715)     (2,061)
                                                      --------    --------    --------
Other income (expense):
   Interest expense                                     (3,392)     (6,178)     (4,201)
   Realized gain on disposal of
     available-for-sale securities                         320       2,531       5,818
   Litigation settlement, net                             --        10,416        --
   Other income (expense), net                              25          12          (1)
                                                      --------    --------    --------
                                                        (3,047)      6,781       1,616
                                                      --------    --------    --------
Earnings (loss) from continuing operations
   before income taxes                                  (5,707)      1,066        (445)
Provision for income taxes                                --          --          --
                                                      --------    --------    --------
Earnings (loss) from continuing operations              (5,707)      1,066        (445)
Earnings (loss) from discontinued operations            38,930        (293)      3,994
                                                      --------    --------    --------
Earnings before extraordinary credit                    33,223         773       3,549
Extraordinary credit, net discharge of indebtedness       --          --         9,424
                                                      --------    --------    --------
Net earnings                                            33,223         773      12,973
Dividends applicable to
  redeemable preferred stock                              (410)       (693)       (621)
Reduction of retained earnings
  applicable to redeemable common stock                   --          (400)       (390)
                                                      --------    --------    --------
Earnings (loss) applicable to common shares             32,813        (320)     11,962
Other comprehensive income (loss):
   Net unrealized appreciation
      (depreciation) of investments                     (3,813)    (10,986)      4,672
                                                      --------    --------    --------
Comprehensive income (loss):                          $ 29,000    ($11,306)   $ 16,634
                                                      ========    ========    ========
Per share earnings (loss)
  applicable to common shares:
    Basic
       Continuing operations                          ($  0.78)   $   --      ($  0.19)
       Discontinued operations                            4.94       (0.04)       0.53
                                                      --------    --------    --------
       Earnings (loss)
          before extraordinary credit                     4.16       (0.04)       0.34
       Extraordinary credit                               --          --          1.25
                                                      --------    --------    --------
                 Net earnings (loss)                  $   4.16    ($  0.04)   $   1.59
                                                      ========    ========    ========
     Weighted average number of shares
        of common stock outstanding                      7,891       7,970       7,525
                                                      ========    ========    ========
    Diluted
       Continuing operations                          ($  0.78)   $   --      ($  0.19)
       Discontinued operations                            4.94       (0.04)       0.53
                                                      --------    --------    --------
       Earnings (loss) before
          extraordinary credit                            4.16       (0.04)       0.34
       Extraordinary credit                               --          --          1.25
                                                      --------    --------    --------
                 Net earnings (loss)                  $   4.16    ($  0.04)   $   1.59
                                                      ========    ========    ========
     Weighted average number of shares
        of common stock and common
        stock equivalents outstanding                    7,891       7,970       7,525
                                                      ========    ========    ========

</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>

                                                                                 Accumulated                                Total 
                                                                       Receivable   Other                                   Share-  
                                              Common Stock  Additional    From    Comphre-               Treasury Stock    holders' 
                                          ------------------  Paid-in   Related    hensive  Accumulated  ---------------   Equity  
                                            Shares   Dollars  Capital    Party      Income   (Deficit)   Shares  Dollars   Deficit)
                                          ---------- -------  --------  --------  ---------  ---------  -------- -------- ----------
<S>                                       <C>         <C>     <C>       <C>        <C>       <C>         <C>       <C>     <C>      
Balance at December 28, 1995              7,102,979   $5,540  $38,526   ($4,318)   $21,047   ($98,755)   57,038    ($805)  ($38,765)

Comprehensive income (loss):
 Net earnings                                     -        -        -         -          -     12,973         -        -     12,973
 Net increase in unrealized 
  appreciation of investments                     -        -        -         -      4,672          -         -        -      4,672
 Redeemable preferred 
  stock dividends                                 -        -        -         -          -       (621)        -        -       (621)
 Redeemable common stock accretion                -        -        -         -          -       (390)        -        -       (390)
                                                                                                                           ---------
 Comprehensive income                                                                                                        16,634
                                                                                                                           ---------
Other changes in shareholders' equity:
 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)         0
 Repay common stock 
  loaned by related party                   100,000       75      512      (587)         -          -         -        -          -
 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
                                                                                                                           ---------
 Other changes in shareholders' equity                                                                                          541
                                                                                                                           ---------
                                          ---------- -------  --------  --------  ---------  --------- --------- --------  ---------
Balance at December 26, 1996              7,624,766    5,793   40,211    (6,468)    25,719    (86,793)    7,628      (52)   (21,590)

Comprehensive income (loss):
 Net earnings                                     -        -        -         -          -        773         -        -        773
 Net decrease in unrealized 
  appreciation of investments                     -        -        -         -    (10,986)         -         -        -    (10,986)
 Redeemable preferred stock dividends             -        -        -         -          -       (693)        -        -       (693)
 Redeemable common stock accretion                -        -        -         -          -       (400)        -        -       (400)
                                                                                                                          ---------
 Comprehensive (loss)                                                                                                       (11,306)
                                                                                                                          ---------

Other changes in shareholders' equity:
 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)
 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
                                                                                                                           ---------
   Other changes in shareholders' equity                                                                                     (3,268)
                                                                                                                           ---------
                                          ---------- -------  --------  --------  ---------  --------- --------- --------  ---------
Balance at December 31, 1997              8,297,810    6,223   42,721   (12,621)    14,733    (87,113)   80,612     (107)   (36,164)

</TABLE>

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

                                       F-6
<PAGE>

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

<TABLE>
<CAPTION>

                                                                                 Accumulated                                Total
                                                                       Receivable   Other                                   Share-  
                                              Common Stock  Additional    From    Comphre-               Treasury Stock    holders' 
                                          ------------------  Paid-in   Related    hensive  Accumulated  ---------------   Equity 
                                            Shares   Dollars  Capital    Party      Income   (Deficit)   Shares  Dollars   Deficit)
                                          ---------- -------  --------  --------  ---------  ---------  -------- -------- ----------
<S>                                       <C>          <C>      <C>      <C>         <C>       <C>       <C>        <C>     <C>     
Balance at December 31, 1997              8,297,810    6,223    42,721   (12,621)    14,733    (87,113)  80,612     (107)   (36,164)

Comprehensive income (loss):
 Net earnings                                     -        -                   -          -     33,223        -        -     33,223
 Net decrease in unrealized 
  appreciation of investments                     -        -         -         -     (3,813)         -        -        -     (3,813)
 Redeemable preferred 
  stock dividends                                 -        -         -         -          -       (410)       -        -       (410)
                                                                                                                          ----------
   Comprehensive income                                                                                                      29,000
                                                                                                                          ----------

