SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-K

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

                                       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)


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

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

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

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

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


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

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

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


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

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

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


Documents Incorporated by Reference:   None

                                           
<PAGE>


                                     PART I

Item 1.  Business

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

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


                           Packaging Products Business

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

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

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

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


<PAGE>



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

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

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

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


         Paper Division

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

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


         Food Service Division

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

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


<PAGE>



         Specialty Bag Division

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

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

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

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


         Microwave Popcorn Division

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

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

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


Employees

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


<PAGE>



Item 2.  Properties

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

<TABLE>
<CAPTION>

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


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


Bagcraft:

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


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


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


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


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


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

</TABLE>

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


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

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

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

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

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


<PAGE>


Item 3.  Legal Proceedings

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

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

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

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

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

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

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

<PAGE>



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

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

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

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

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

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

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

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

<PAGE>



formerly owned by ARTRA.  Synkoloid  manufactured spackling paste, wall coatings
and related  products,  certain of which  generated  hazardous  substances  as a
by-product of the manufacturing process.

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

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

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

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

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

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

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

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


<PAGE>



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

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



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

None.



<PAGE>



                                     PART II

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

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

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

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

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

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

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

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


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


<PAGE>



Item 6.  Selected Financial Data.

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



<TABLE>
<CAPTION>
                                                              Fiscal Year Ended (E)
                                             ----------------------------------------------------------- 
                                        
                                               1996         1995         1994         1993         1992         
                                              ------       ------       ------       ------       ------
                                                         (in thousands except per share data)
   <S>                                      <C>          <C>          <C>          <C>          <C>

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

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

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

</TABLE>


<PAGE>





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

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

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

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

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


<PAGE>


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


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


Changes in Business

         Arcar

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


         COMFORCE

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

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

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

Effective July 4, 1995, COMFORCE's management agreed to issue up to a 35% common
stock  interest in COMFORCE to certain  individuals to manage  COMFORCE's  entry
into the telecommunications and computer technical staffing

<PAGE>



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

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

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

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

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

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

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


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


         Results of Operations

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

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


<PAGE>


The following table presents,  as a percentage of net sales,  operating expenses
and  other  income  (expense)   included  the  Company's  earnings  (loss)  from
continuing operations for the three years in the period ended December 26, 1996.
<TABLE>
<CAPTION>

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

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

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

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

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

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

</TABLE>



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

         Continuing Operations

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

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

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

<PAGE>



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

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

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

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

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

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

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


         Discontinued Operations

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


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

         Continuing Operations

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

<PAGE>



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

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

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

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

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

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


         Discontinued Operations

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

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


<PAGE>



Liquidity and Capital Resources

         Cash and Cash Equivalents and Working Capital

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

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



         Status of Debt Agreements and Operating Plan

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


         ARTRA Corporate

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

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

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


<PAGE>



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

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

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

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

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

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

At December 28, 1995,  $12,063,000  in ARTRA  notes,  plus accrued  interest and
fees, were payable to a bank. The notes provided for interest at the prime rate.
In February  1996, a bank agreed to discharge  all amounts under its ARTRA notes
($12,063,000 plus accrued interest and fees) and certain  obligations of ARTRA's
president, Peter R. Harvey for

<PAGE>



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

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

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

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

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

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

<PAGE>



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

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

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

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

As collateral for amounts due from Peter R. Harvey, the Company has received the
pledge of 1,523 shares of ARTRA  redeemable  preferred stock (with a liquidation
value of $1,523,000,  plus accrued  dividends) which are owned by Mr. Harvey. In
addition,  Mr.  Harvey has pledged a 25%  interest in  Industrial  Communication
Company (a private  company).  Such interest is valued by Mr. Harvey at $800,000
to $1,000,000. During 1995, Peter R. Harvey entered into a pledge agreement with
ARTRA  whereby Mr. Harvey  pledged  additional  collateral  consisting of 42,067
shares of ARTRA  common  stock and  707,281  shares of Pure Tech  International,
Inc., a publicly traded  corporation.  Per terms of a February discharge of bank
indebtedness (see Note 7 to the Company's  consolidated  financial  statements),
ARTRA received additional  collateral from Mr. Harvey consisting of a $2,150,000
security  interest in certain real estate,  subordinated  to the bank's $850,000
security interest in this real estate.

