<PAGE>   1
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                                   FORM 10-K

(Mark One)
[X]   Annual report pursuant to section 13 or 15(d) of the Securities Exchange
      Act of 1934 [NO FEE REQUIRED] for the fiscal year ended January 3, 1998 or

[ ]   Transition report pursuant to section 13 or 15(d) of the Securities
      Exchange Act of 1934 [NO FEE REQUIRED] for the transition period from
      ________ to ________

                        COMMISSION FILE NUMBER  0-9576

                          K-TRON INTERNATIONAL, INC.
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

               New Jersey                                22-1759452
    (State or other jurisdiction of         (I.R.S. Employer Identification No.)
     incorporation or organization)


             Routes 55 and 553
                P.O. Box 888
             Pitman, New Jersey                           08071-0888
  (Address of principal executive offices)                (Zip Code)


      Registrant's telephone number, including area code: (609)589-0500

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

      Title of each class             Name of each exchange on which registered
           None                                      None

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

                    Common Stock, par value $.01 per share
                               (Title of class)

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
<PAGE>   2
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 statement incorporated
by reference in Part III of this annual report on Form 10-K or any amendment to
this annual report on Form 10-K. / /

As of March 10, 1998, the aggregate market value of the Common Stock held by
non-affiliates of the registrant was $52,337,662. Such aggregate market value
was computed by reference to the closing sale price of the Common Stock as
reported on the National Market segment of The Nasdaq Stock Market on such date.
For purposes of making this calculation only, the registrant has defined
affiliates as including all directors and executive officers, but excluding the
Estate of Dr. Mario Gallo and David L. Babson Company, Incorporated, which are
the only beneficial owners of more than ten percent of the registrant's Common
Stock.

As of March 10, 1998, there were 3,245,314 shares of the registrant's Common
Stock outstanding.


                     DOCUMENTS INCORPORATED BY REFERENCE:

As stated in Part III of this annual report on Form 10-K, portions of the
following document are incorporated herein by reference:

      Definitive proxy statement to be filed within 120 days after the end of
      the fiscal year covered by this annual report on Form 10-K.

Unless the context indicates otherwise, the terms "K-Tron" and "Company" refer
to K-Tron International, Inc. and, where appropriate, one or more of its
subsidiaries.


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<PAGE>   3
                                    PART I

ITEM 1.     BUSINESS.

FORWARD-LOOKING STATEMENTS

      This annual report on Form 10-K contains certain forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995, including statements made with respect to the results of operations and
businesses of the Company. Words such as "may," "should," "believe,"
"anticipate," "estimate," "expect," "intend," "plan" and similar expressions are
intended to identify forward-looking statements. These forward-looking
statements are based upon management's current plans, expectations, estimates
and assumptions and are subject to a number of risks and uncertainties that
could significantly affect current plans, anticipated actions and the Company's
financial condition and results of operations. Factors that may cause actual
results to differ materially from those discussed in such forward-looking
statements include, among others, the following possibilities: (i) fluctuations
in foreign currency exchange rates; (ii) heightened competition, specifically
the intensification of price competition, the entry of new competitors and the
introduction of new products by new and existing competitors; (iii) failure to
obtain new customers or retain existing customers; (iv) inability to carry out
marketing and sales plans; (v) loss of key executives; (vi) loss of suppliers;
(vii) failure to identify, acquire or profitably manage additional businesses or
to successfully integrate acquired businesses, if any, into the Company without
substantial costs, delays or other operational or financial problems; (viii)
general economic and business conditions which are less favorable than expected;
and (ix) unanticipated changes in industry trends. The Company does not intend
to update these cautionary statements.

GENERAL

      K-Tron International, Inc. was incorporated in New Jersey in 1964. Its
principal operating businesses are conducted by subsidiaries which design,
produce, market and sell gravimetric and volumetric feeders and related
equipment for the handling of bulk solids in a wide variety of manufacturing
processes. K-Tron has manufacturing facilities in the United States, Switzerland
and Canada, and its equipment is sold throughout the world.

      K-Tron feeders control by either mass or weight (gravimetric feeding) or
volume (volumetric feeding) the rate at which ingredients are fed into the
manufacturing processes of numerous products. The principal industries served
are plastics, food, chemical and cement, but the Company's feeders are also used
in many other industries. In addition, the Company designs, produces, markets
and sells electronic assemblies and controls, and provides customer and employee
training through its K-Tron Institute in the United States and similar programs
in Switzerland and elsewhere.


                                    -3-
<PAGE>   4
      See Note 13 of Notes to consolidated financial statements, included in
Item 8 of this annual report on Form 10-K, for certain financial information
about foreign and domestic operations.

PRINCIPAL PRODUCTS

      The Company produces, markets and sells its principal products under three
brand names: K-Tron Soder (feeders for other than heavy industries), Hasler
(feeders for heavy industries) and Hurricane (pneumatic conveying equipment).
The Company sells these brands on both an equipment and total systems basis.

FEEDING EQUIPMENT

      The Company's feeders control the flow of materials into a manufacturing
process by either mass or weight (gravimetric feeding) or volume (volumetric
feeding). Feeding equipment manufactured by the Company is used in many
industries.

      Weigh Belt Feeders. Weigh belt feeders move dry bulk material along a
belt, continuously weighing the material and adjusting the belt speed in order
to control precisely the flow rate of the material being fed into the
manufacturing process. The feeder regulates the flow rate according to the set
points in its electronic controller. A typical application would incorporate
several feeders, each supplying an ingredient of the final product, and
electronic controllers that determine the feed rate of each ingredient and are
capable of instantly altering individual feed rates to maintain the desired
proportion of each ingredient.