Other changes in shareholders' equity:
 Repurchase of common stock 
  previously  issued to pay
  down short-term notes                           -        -         -         -          -          -  357,270   (1,518)    (1,518)
 Net decrease in receivable 
  from related party, 
  including accrued interest                      -        -         -    12,621          -          -        -        -     12,621
 Exercise of stock options                    4,300        4        13         -          -          -        -        -         17
                                                                                                                          ----------
   Other changes in shareholders' equity                                                                                     11,120
                                                                                                                          ----------

                                          ---------- -------- --------- --------- ---------- ---------- -------- -------- ----------
Balance at December 31, 1998              8,302,110   $6,227   $42,734        $0    $10,920   ($54,300) 437,882  ($1,625)    $3,956
                                          ========== ======== ========= ========= ========== ========== ======== ======== ==========

</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
                                                                                 --------------------------------
                                                                                    1998        1997        1996
                                                                                 --------    --------    --------
Cash flows from operating activities:
<S>                                                                              <C>         <C>         <C>     
  Net earnings                                                                   $ 33,223    $    773    $ 12,973
     Adjustments to reconcile net earnings
            to cash flows from operating activities:
        Depreciation of property, plant and equipment                               2,446       4,059       3,622
        Amortization of excess of cost over net assets acquired                       272         305         305
        Decrease  in receivable from related party                                    400       2,816        --
        Extraordinary gain from net discharge of indebtedness                        --          --        (9,424)
        Gain on disposal of discontinued operations                               (35,585)       --          --
        Amortization of other assets, principally financing costs                   1,121       4,754         548
        Inventory valuation reserve                                                    21         172         191
        Gain on sale of property, plant and equipment                                --           (70)         78
        Gain on sale of idle machinery  and equipment                                --          (932)       --
        Litigation settlement, net                                                   --       (10,416)       --
        Gain on sale of COMFORCE common stock                                        (320)     (2,531)     (5,818)
        Minority interest                                                             509       1,109         526
        Other, principally common stock issued as compensation                       --           454         220
    Changes in assets and  liabilities,  net of effects of
       businesses  acquired and discontinued:
         (Increase) decrease in receivables                                           (35)     (1,631)      2,630
         (Increase) decrease in inventories                                        (2,010)        132       1,476
         (Increase) decrease in other current and noncurrent assets                  (456)        517        (169)
         Increase (decrease) in payables and accrued expenses                      (8,771)        321      (5,980)
         Decrease in other current and noncurrent liabilities                      (1,745)       (119)     (4,497)
                                                                                 --------    --------    --------
Net cash flows used by operating activities                                       (10,930)       (287)     (3,319)
                                                                                 --------    --------    --------

Cash flows from investing activities:
   Proceeds from sale of COMFORCE common stock                                        170       1,821       3,717
   Proceeds from sale of Bagcraft assets                                           89,000        --          --
   Increase in restricted cash                                                     (1,045)       --          --
   Net proceeds from litigation settlement                                           --         9,761        --
   Proceeds from sale of property, plant and equipment                                537         132
   Additions to property, plant and equipment                                      (2,177)     (3,066)     (2,645)
   (Increase) decrease  in receivable from related party                           (8,969)     (1,061)
   Proceeds from collection of notes receivable                                      --          --           342
   Decrease in restricted cash                                                       --          --           552
   Acquistion of AB Specialty, net of deposit                                        --        (1,131)       --
   AB Specialty acquisition deposit                                                  --          --        (1,183)
   Proceeds from sale of  idle machinery and equipment                               --           932        --
                                                                                 --------    --------    --------
Net cash flows from (used by) investing activities                                 85,948        (115)       (146)
                                                                                 --------    --------    --------


</TABLE>

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






                                       F-8
<PAGE>


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


<TABLE>
<CAPTION>


                                                                                              Fiscal Year
                                                                                   -----------------------------------
                                                                                       1998         1997         1996
                                                                                   ---------    ---------    ---------
Cash flows from financing activities:
<S>                                                                                <C>          <C>          <C>      
   Net increase (decrease) in short-term debt                                      ($ 15,451)   ($  1,508)   $     286
   Proceeds from long-term borrowings                                                124,077      146,891      141,896
   Reduction of long-term debt                                                      (175,019)    (133,781)    (140,850)
   Proceeds from exercise of stock options and warrants                                   17          178          369
   Repurchase of common stock previously issued
     to pay down short-term notes                                                     (1,518)        --           --
   Exercise of redeemable common stock put options                                      --         (3,379)        (510)
   Redemption of detachable put warrants                                              (1,440)      (1,728)        --
   Purchase of redeemable preferred stock                                                 78         (426)        --
   Other                                                                                 (25)          98
                                                                                   ---------    ---------    ---------
Net cash flows from (used by) financing activities                                   (69,256)       6,222        1,289
                                                                                   ---------    ---------    ---------

Increase (decrease) in cash and cash equivalents                                       5,762        5,820       (2,176)
Cash and equivalents, beginning of year                                                5,991          171        2,347
                                                                                   ---------    ---------    ---------
Cash and equivalents, end of year                                                  $  11,753    $   5,991    $     171
                                                                                   =========    =========    =========



Supplemental cash flow information: Cash paid during the year for:
  Interest                                                                         $   6,087    $   7,058    $   5,320
  Income taxes paid (refunded), net                                                      189          177          157


Supplemental schedule of noncash investing and financing activities:
    ARTRA/BCA redeemable preferred stock received as payment of
       Peter Harvey advances                                                       $  12,787         --           --
    Issue common stock and redeemable common stock
       to pay down current liabilities                                                  --      $   1,939    $   1,274
    Issue common stock to pay
       redeemable common stock put obligation                                           --            679         --
    Issue common stock as additional consideration
       for short-term borrowings                                                        --           --            661
    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-9

<PAGE>







                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1.       BASIS OF PRESENTATION

ARTRA  Group  Incorporated,   (hereinafter  "ARTRA"  or  the  "Company"),  is  a
Pennsylvania  corporation incorporated in 1933. Through November 20, 1998, ARTRA
operated  in one  industry  segment  as a  manufacturer  of  packaging  products
principally  serving the food  industry.  The  packaging  products  business was
conducted by the Company's  wholly-owned  subsidiary,  Bagcraft  Corporation  of
America ("Bagcraft"),  which business was sold on November 20, 1998. The Company
does  not  intend  to be  deemed  an  "Investment  Company"  as  defined  by the
Investment Company Act of 1940 and, accordingly,  is actively  investigating new
business opportunities.