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

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

The Company has suffered  recurring losses from operations and has a net capital
deficiency. As a result of these factors, the Company has experienced difficulty
in obtaining adequate financing to replace certain current credit  arrangements,

<PAGE>



certain  of  which  are in  default,  to fund  its debt  service  and  liquidity
requirements in 1997. Due to its limited ability to receive operating funds from
its  operating   subsidiaries,   ARTRA   historically   has  met  its  operating
expenditures  with  funds  generated  by such  alternative  sources  as  private
placements of ARTRA common stock and notes, sales of ARTRA common stock with put
options, loans from officers/directors and private investors, as well as through
sales of assets and/or other equity  infusions.  ARTRA plans to continue to seek
such alternative sources of funds to meet its future operating expenditures.

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

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


         Bagcraft

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

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

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

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

As  additional  compensation  for  borrowings  under the  Credit  Agreement,  in
December 1993, the lender received a detachable warrant ("Warrant"), expiring in
December  1998,  allowing the holder to purchase up to 10% of the fully  diluted
common equity of Bagcraft at a nominal value. Under certain conditions  Bagcraft
was required to repurchase the Warrant from the lender. The determination of the
repurchase  price of the Warrant was to be based on the Warrant's pro rata share


<PAGE>



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

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

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

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

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

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


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

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

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

<PAGE>



As  discussed  in Note 20 to the  consolidated  financial  statements  effective
January 2, 1997, Bagcraft completed the purchase of the business assets, subject
to buyer's assumption of certain  liabilities,  of AB Specialty Holding Company,
Inc. ("AB"). The consideration  consisted of cash of approximately $2.4 million,
funded  through   borrowings  under  Bagcraft's  Credit   Agreement,   of  which
approximately  $1.2  million  was  paid  as a  deposit  in  December  1996.  The
acquisition of AB, is expected to enhance Bagcraft's specialty bag business.

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



         Investment In COMFORCE Corporation

ARTRA,  along with its wholly  owned  Fill-Mor  subsidiary,  owns a  significant
minority  interest in COMFORCE,  consisting of 1,769,703 shares or approximately
14% of the outstanding  common stock of COMFORCE as of December 26, 1996 with an
aggregate value as of that date of $22,564,000.

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

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

There can be no assurance  that the  Securities  and Exchange  Commission  would
concur with the Company's position. Notwithstanding this, ARTRA does not believe
that its ability to sell COMFORCE shares,  or eventually to realize on the value
of its COMFORCE shares,  will be affected in a material adverse way, although it
may not be able to sell its COMFORCE shares as quickly as it could if it were to
use Rule  144(k),  and in any event,  an  attempt to sell a large  number of its
COMFORCE shares over a limited period could be expected to result in a reduction
in the value of such shares.  Effective  December  19, 1996,  ARTRA and COMFORCE
entered into a Settlement Agreement pursuant to which COMFORCE agreed to include
in a proposed  underwritten  public  offering  380,000 shares of COMFORCE common
stock held by ARTRA and its  Fill-Mor  subsidiary  and ARTRA agreed to a Lock-up
agreement which limits its ability to sell its remaining  COMFORCE common shares
for a  period  of 360 days  after  the  effective  date of  COMFORCE's  proposed
underwritten public offering.  The registration statement has not occurred as of
the date of this Form 10-K. If COMFORCE does not retain an  underwriter by April
30, 1997,  ARTRA will  released from the  provisions  of the Lock-up  Agreement.
Currently,  the sale of  1,715,000  COMFORCE  common  shares  held by ARTRA  and
Fill-Mor is restricted  because the shares are collateral for various short-term
loans (54,703 shares held by ARTRA and Fill-Mor remain unencumbered).

<PAGE>



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

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

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


         Litigation

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


         Net Operating Loss Carryforwards

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


Impact of Inflation and Changing Prices

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

<PAGE>



Recently Issued Accounting Pronouncements

         Earnings Per Share

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




Item 8.  Financial Statements and Supplementary Data.

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





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

None.