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


2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A.   Principles of Consolidation

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

B.    Cash Equivalents/Restricted Cash

Short-term  investments  with an initial  maturity  of less than ninety days are
considered  cash  equivalents.  The fair value of cash and cash  equivalents  is
assumed  to  approximate  the  carrying  value of these  assets due to the short
duration of these assets.

At December 31, 1998,  restricted  cash represents  amounts  deposited in escrow
accounts to pay certain Bagcraft  liabilities  retained by ARTRA. These accounts
were  established  in  accordance  with  provisions of the agreement to sell the
assets of the discontinued Bagcraft subsidiary discussed in Note 3.

C.    Inventories

Inventories  reflected in the  Company's  consolidated  financial  statements at
December  31,  1997  were  stated  at the  lower  of cost or  market.  Cost  was
determined by the first-in, first-out (FIFO) method.

D.    Property, Plant and Equipment

Property,  plant and equipment reflected in the Company's consolidated financial
statements  at  December  31,  1997  were  stated  at  cost.   Expenditures  for
maintenance and repairs were charged to operations as incurred and  expenditures
for major renovations were  capitalized.  Depreciation was 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  were 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 were applied against the
related accumulated  depreciation to the extent thereof,  and any profit or loss
on the disposition was recognized in earnings.

E.    Investments in Equity Securities

The Company's investment in COMFORCE Corporation ("COMFORCE", see Note 5) common
stock is  classified  in current  assets as  available-for-sale  securities  and
stated at fair value in accordance with the provisions of




                                      F-10
<PAGE>


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



Statement of Financial  Accounting  Standards  ("SFAS") No. 115  "Accounting for
Certain Investments in Debt and Equity Securities". Unrealized holding gains and
losses are included in a separate  component of  shareholders'  equity (deficit)
until realized.

F.    Intangible Assets

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

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

G.   Revenue Recognition

Sales to customers of the Company's  discontinued  Bagcraft were 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,




                                      F-11
<PAGE>


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



2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

which specifies the computation,  presentation,  and disclosure requirements for
earnings per share,  did not have a material  impact on the Company's  financial
statements.

L.     Recently Issued Accounting Pronouncements

Effective  January  1,  1998,  the  Company  adopted  SFAS No.  130,  "Reporting
Comprehensive   Income".  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. Required changes are reported in the consolidated statement
of operations.

During 1997 the Financial  Accounting  Standards  Board ("FASB") issued SFAS No.
131, "Disclosures About Segments of an Enterprise and Related  Information".  In
February  1998 the  FASB  issued  SFAS No.  132  "Employers'  Disclosures  about
Pensions  and other  Postretirement  Benefits.  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  desegregates the
entity for making internal  operating  decisions.  SFAS No. 132 standardizes the
disclosure requirements for pension and other postretirement benefits.

As a result of the November 1998 sale of the assets of the discontinued Bagcraft
subsidiary,  the Company exited its only industry  segment,  a  manufacturer  of
packaging  products  principally  serving the food  industry.  Accordingly,  the
guidelines of SFAS No. 131 -  Disclosures  About  Segments of an Enterprise  and
Related Information are not applicable to the Company's financial  statements as
of December 31, 1998. The Company  typically does not offer the types of benefit
programs  that fall under the  guidelines  of Statement of Financial  Accounting
Standards   No.  132  -  Employers'   Disclosures   about   Pensions  and  other
Postretirement Benefits.

In June  1998,  the  FASB  issued  SFAS  No.  133,  "Accounting  for  Derivative
Instruments and Hedging Activities." This statement  establishes  accounting and
reporting standards for derivative  instruments and requires  recognition of all
derivatives as assets or liabilities in the statement of financial  position and
measurement of those  instruments at fair value.  The statement is effective for
fiscal years beginning  after June 15, 1999.  Management has not determined what
impact  this  standard,  when  adopted,  will  have on the  Company's  financial
statements.


3.       CHANGE OF BUSINESS

         Bagcraft

Effective August 26, 1998,  ARTRA and its wholly-owned  subsidiary BCA Holdings,
Inc.  ("BCA",  the parent of  Bagcraft),  agreed to sell the business  assets of
Bagcraft. Additionally, the buyer agreed to assume certain Bagcraft liabilities.
The  transaction  was  completed on November 20, 1998 and ARTRA  received  gross
consideration  of  approximately  $88,100,000  in cash.  The  disposition of the
Bagcraft business resulted in a net gain of $35,985,000.

A  substantial   portion  of  the  cash  proceeds  received  from  the  Bagcraft
disposition  was used to  retire  or  otherwise  settle  certain  Bagcraft  debt
obligations,  including,  but not  limited to  Bagcraft's  credit  agreement  as
discussed in Note 8. After the disposition of certain Bagcraft obligations noted
above, ARTRA received net proceeds of approximately $28,000,000 from the sale of
Bagcraft.  Approximately  $15,200,000  of these net  proceeds was used to retire






                                      F-12
<PAGE>


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



ARTRA debt  obligations.  The Company plans to use the remainder of the proceeds
principally to acquire or participate in new business opportunities.

         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,  was 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 business  and related  assets of AB were
part of the Bagcraft disposition.


The Company's consolidated financial statements have been reclassified to report
separately  the results of  operations of Bagcraft.  The  operating  results (in
thousands) for fiscal years 1996 - 1998 of the discontinued  Bagcraft subsidiary
and net gain on disposal consist of:



                                                1998         1997        1996
                                             ---------    ---------   ---------
Net sales                                    $ 111,342    $ 125,027   $ 120,699
                                             =========    =========   =========

Earnings from operations before 
  and minority interest income taxes         $   3,534    $     797   $   4,672

(Provision) credit for income taxes                (80)          19        (152)

Minority interest                                 (509)      (1,109)       (526)
                                             ---------    ---------   ---------
Earnings (loss) from operations                  2,945         (293)      3,994
                                             ---------    ---------   ---------

Gain on sale of Bagcraft subsidiary             37,505 
                                                       
Provision for income taxes                      (1,520)
                                             ---------          
Gain on disposal of business                    35,985                 
                                             ---------    ---------   --------- 
Earnings(loss)from discontinued operations  $   38,930    $    (293)  $   3,994
                                             =========    =========   =========





Liabilities  of  discontinued  operations  at December  31, 1998 of  $10,328,000
include BCA/Bagcraft redeemable preferred stock issues (see Note 9), contractual
obligations,  environmental matters and other future estimated costs for various
discontinued operations. Additionally, liabilities of discontinued operations at
December  31, 1998  includes an  adjustment  to the sales price of the  Bagcraft
business of approximately $900,000.





                                      F-13
<PAGE>



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



4.       INVENTORIES

Inventories  of the  discontinued  Bagcraft at December 31, 1997 (in  thousands)
consisted of:


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



5.            INVESTMENT IN COMFORCE CORPORATION

At  December  31,  1998 and 1997  ARTRA's  investment  in  COMFORCE  Corporation
("COMFORCE"),  1,525,500 shares,  currently a common stock ownership interest of
approximately 9%, was classified in the Company's  consolidated balance sheet in
current  assets as  "Available-for-sale  securities."  At December  31, 1998 the
gross unrealized gain relating to ARTRA's investment in COMFORCE, reflected as a
separate component of shareholders' equity, was $10,920,000.

In January 1996, the Company's  Board of Directors  approved the sale of 200,000
of  ARTRA's  COMFORCE  common  shares to  certain  officers,  directors  and key
employees of ARTRA for non-interest  bearing notes totaling $400,000.  The notes
are  collateralized  by the related  COMFORCE common shares.  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 had concluded  that, for reporting  purposes,  it had  effectively  sold
options to certain  officers,  directors and key employees to acquire 200,000 of
ARTRA's  COMFORCE  common  shares.  Accordingly,  in January 1996 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  condensed
consolidated  balance  sheet 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.  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.  During  1998,  options to acquire  84,750 of these  COMFORCE
common  shares were  exercised  resulting  in a realized  gain of  $320,000.  At
December 31, 1998,  options to acquire 55,750  COMFORCE  common shares  remained
unexercised and were classified in the Company's  consolidated  balance sheet as
other  receivables with an aggregate value of $112,000,  based upon the value of
proceeds to be received upon future exercise of the options.

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.

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.




                                      F-14
<PAGE>


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



6.       EXTRAORDINARY GAIN

         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.  As
additional  compensation  for  its  loan  and  for  participating  in the  above
discharge of indebtedness  the  unaffiliated  company received 150,000 shares of
ARTRA common  stock (with a then fair market value of $661,000  after a discount
for restricted marketability) and 25,000 shares of COMFORCE common stock held by
ARTRA (with a then fair market value of $200,000).

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


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


7.       NOTES PAYABLE

Notes payable at December 31, 1997 (in thousands) consisted of:

   ARTRA  12% promissory notes - 1997 private placements            $12,850
   Amounts due to related parties, interest at10%                     2,000
   Other, interest from 10% to 12%                                      601
                                                                    -------
                                                                     15,451
   Less ARTRA 12% promissory notes refinanced in January 1998        (4,725)
                                                                    -------
                                                                    $10,726
                                                                    =======







                                      F-15
<PAGE>


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



         Promissory Notes

         1998 Private Placement

In January  1998,  ARTRA  completed a private  placement  of  $5,975,000  of 12%
promissory  notes  due  January  14,  1999.  As  additional   consideration  the
noteholders  received  warrants to purchase an aggregate of 119,500 ARTRA common
shares at a price of $3.00 per share.  The warrants expire January 14, 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  ($179,250  if all
warrants  are put back to the Company)  was accrued in the  Company's  financial
statements  as a charge to  interest  expense.  The  proceeds  from the  private
placement were used principally to pay down other debt obligations.  These notes
were repaid in November  1998 with net  proceeds  from the sale of assets of the
discontinued Bagcraft subsidiary.


         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.  These notes were repaid in November
1998 with net  proceeds  from the sale of assets  of the  discontinued  Bagcraft
subsidiary.

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 August 1999. 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 proceeds from the
July 1997 private placement were advanced to Peter R. Harvey. See discussion and
disposition of Mr. Harvey's advances in Note 16.

The July 1997  private  placement  notes  were  repaid and /or  refinanced  with
proceeds of the January  1998 private  placement of 12% notes and with  proceeds
from  the  litigation  settlement  discussed  in  Note  11 to  the  consolidated
financial statements.


         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%. 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%.
As  additional  compensation  for the loan,  the  director  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%. As
additional compensation, the lender received an option to purchase 25,000 shares






                                      F-16
<PAGE>


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



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
certain ARTRA debt obligations.

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

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  director  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, 1999, 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.  In  December  1997
borrowings  from this lender were reduced to $2,000,000 with proceeds from other
short-term borrowings.

In April 1998, the $2,000,000 in outstanding  borrowings from the above director
was  extended  by  a  demand  note  bearing   interest  at  10%.  As  additional
compensation,  the director  received a warrant to purchase  50,000 ARTRA common
shares at a price of $3.25 per share.

In August 1998,  ARTRA  borrowed an additional  $500,000 from the above director
evidenced  by a note,  due  December  20,  1998,  bearing  interest  at 15%.  As
additional  compensation,  the  director  received a warrant to purchase  20,000
ARTRA common shares at a price of $3.94 per share.

The borrowings from this director were  collaterallized  by a secondary interest
in all of the common stock of BCA (the parent of Bagcraft).

In November 1998,  the  borrowings  from this director were repaid with proceeds
received from the sale of the discontinued Bagcraft subsidiary.


         Other

At December 31, 1997,  ARTRA also had  outstanding  short-term  borrowings  from
other  unrelated  parties  aggregating  $601,000,  with  interest  rates varying
between 10 % and 12%.

In April 1998 the Company and its Fill-Mor subsidiary entered into a margin loan
agreement  with  a  financial  institution  which  provided  for  borrowings  of
$1,000,000,  with interest at 8.5%.  Borrowings  under the loan  agreement  were
collateralized by 490,000 shares of COMFORCE common stock owned by the Company's
Fill-Mor  subsidiary.  The  proceeds of the loan were used for working  capital.
This loan was repaid in December  1998 with  proceeds  received from the sale of
the discontinued Bagcraft subsidiary.





                                      F-17
<PAGE>


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



In October 1997 a lender agreed to accept 357,270 ARTRA common shares in payment
of the principal amount of approximately $1,500,000 due on certain demand notes.
In January  1998 the lender  returned  the 357,270  ARTRA  common  shares to the
Company for cash consideration of approximately $1,500,000.