<PAGE>

                                    PART III

Item 10.  Directors and Executive Officers of the Registrant

Information Regarding Directors

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


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

Peter R. Harvey (2)       61       President and  Chief Operating  Officer and a
                                   Director  since  1968;  Director  of COMFORCE
                                   (temporary professional employment,  formerly
                                   The Lori  Corporation)from  1985 to  December
                                   1995  and a vice  president  through  January
                                   1996, an equity holding of ARTRA representing
                                   14% of COMFORCE  outstanding  common stock; a
                                   former Director and Chief  Operating  Officer
                                   of SoftNet Systems, Inc. ("SoftNet").  During
                                   1995,  Mr.  Harvey  resigned  from all of the
                                   Softnet  offices,  formerly  The Vader  Group
                                   Inc.  (image  processing and health care cost
                                   containment);  Vice President and Director of
                                   Ozite Corporation, the majority parent of PST
                                   (textiles,  hose  and  tubing).  Director  of
                                   PureTec Corporation,  the successor by merger
                                   to  Ozite.  Former  Director  of Rymer  Foods
                                   Inc.,  (portion  control  meat  products  and
                                   seafood).
  
Gerard M. Kenny (3)        44      Director since 1988; Executive Vice President
                                   and Director since 1982 of Kenny Construction
                                   Company   since   1982   (diversified   heavy
                                   construction);  General  Partner  of  Clinton
                                   Industries    (investments),     a    limited
                                   partnership, since 1972.

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

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

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

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


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

Information Regarding Executive Officers

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

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

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

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

John G. Hamm           57         Executive Vice President of ARTRA

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

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


John Conroy            52         Vice President  - Corporate  Administration of
                                  ARTRA

Lawrence D. Levin      45         Controller of ARTRA

Edwin G. Rymek         66         Secretary of ARTRA
  



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

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

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

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

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

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

<PAGE>




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

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


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



<PAGE>



Item 11.  Executive Compensation

Directors' Compensation

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


Executive Officer Executive Officer Compensation

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

 
                           SUMMARY COMPENSATION TABLE
<TABLE>                             
<CAPTION>
                                            Annual Compensation(1)       Long Term Compensation(1)
                                            ----------------------       -------------------------
                                                                           Securities          All
                                                                          Underlying(3)       Other
          Name and                      Salary       Salary                 Options -        Compen-
    Principal Positions       Year       Paid      Deferred(2)   Bonus    No. of Shares      sation
    -------------------       ----       ----      -----------   -----    -------------      ------
<S>                           <C>      <C>           <C>         <C>       <C>              <C>      
 
         John Harvey,         1996     $137,811      $  -0-      $ -0-     141,000          $5,456(4)
      Chairman and Chief      1995      126,200         -0-        -0-         -0-           2,520(5)
      Executive Officer       1994      126,200         -0-        -0-         -0-           2,520(5)
  

      James D. Doering,       1996      133,600         -0-        -0-      57,500           6,000(4)
     Vice President and       1995       49,900       83,500       -0-         -0-           3,470(5)
   Chief Financial Officer    1994      111,133       22,267       -0-         -0-           3,000(5)
          
                                       
        John G. Hamm,         1996      133,600         -0-        -0-     101,250           6,000(4)
          Executive           1995       49,900       83,500       -0-         -0-           3,470(5)
        Vice President        1994      111,133       22,267       -0-         -0-           3,000(5)
           
                                     
      Robert S. Gruber,       1996      110,400         -0-        -0-      97,750           6,000(4)
        Vice President        1995       92,000       69,000       -0-         -0-           2,868(5)
     Corporate Relations      1994          -0-       18,400       -0-         -0-           3,000(5)

</TABLE>
<PAGE>

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

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

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

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

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



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


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

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

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

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

</TABLE>
<PAGE>

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


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

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

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

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


</TABLE>
                                                                           0
-------------------------------
 
(1)      See the notes under  "Principal  Shareholders" for a description of the
         options (including  exercise prices) granted  to each  of the executive
         officers listed in this table.

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


     Compensation Committee Interlocks And Insider Participation

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

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


Item 12. Security Ownership of Certain Beneficial Owners and Management

Securities Ownership of Certain Beneficial Owners

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

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

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

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




*        Less than 1% of the outstanding shares.