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


8.       LONG-TERM DEBT

     Long-term debt at December 31, 1997 (in thousands) consisted of:

Bagcraft:                                                          
    Credit Agreement:
        Term Loan A, interest at the lender's index rate plus .25%    $ 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 indexrate        9,313

        Unamortized discount                                            (1,425)

    City of Baxter Springs, Kansas loan agreements,                
         interest at varying rates                                       9,968
                                                                       ------- 
                                                                        50,356
ARTRA 12% promissory notes refinanced in January 1998                    4,725 
                                                                       ------- 
                                                                        55,081
    Current scheduled maturities                                        (4,462)
                                                                       ------- 
                                                                       $50,619 
                                                                       ======= 

         Bagcraft

At December 31, 1997,  the  discontinued  Bagcraft  subsidiary  had  outstanding
borrowings under its credit agreement ("Credit Agreement") totaling $40,388,000.
The Credit  Agreement,  amended and restated  February 27, 1998,  provided for a
revolving  loan  agreement  and three term  loans.  Amounts due under the Credit
Agreement were repaid with proceeds from the sale of assets of the  discontinued
Bagcraft subsidiary.

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, consisted of certain
loan agreements  payable by Bagcraft directly to the City of Baxter Springs.  At
December  31,  1997,  the  outstanding  borrowings  under  these  loans  totaled
$9,968,000.  Obligations  due under these loans were assumed by the buyer of the
assets of the discontinued Bagcraft subsidiary.





                                      F-18
<PAGE>


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



         ARTRA

As discussed in Note 7, $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 were classified as long-term debt at December 31, 1997.


9.       REDEEMABLE PREFERRED STOCK
<TABLE>
<CAPTION>
                                                                      December 31,   December 31,
                                                                           1998          1997
                                                                           ----          ----
      
     Currently payable: 
<S>                                                                     <C>              <C>    
        BCA Holdings preferred stock, Series B,                                                        
           $1.00 par value, 6% cumulative,                                                              
           including accumulated dividends;                                                             
           redeemable on demand with a liquidation preference                                           
           of $1,000 per share; authorized 8,135 shares;
           issued and outstanding 1,675.79 shares in 1998 
           and 7,847.79 shares in 1997                                  $    *           9,831 
                                                                      
         Bagcraft redeemable preferred stock originally issued                                 
           to a related party, $.01 par value, 13.5% cumulative;                               
           including accumulated dividends; redeemable on demand                               
           with a liquidation preference equal to $100 per share;                              
           issued 8,650 shares                                               *         $ 2,124          
                                                                                                        
 
                                                                         -------       -------          
                                                                         $   -         $11,955          
                                                                         =======       =======          
                                                                                                        
     Noncurrent:                                                                                        
         ARTRA redeemable preferred stock, Series A,                                                    
           $1,000 par value, 6% cumulative payment-in-kind,                                             
           including accumulated dividends,  net of                                                     
           unamortized discount of $239 in 1998 and 859 in 1997;                                        
           redeemable March 1, 2000 at $1,000 per share                                                 
           plus accrued dividends;                                                                      
           authorized 2,000,000 shares all series;                                                      
           issued and outstanding 1,849.34 shares in                                                    
           1998 and 3,583.62 shares in 1997                              $   *         $ 4,799           
                                                                                                        
         BCA Holdings preferred stock, Series A,                                                        
           $1.00 par  value, 6% cumulative,                                                             
           including accumulated dividends;                                                    
           liquidation preference of $1,000 per share;                                         
           10,000 shares authorized; issued and outstanding                                    
           1,672.15 shares in 1998 and 3,456.18 shares in 1997             2,857         4,311          
                                                                         -------       -------          
                                                                         $ 2,857       $ 9,110
                                                                         =======       =======          
</TABLE>              

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

*  Included in liabilities of discontinued  operations at December 31, 1998, see
   discussion below.




                                      F-19
<PAGE>


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



In  March  1990,   ARTRA   issued  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 as
partial   consideration  for  the  acquisition  of  the  discontinued   Bagcraft
subsidiary.

In August and September 1997 ARTRA  repurchased  166.38 shares of ARTRA Series A
redeemable  preferred  stock  with a  carrying  value  of  $209,000  for cash of
$120,000. The redeemable preferred stock purchase resulted in a gain of $89,000,
which was  reflected in the  Company's  consolidated  financial  statements as a
credit to  additional  paid-in  capital.  The Series A Preferred  Stock  accrues
dividends  at the rate of 6% per  annum and is  redeemable  by ARTRA on March 1,
2000  at a price  of  $1,000  per  share  plus  accrued  dividends.  Accumulated
dividends of  $1,246,000  and  $2,074,000  were accrued at December 31, 1998 and
December 31, 1997, respectively.


         BCA Holdings/ Bagcraft

During 1992 and 1993, in exchange for cash consideration of $3,675,000, a former
related  party  received  3,675  shares  of BCA  Series A  preferred  stock  (6%
cumulative,  redeemable  preferred stock with a liquidation  preference equal to
$1,000 per share). At December 31, 1998, liabilities of discontinued  operations
included  1,672.18 BCA Series A  redeemable  preferred  shares with  accumulated
dividends of $514,000.

Effective  February 15, 1996,  BCA,  Bagcraft and a former related party 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) to the former  related  party in exchange
for 41,350 shares of Bagcraft redeemable  preferred stock. At December 31, 1998,
liabilities of discontinued operations included 1,675.79 BCA Series B redeemable
preferred shares with accumulated dividends of $650,000.

At December 31, 1998,  liabilities  of  discontinued  operations  included 8,650
shares of Bagcraft 13.5%  cumulative,  redeemable  preferred stock  (liquidation
preference  equal to $100 per share).  Accumulated  dividends of $1,315,000 were
accrued at December 31, 1998.

As discussed in Note 16,  effective  January 31, 1998, Peter R. Harvey exchanged
certain  ARTRA/BCA  preferred  stock to  retire  advances  from  ARTRA  totaling
$12,787,000.