<PAGE>



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

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

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

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

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

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

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

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

<PAGE>



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

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

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



Item 13. Certain Relationships And Related Transactions

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

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

<PAGE>



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

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

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

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

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

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

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


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

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

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

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



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

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

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

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

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

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

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

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


<PAGE>



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

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

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

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

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

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

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


<PAGE>


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

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

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

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

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


Settlement of the Bank of America Illinois Debt

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

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

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

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

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



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

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

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

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

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

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

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


         Other Transactions

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

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

<PAGE>



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

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

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

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

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

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



<PAGE>



                                     PART IV


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

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


          (b)      Reports on Form 8-K.

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


<PAGE>


                                                          SIGNATURE

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

                                                      ARTRA GROUP INCORPORATED

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


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

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


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


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


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


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


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


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


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


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

<PAGE>




                          INDEX TO FINANCIAL STATEMENTS






                                                                       Page
ARTRA GROUP INCORPORATED AND SUBSIDIARIES

    Report of Independent Accountants                                  

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

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

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

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

    Notes to Consolidated Financial Statements                       


    Schedules:

      I.   Condensed Financial Information of Registrant               

     II.   Valuation and Qualifying Accounts                           




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


<PAGE>


                        REPORT OF INDEPENDENT ACCOUNTANTS


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

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

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

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

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





COOPERS & LYBRAND L.L.P.


Chicago, Illinois
April 2, 1997

<PAGE>
                                

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

<TABLE>
<CAPTION>

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

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

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

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


<FN>
 The accompanying notes are an integral part of the consolidated financial statements.
</FN>
</TABLE>
<PAGE>
                                                         
                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                 (In thousands, except share and per share data)

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

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

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

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

Redeemable preferred stock                                              8,678           18,631


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


<FN>
 The accompanying notes are an integral part of the consolidated financial statements.
</FN>
</TABLE>
<PAGE>
                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (In thousands, except per share data)

<TABLE>
<CAPTION>



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

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

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

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

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

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

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

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

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


<PAGE>







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


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


<TABLE>
<CAPTION>

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

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

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


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

<TABLE>
<CAPTION>

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

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



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


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


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


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1.       Basis of Presentation and Financial Restructuring

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

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

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

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

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

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


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



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

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

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


2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


A.   Principles of Consolidation

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


B.   Cash Equivalents

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


C.   Inventories

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


D.   Property, Plant and Equipment

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

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


<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



E.   Investments in Equity Securities

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


F.   Intangible Assets

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

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


G.   Revenue Recognition

Sales to customers are recorded at the time of shipment.


H.   Income Taxes

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


I.   Use of Estimates In Preparation of Financial Statements

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


<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



J.   Stock-Based Compensation

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


K.   Recently Issued Accounting Pronouncements

         Earnings Per Share

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


3.       CHANGE OF BUSINESS

         Arcar Graphics, Inc.

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

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


         COMFORCE

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

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

<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



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

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

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

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

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

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

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


<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



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

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


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


         Other

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

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

                                                1995        1994
                                              --------    --------
                                                                               
     Net sales                                $ 16,932    $ 40,278
                                              ========    ========

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

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


     Gain on sale of Arcar subsidiary            8,483        --
     
     Provision for disposal of business           (300)       --
    
     Provision for income taxes                   --          --
                                              --------    --------
     Gain on disposal of businesses              8,183        --
                                              --------    --------

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

                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



4.       CONCENTRATION OF RISK

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

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


5.       INVENTORIES

Inventories (in thousands) consist of:
         
                                           December 26,    December 28,
                                               1996            1995
                                             -------         -------
                                                             
         Raw materials and supplies          $ 5,582         $ 5,645
         Work in process                         287              40
         Finished goods                        9,098          10,949
                                             -------         -------
                                             $14,967         $16,634
                                             =======         =======


6.            INVESTMENT IN COMFORCE CORPORATION

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

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


<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



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

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

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

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


7.       EXTRAORDINARY GAINS

         ARTRA Debt Restructuring

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


<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



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


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


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


         COMFORCE Debt Restructuring

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

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


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

<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



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


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


8.       NOTES PAYABLE

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

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

     ARTRA 12% secured promissory notes               7,675         --
                                                            
     ARTRA 12% convertible subordinated 
       promissory notes                                --          2,500
                                                       