10.      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 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




                                      F-20
<PAGE>


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



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.  In May
1998 the Company issued its outside  directors  options to purchase an aggregate
of 62,500 ARTRA common  shares at $3.75 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 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 1998 and 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 1998 and
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:

<TABLE>
<CAPTION>

                                           Year Ended December 31, 1998  Year Ended December 26, 1996
                                           ----------------------------  ----------------------------
                                              As Reported    Pro forma    As Reported    Pro forma
                                               ----------    ----------    ----------    ----------
                                                      (in thousands, except per share data)

<S>                                            <C>           <C>           <C>           <C>  
Earnings (loss) applicable to common shares:     
    Continuing operations                      $   (6,117)   $   (6,216)   $   (1,456)   $   (2,906)
    Discontinued operations                        38,930        38,930         3,994         3,994
                                               ----------    ----------    ----------    ----------
    Earnings before
     extraordinary credit                          32,813        32,714         2,538         1,088
    Extraordinary credit                             --            --           9,424         9,424
                                               ----------    ----------    ----------    ----------

         Net earnings                          $   32,813    $   32,714    $   11,962    $   10,512
                                               ==========    ==========    ==========    ==========


Earnings (loss) per share:
    Basic
      Continuing operations                    $     (.78)   $     (.79)   $     (.19)   $     (.39)
      Discontinued operations                        4.94          4.94           .53           .53
                                               ----------    ----------    ----------    ----------       
      Earnings before  
         extraordinary credit                        4.16          4.15           .34           .14
      Extraordinary credit                           --            --            1.25          1.25
                                               ----------    ----------    ----------    ----------
         Net earnings                          $     4.16    $     4.15    $     1.59    $     1.39
                                               ==========    ==========    ==========    ==========


    Diluted
      Continuing operations                    $     (.78)   $     (.79)   $     (.19)   $     (.39)
      Discontinued operations                        4.94          4.94           .53           .53
                                               ----------    ----------    ----------    ----------       
      Earnings before  
         extraordinary credit                        4.16          4.15           .34           .14                                
      Extraordinary credit                           --            --            1.25          1.25
                                               ----------    ----------    ----------    ----------
         Net earnings                          $     4.16    $     4.15    $     1.59    $     1.39
                                               ==========    ==========    ==========    ==========
</TABLE>







                                      F-21
<PAGE>


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



The fair value of stock options granted in 1998 and 1996 was estimated using the
Black-Scholes   option  pricing  model  with  the  following   weighted  average
assumptions:

                                                             
                                                      1998           1996
                                                      ----           ----

           Expected life (years)                        5              5
           Interest rate                               5.0%           6.5%
           Volatility                                 50.0%          50.0%
           Dividend yield                               -              -


Information  regarding  all stock option plans for the three years in the piod
ended December 31, 1998 is as follows:

<TABLE>
<CAPTION>
                                                 1998          1997           1996
                                             ----------    ----------    -----------
<S>                                           <C>           <C>            <C>    
Options outstanding at beginning of year        913,050       917,850        431,500
Options granted                                  62,500          --          532,750
Options exercised                                (4,300)       (4,800)       (40,400)
Options canceled                                   --            --           (6,000)
                                             ----------    ----------    -----------

Options outstanding at end of year              971,250       913,050        917,850
                                             ==========    ==========    ===========

Options exercisable at end of year              971,250       913,050        917,850
                                             ==========    ==========    ===========

Options available for grant at end of year    1,604,750     1,667,250      1,667,250
                                             ==========    ==========    ===========


Weighted average option prices:
    Outstanding at beginning of year         $   4.61        $   4.61      $    3.89
    Options granted                          $  3.125            --        $    5.25
    Options exercised                        $   3.70        $   3.70      $    5.01
    Options canceled                             --              --        $   10.00
    Outstanding at end of year               $   4.52        $   4.61      $    4.61
    Exercisable at end of year               $   4.52        $   4.61      $    4.61

</TABLE>

Significant  option groups outstanding at December 31, 1998 and related weighted
average price and remaining life information are as follows:


                        Options           Options        Exercise    Remaining
     Grant Date       Outstanding       Exercisable        Price    Life (Years)
     ----------       -----------       -----------        -----    ------------
                                 
      05-27-98             62,500            62,500        $3.125        9 
                         
      10-04-96            532,750           532,750        $5.25         7  
                         
      01-08-93           143,500            143,500        $3.75         4   
                                           
      06-22-92              6,000             6,000        $5.25         3
                         
      09-19-91             51,667            51,667        $3.65         2 
                          
      12-19-90            174,833           174,833        $3.65         1   
                                                                







                                      F-22
<PAGE>


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



Effective January 6, 1999, the Company issued certain officers and key employees
of ARTRA options to purchase  413,250  shares of ARTRA common stock at $4.75 per
share,  the  fair  market  value  on the  date  of  grant.  The  options  vested
immediately and expire ten years from the date of grant. Additionally, effective
January 6, 1999, the Company issued its outside directors options to purchase an
aggregate  of 20,000  ARTRA  common  shares at $4.75 per share,  the fair market
value on the date of grant,  to certain  outside  directors.  The options vested
immediately and expire ten years from the date of grant. These outside directors
were not board members at the time of the May 1998 disinterested director option
grants.


         Warrants

Information  regarding warrants to purchase shares of the Company's common stock
for the three years in the period ended December 31, 1998 is as follows:
<TABLE>
<CAPTION>

                                                1998          1997          1996 
                                            ----------    ----------    ----------
<S>                                          <C>           <C>           <C>      
Warrants outstanding at beginning of year    2,592,350     1,711,032     1,148,549
Warrants granted                               192,500     1,196,894       632,583
Warrants exercised                                --         (35,000)      (37,500)
Warrants put back                             (500,000)     (114,000)         --   
Warrants expired                              (214,850)     (166,576)      (32,600)
                                            ----------    ----------    ----------
Warrants outstanding at end of year          2,070,000     2,592,350     1,711,032
                                            ==========    ==========    ==========


                                                $3.00         $3.50         $3.50
Exercise prices per share                         to            to            to
                                                $8.00         $8.00         $9.875

</TABLE>

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.  At December 31, 1998,  warrantholders  had the
right to put warrants to purchase  833,144  shares of ARTRA common stock back to
the Company  for total  consideration  of  $1,705,000.  During 1998  warrants to
purchase  500,000  shares of ARTRA common stock at prices ranging from $3.75 per
share to $5.00 per  share  were put back to ARTRA  for  total  consideration  of
$1,420,000.  During 1997  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.


11.      COMMITMENTS AND CONTINGENCIES

Rental expense from continuing operations was $138,000, $134,000 and $134,000 in
fiscal years 1998, 1997 and 1996,  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 1998 and has been extended on a month-to-month basis. Rental
expense for this lease was $126,000  annually  for fiscal  years 1998,  1997 and
1996.