     Amounts due to related parties, 
       interest principally at 10%                    3,600        5,675

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


         Bank Notes Payable

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

<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)



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

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


         Secured Promissory Notes

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


         Convertible Subordinated Promissory Notes

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


<PAGE>


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




         Amounts Due To Related Parties

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

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

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

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


<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)



On March 31,  1994,  ARTRA  entered  into a series of  agreements  with its bank
lender and with a private  corporation  that had  guaranteed  $2,500,000  of the
ARTRA bank notes discharged in February 1996 as noted above. A major shareholder
and executive officer of the private corporation is an ARTRA director. Per terms
of the agreements,  the private corporation  purchased $2,500,000 of ARTRA notes
from  ARTRA's  bank and the  bank  released  the  private  corporation  from its
$2,500,000 loan guaranty.  As consideration  for purchasing  $2,500,000 of ARTRA
bank notes,  the private  corporation  received a  $2,500,000  note payable from
ARTRA bearing interest at the prime rate.

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


         Other

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

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

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

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

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

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

<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)



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

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

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


9.   LONG-TERM DEBT

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

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

         Term loan A, interest at the lender's index rate plus 1.75%                --      $ 12,000
 
         Term loan B, interest at the lender's index rate plus 3%                   --         4,600

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

         Unamortized discount                                                     (1,752)       --

     Bagcraft:
         City of Baxter Springs, Kansas loan agreements,
             interest at varying rates                                            10,681      11,794
                                                                                --------    -------- 
                                                                                  36,919      37,625
     Current scheduled maturities                                                 (2,712)     (3,512)
                                                                                --------    -------- 
                                                                                                     
                                                                                $ 34,207    $ 34,113
                                                                                ========    ========

</TABLE>

<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)



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

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

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

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

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

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


<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)



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

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

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

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


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

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

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


10.      REDEEMABLE COMMON STOCK

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

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

<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)



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


11.   REDEEMABLE PREFERRED STOCK

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

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

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

      Noncurrent:
        ARTRA redeemable preferred stock,
          Series A, $1,000 par value,
          6% cumulative payment-in-kind, 
          including accumulated dividends,
          net of unamortized discount 
          of $1,271 in 1996 and $1,575 in 1995; 
          redeemable March 1, 2000 
          at $1,000 per share plus accrued dividends;         
          authorized 2,000,000 shares all series;
          issued 3,750 shares                                   $   4,315       $  3,694
                
        Bagcraft redeemable preferred stock 
          payable to a related party, 
          cumulative $.01 par value, 13.5%; 
          including accumulated dividends; 
          redeemable in 1997 with a liquidation                    10,794
          preference equal to $100 per share;                 
          issued 50,000 shares in 1995                               --

        BCA Holdings preferred stock, Series A, 
          $1.00 par value, 6% cumulative, 
          including accumulated dividends;  
          redeemable in 1997 with a liquidation 
          preference of $1,000 per share; 
          10,000 shares authorized; issued 3,675 shares            4,363           4,143
                                                                 -------         -------                
                                                                
     
                                                                $  8,678        $ 18,631
                                                                 =======         =======
</TABLE>
<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)



         ARTRA

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


         Bagcraft/BCA Holdings

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

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

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

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

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


<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)



12.      STOCK OPTIONS AND WARRANTS

         Stock Option Plans

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

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

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

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

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

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



<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)



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

<TABLE>
<CAPTION>
                                                                
                                                      1996           1995          1994
                                                   ----------    -----------    ----------

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

     Options granted                                 532,750           --          20,000

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

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

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

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


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


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

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

          10-04-96        532,750         532,750         $ 5.25          9
                                            
          01-08-93        148,100         148,100         $ 3.75          6 
                                         
          06-22-92          6,000           6,000         $ 5.25          5
                                          
          09-19-91         52,967          52,967         $ 3.65          4 
                                           
          12-19-90        178,033         178,033         $ 3.65          3
                                                            


         Warrants

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

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

<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)



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

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

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


13.      COMMITMENTS AND CONTINGENCIES

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

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


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

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

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


<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)



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

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

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

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

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

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

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


<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)



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

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

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

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

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

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



<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)



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

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

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


14.      INCOME TAXES

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


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

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


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


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

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



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


<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



14.      INCOME TAXES, continued

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


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

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



<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



14.      INCOME TAXES, continued

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

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

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

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

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


<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



15.      EMPLOYEE BENEFIT PLANS

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

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

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

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


16.      EARNINGS PER SHARE

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


17.      INDUSTRY SEGMENT INFORMATION

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

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

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



<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



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

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


18.      LITIGATION

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

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

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

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

In December,  1991 Welch filed a lawsuit  against  ARTRA  alleging  that certain
representations, warranties and covenants made by ARTRA, which were contained in
the  parties'  Stock  Purchase   Agreement,   were  false.   Welch  was  seeking
compensatory damages in the amount of $3,800,000.  Subsequently, ARTRA had filed
a counterclaim predicated upon


<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



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

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

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


19.      RELATED PARTY TRANSACTIONS

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

                                                      December 26,  December 28,
                                                           1996          1995
                                                         -------       ------- 
    
    Total advances, including accrued interest           $ 7,998       $ 5,369
    Less interest for the period January 1, 1993    
      to date, accrued and fully reserved                 (1,530)       (1,051)
                                                         -------       ------- 
          Net advances                                   $ 6,468       $ 4,318
                                                         =======       =======


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

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



<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



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

Commencing January 1, 1993 to date,  interest on the advances to Peter R. Harvey
has been accrued and fully reserved.  Interest accrued and fully reserved on the
advances  to Peter R.  Harvey for the nine months  ended  December  26, 1996 and
December 28, 1995 totaled $479,000 and $436,000, respectively.

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

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

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

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

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

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



<PAGE>


                    ARTRA GROUP INCORPORATED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



20.      SUBSEQUENT EVENT

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


<PAGE>

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

                            ARTRA GROUP INCORPORATED
                                 BALANCE SHEETS
                         (Registrant Only In Thousands)


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

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

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

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


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

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

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

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


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

<PAGE>

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

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



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

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

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

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

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

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



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

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

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


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

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

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

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

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


Supplemental schedule of noncash investing and financing activities:
   Issue common stock and redeemable common stock
     to pay down current liabilities                                               $1,274       $1,040        $791
    Issue common stock as additional consideration
       for short-term borrowings                                                      661        1,266          -
    ARTRA common stock issued to Lori's bank lender as partial
       consideration for discharge of indebtedness                                     -            -        2,500


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

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

                            ARTRA GROUP INCORPORATED
                         NOTES TO FINANCIAL INFORMATION
                                (Registrant Only)



1.   Presentation

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


2.   Commitments and Contingencies

See Note 13 of the consolidated financial statements.


3.   Restricted Assets

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


4.   Notes Payable and Long-Term Debt

See Notes 8 and 9 of the consolidated financial statements.


5.   Redeemable Common and Preferred Stock and Stock Options

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


6.   Income Taxes

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


7.   Related Party Transactions

See Notes 8 and 19 of the consolidated financial statements.




<PAGE>

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

<TABLE>
<CAPTION>

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

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

   Deducted from assets to which they apply:

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

      Allowance for doubtful accounts                   $    250    $      365                    $   (103)(E)     $     512
                                                        ========    ==========                    ========         =========
  
For the fiscal year ended December 28, 1995:

   Deducted from assets to which they apply:

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

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

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

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

For the fiscal year ended December 29, 1994:

   Deducted from assets to which they apply:

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

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

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

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

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


<PAGE>



                                INDEX OF EXHIBITS



     (A) Exhibits included herein:

         EXHIBIT  3        Articles of Incorporation and By-laws

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

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


         EXHIBIT  10       Material contracts

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

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

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

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


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


         EXHIBIT  21       Subsidiaries.


         EXHIBIT  23       Consent of Independent Accountants.


<PAGE>



     (B) Exhibits incorporated herein by reference:


         EXHIBIT  3        Articles of Incorporation and By-laws

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

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

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

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

         EXHIBIT  10       Material contracts

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

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

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

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

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

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


<PAGE>





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

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

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

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

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

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

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

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

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

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

<PAGE>




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

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

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

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

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