The Company and its subsidiaries are the defendants in various  business-related
litigation  and  environmental  matters.  At December  31, 1998 and December 31,
1997, the Company had accrued current  liabilities of $1,500,000 and $1,800,000,
respectively,   for  potential  business-related  litigation  and  environmental
liabilities.  While these  litigation  and  environmental  matters  involve wide
ranges of potential liability,  management does not believe the outcome of these
matters  will  have  a  material  adverse  effect  on  the  Company's  financial
statements.





                                      F-23
<PAGE>


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



The discontinued  Bagcraft subsidiary's Chicago facility has 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.  In May  1998  Bagcraft  paid  $170,000  to  formally
extinguish this claim.

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
1969 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.

In recent  years,  the  Company  has been a party to certain  product  liability
claims  relating  to the former  Synkoloid  subsidiary.  The  Company's  product
liability  insurance has covered all such claims settled to date. As of December
31,  1998,  the Company  anticipates  that its product  liability  insurance  is
adequate to cover any additional pending claims.

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,





                                      F-24
<PAGE>


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



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.


12.      INCOME TAXES

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


                                       1998       1997       1996
                                    -------    -------    -------

         Continuing operations      $  --      $  --      $  --
         Extraordinary credit          --         --          200
         Discontinued  operations     1,600        (19)       152
                                    -------    -------    -------
                                    $ 1,600    $   (19)   $   352
                                    =======    =======    =======


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


                                      1998       1997       1996
                                    -------    -------    -------

         Current:
             Federal                $   700    $  --      $   200
             State                      900        (19)       152
                                    -------    -------    -------

                                    $ 1,600    $   (19)   $   352
                                    =======    =======    =======


Due to the utilization of tax loss carryforwards,  no Federal income tax expense
is reflected  in the  Company's  financial  statements  resulting  from the 1998
earnings from discontinued  operations or the 1996 extraordinary  credit, except
for Federal alternative minimum tax. The 1996 extraordinary  credit represents a
net gain from discharge of indebtedness.





                                      F-25
<PAGE>


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



12.      INCOME TAXES, continued

In 1998,  1997 and 1996,  the  effective  tax rates from  operations,  including
discontinued operations were 4.5%, (1.0)% and 2.5%, respectively, as compared to
the statutory Federal rate, which are reconciled (in thousands) as follows:


                                                   1998      1997        1996
                                                --------   --------    --------

  Provision (credit) for income taxes
    using statutory rate                        $ 12,013   $    633    $  4,709
  State and local taxes,
    net of Federal benefit                           900        (19)        152
  Current year tax loss not utilized                --       (1,680)       --
  Deferred finance fee                              --          919         127
  Amortization of goodwill                          --          104         104
  Previously unrecognized benefit
    from utilizing tax loss carryforwards        (12,035)      --        (4,767)
  Alternative minimum tax                            700       --          --
  Other                                               22         24          27
                                                --------   --------    --------
                                                $  1,600   $    (19)   $    352
                                                ========   ========    ========































                                      F-26
<PAGE>


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



12.      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, 1998 and December 31,
1997 and their approximate tax effects (in thousands) are as follows:

<TABLE>
<CAPTION>
                                                                1998                       1997
                                                    --------------------------   ------------------------ 
                                                     Temporary        Tax        Temporary        Tax
                                                     Difference    Difference    Difference    Difference

<S>                                                   <C>           <C>           <C>           <C>     
         Investment in COMFORCE Corporation           $ 36,000      $ 14,000      $ 36,000      $ 14,000
         Accrued personnel costs                          --            --           1,200           500
         Restructuring reserve                            --            --             600           200
         Environmental reserve                            --            --             300           100
         Other                                           2,500         1,000         3,400         1,300
         Capital loss carryforward                        --            --           3,500         1,400
         Net operating loss                             10,200         4,000        40,000        15,600
                                                                    --------                    --------
                   Total deferred tax assets                          19,000                      33,100
                                                                    --------                    --------

         Inventories                                      --            --          (1,900)         (700)

         Accumulated depreciation                         --            --          (5,100)       (2,000)

         Other                                            (800)         (300)         (800)         (300)
                                                                    --------                    --------
                   Total deferred tax liabilities                       (300)                      3,000
                                                                    --------                    --------
                   Valuation allowance                               (18,700)                    (30,100)
                                                                    --------                    --------
                   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, 1998,  the Company and its  subsidiaries  had Federal income tax
loss carryforwards of approximately  $10,000,000  expiring principally in 2010 -
2012,  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-27
<PAGE>


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



13.      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 $45,000,  $38,000 and
$28,000 in 1998, 1997 and 1996, respectively.

The Company  typically  does not offer the types of benefit  programs  that fall
under the  guidelines of Statement of Financial  Accounting  Standards No. 132 -
Employers' Disclosures about Pensions and Other Postretirement Benefits.


14.      EARNINGS PER SHARE

The  Company  adopted  SFAS No.  128,  "Earnings  per Share," for the year ended
December 31, 1998.  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.

Earnings (loss) per share for each of the three fiscal years in the period ended
December  31,  1998 was  computed  as follows  (in  thousands,  except per share
amounts):

<TABLE>
<CAPTION>

                                                    Year Ended                Year Ended                  Year Ended
                                                December 31, 1998         December 31, 1997            December 26, 1996
                                               ---------------------     ---------------------      ------------------------
                                                 Basic       Diluted       Basic       Diluted         Basic       Diluted
                                               --------      --------    --------      --------      --------      --------
<S>                                            <C>           <C>         <C>           <C>           <C>           <C>  
   AVERAGE SHARES OUTSTANDING:
     Weighted average shares outstanding          7,891         7,891       7,970         7,970         7,525         7,525
     Common stock equivalents
         (options/warrants)                        --            --          --            --            --            --
                                               --------      --------    --------      --------      --------      --------
                                                  7,891         7,891       7,970         7,970         7,525         7,525
                                               ========      ========    ========      ========      ========      ========

   EARNINGS (LOSS):
     Earnings (loss) from
       continuing operations                   $ (5,707)     $ (5,707)   $  1,066      $  1,066      $   (445)     $   (445)
     Dividends applicable to
        redeemable preferred stock                 (410)         (410)       (693)         (693)         (621)         (621)
     Redeemable common stock accretion             --            --          (400)         (400)         (390)         (390)
                                               --------      --------    --------      --------      --------      --------
     Loss from continuing operations
        applicable to common shareholders        (6,117)       (6,117)        (27)          (27)       (1,456)       (1,456)
     Earnings (loss) from
       discontinued operations                   38,930        38,930        (293)         (293)        3,994         3,994
                                               --------      --------    --------      --------      --------      --------
     Earnings (loss) before
       extraordinary credit                      32,813        32,813        (320)         (320)        2,538         2,538
     Extraordinary credit                          --            --          --            --           9,424         9,424
                                               --------      --------    --------      --------      --------      --------

     Net earnings (loss)                       $ 32,813      $ 32,813    $   (320)     $   (320)     $ 11,962      $ 11,962
                                               ========      ========    ========      ========      ========      ========

</TABLE>







                                      F-28
<PAGE>



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



14.      EARNINGS PER SHARE, continued

<TABLE>
<CAPTION>

                                             Year Ended            Year Ended          Year Ended
                                          December 31, 1998     December 31, 1997    December 26, 1996
                                         --------------------  ------------------   ------------------- 
                                         Basic       Diluted   Basic     Diluted   Basic      Diluted

   PER SHARE AMOUNTS:
<S>                                      <C>        <C>        <C>       <C>       <C>        <C>      
     Loss from continuing operations
        applicable to common shares      $   (.78)  $   (.78)  $  --     $  --     $   (.19)  $   (.19)
     Earnings (loss) from
        discontinued  operations             4.94       4.94      (.04)     (.04)       .53        .53
                                         --------   --------   -------   -------   --------   -------- 
                                         
     Earnings (loss) before
        extraordinary credit                 4.16       4.16      (.04)     (.04)       .34        .34
     Extraordinary credit                   --         --         --        --         1.25       1.25
                                         --------   --------   -------   -------   --------   -------- 
                                         
     Net earnings (loss) applicable
        to common shares                 $   4.16   $   4.16   $  (.04)  $  (.04)  $   1.59   $   1.59
                                         ========   ========   =======   =======   ========   ========
                                         
</TABLE>



15.           LITIGATION

In  November,  1993,  ARTRA  filed suit in the Circuit  Court of the  Eighteenth
Judicial  Circuit  for the state of Illinois  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.
in 1989 by Emerald Acquisition Corp.

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 ($1.31 per share), 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 11). Management
does not  believe  the  outcome of these  matters  will have a material  adverse
effect on the Company's financial statements.


16.      RELATED PARTY TRANSACTIONS

At December 31, 1997, advances to Peter R. Harvey, ARTRA's president, classified
in the consolidated balance sheet as a reduction of common shareholders' equity,
(in thousands) consisted of:

             Total advances, including accrued interest            $18,226

             Less interest for the period January 1,
             1993 to date, accrued and fully reserved               (2,789)     
                                                                   -------      
                                                                    15,437
             Less compensation/expense reimbursement                (2,816)    
                                                                   ------- 
                   Net advances                                    $12,621
                                                                   =======










                                      F-29
<PAGE>


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



ARTRA had total  advances  due from its  president,  Peter R.  Harvey,  of which
$18,226,000,  including accrued interest,  remained  outstanding at December 31,
1997.  These  advances  provided for interest at varying rate from 10.5% to 12%.
This  receivable  from Peter R. Harvey had been  classified  as a  reduction  of
common shareholders' equity.

Commencing January 1, 1993 to date,  interest on the advances to Peter R. Harvey
had been accrued and fully reserved.


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 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
                                                                 =============


For a discussion of certain other related party debt obligations see Note 7.













                                      F-30
<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, 1998
                                 (in thousands)

<TABLE>
<CAPTION>

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

                                                                               Additions
                                                                    ------------------------------ 

                                                                         (a)             (b)
                                                   Balance at         Charged to      Charged to
                                                  Beginning of        Costs and         Other          Deductions        Balance at
        Description                                  Period            Expenses        Accounts        (Describe)      End of Period
                                                ---------------    ---------------  --------------    -------------    -------------



<S>                                                   <C>               <C>                               <C>                 <C>
For the fiscal year ended December 31, 1998:

   Deducted from assets to which they apply:
      Allowance for inventory valuation               $ 277             $  21                             $ (298)(C)          $ -
                                                      =====             ======                            ======              ===== 

      Allowance for doubtful accounts                 $ 275             $  45                             $ (320)(C)          $ -
                                                      =====             ======                            ======              ======


For the fiscal year ended December 31, 1997:

   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 markdowns                         $ 250             $ 365                             $ (103)(A)          $ 512
                                                      =====             ======                            ======              =====

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


</TABLE>





                                      F-31
<PAGE>



                                INDEX OF EXHIBITS


     (A) Exhibits included herein:

         EXHIBIT 21        Subsidiaries.

         EXHIBIT 23        Consent of Independent Accountants.

         EXHIBIT 27        Financial Data Schedule


     (B) Exhibits incorporated herein by reference:

         EXHIBIT 3       Articles of Incorporation and By-laws

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

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

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

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


         EXHIBIT 10      Material contracts

                    10.1 AMENDMENT NO. 2 TO ASSETS PURCHASE AGREEMENT,  dated as
                         of October 26, 1998, to the Assets Purchase  Agreement,
                         dated as of August 26,  1998 by and among  ARTRA  GROUP
                         Incorporated,  BCA Holdings, Inc., Bagcraft Corporation
                         of  America  ("Bagcraft"),   ("Seller")  and  Packaging
                         Dynamics  L.L.C.   and  Bagcraft   Acquisition   L.L.C.
                         ("Buyer")  regarding  purchase of the business  assets,
                         subject to Buyer's  assumption of certain  liabilities,
                         of Bagcraft,  filed as an exhibit to Registrant's  Form
                         10-Q, for the quarter ended September 30, 1998.

                    10.2 NON-COMPETE AGREEMENT,  by and among Packaging Dynamics
                         L.L.C., Bagcraft Acquisition L.L.C. ("Buyer") and ARTRA
                         GROUP Incorporated and BCA Holdings,  Inc.  ("Seller"),
                         filed as an exhibit to Registrant's  Form 10-Q, for the
                         quarter ended September 30, 1998.

                    10.3 Assets Purchase Agreement, dated as of August 26, 1998,
                         by and among ARTRA GROUP  Incorporated,  BCA  Holdings,
                         Inc.,  Bagcraft  Corporation  of  America  "Bagcraft"),
                         ("Sellers") and Packaging  Dynamics L.L.C. and Bagcraft
                         Acquisition  L.L.C.("Buyers") regarding purchase of the
                         business  assets,  subject  to  Buyer's  assumption  of
                         certain liabilities,  of Bagcraft,  filed as an exhibit
                         to Registrant's Form 8-K, dated September 2, 1998.






                                      E-1