      Weigh belt feeders may also be used as batchers, to feed bulk material
into bags, mixers, or as meters, to measure accurately the amount of material
flowing into or out of a container.

      Loss-in-Weight Feeders. The loss-in-weight principle involves weighing the
entire feeding system, both equipment and material, which may be either dry or
liquid. The feeding mechanism controls the rate at which material is discharged
into the manufacturing process based upon a change in the total weight of the
system as material flows from the feeder. Electronic controllers determine the
feed rate and are capable of instantly altering feed rates to maintain an
accurate flow of materials. In dry material applications, loss-in-weight feeders
usually utilize an auger or vibratory feeding mechanism, and in the case of
screw feeders (usually single or twin auger-like screws) are generally
associated with low feed rates, where precise control is required or where
material flow is hard to control. The outflow is adjusted continuously to
maintain the desired feed rate. In liquid applications, the flow rate is
maintained by a pump or valve. Loss-in-weight feeders are especially suitable
for applications requiring a very high degree of accuracy, as in adding minor
ingredients to food processes or colorants to plastics, or applications
requiring a closed system, as in feeding dusty materials. Loss-in-weight feeders
virtually never need recalibration and may also be used as batchers.

                                    -4-
<PAGE>   5
      Volumetric Feeders. Volumetric feeders utilize single or twin screw
feeding mechanisms or other systems to regulate flow by volume instead of
weight, thereby offering an economical method of feeding bulk solids where
demands for accuracy are less stringent. They also can be used to make batches
by feeding sequentially into a hopper which is weighed and using the weight
signal to start and stop each feeder.

      K-Tron Soder Brand. The K-Tron Soder brand of products offers feeding
equipment and systems to control precisely the flow of ingredients in the
manufacture of numerous products in industries other than heavy industries.
K-Tron Soder feeders, including loss-in-weight feeders, weigh belt feeders,
volumetric feeders, flow meters and related controls, are assembled at Company
facilities in the United States and Switzerland in a complete range of feeding
equipment types and sizes for these industries. The plastics compounding, food,
chemical, detergent and pharmaceutical industries are among those served by
K-Tron Soder feeders.

      Hasler Brand. The Hasler brand of products includes weigh belt feeders,
belt scales, flow meters, electronic ears, loss-in-weight feeders and related
controls. Hasler feeders, like K-Tron Soder feeders, control the flow of
ingredients into a manufacturing process. However, Hasler feeders serve heavy
industry applications which generally require high rates of material flow in
rugged environments. Hasler feeders are used in cement mills, mines and quarries
and in the fertilizer, aluminum, coal, glass and steel industries. They are
primarily assembled at Company facilities in Switzerland, with some Hasler
feeders also being assembled at Company facilities in the United States.

PNEUMATIC CONVEYING EQUIPMENT

      In 1997, K-Tron acquired Hurricane Pneumatic Conveying Inc., a Canadian
company that manufactures pneumatic conveying equipment for the food, plastics
and pharmaceutical industries. Hurricane's brand of products, which include
powder hopper loaders and filterless hopper loaders, may be used in conjunction
with K-Tron Soder feeders or separately. Hurricane products are manufactured at
Company facilities in Canada.

K-TRON ELECTRONICS

      K-Tron Electronics designs, assembles and tests electronic circuit boards
for outside customers as well as for use by the Company in its products.

      In addition to electronic circuit boards and electro-mechanical contract
assembly services, K-Tron Electronics offers engineering and development
services. State-of-the-art facilities, which are located in the United States,
provide automated surface mount as well as through-hole assembly capabilities
and testing equipment.


                                    -5-
<PAGE>   6
CUSTOMERS

      The Company has over 1,000 customers, including many major corporations.
No single customer accounted for more than 10% of the Company's total revenues
in fiscal 1997, and its five largest customers accounted for approximately 12.6%
of total revenues in that year.

MANUFACTURING AND SUPPLIERS

      The Company's primary manufacturing activities consist of the assembly,
calibration and testing of equipment, the machining and fabrication of certain
components and producing electronic circuit boards and controllers. The Company
also manufactures the weight sensors which are used in most of its gravimetric
feeders. The Company assembles a number of components used in its products that
are manufactured by others to its specifications. These components include sheet
metal parts, screws, castings, integrated circuits, printed circuit boards and
enclosures.

      The Company produces a number of basic feeder models and related
equipment. Although feeder units are completed to specific customer orders,
customization is generally limited to combining existing mechanical and
electronic modules to meet a customer's application requirements.

      Although certain components of the Company's products are currently
purchased from sole sources, the Company believes that comparable components can
be obtained readily from alternative suppliers or can be manufactured by the
Company internally, at prices competitive with those of its current sources. The
Company has never had a significant production delay which was primarily
attributable to an outside supplier.

PATENTS

      The Company's technology is protected by numerous patents in the United
States and in other major countries which offer patent protection. Certain of
the Company's patents have expired and others will expire at various future
dates. The loss of such patent protection is not expected to have a significant
adverse effect on the Company's operations.

RESEARCH AND DEVELOPMENT

      The Company invests in research and development to maintain a
technological leadership position for its products.

      R&D focuses on new products as well as on refinements to existing
products. Current development efforts are aimed at developing new products,
shortening the development cycle of new products, recycling existing products by
using lower cost designs and becoming more

                                    -6-
<PAGE>   7
sensitive to the most optimal price/performance relationship for both new and
existing products.

      Centralized electronic R&D also facilitates the development of common or
compatible controls. The Company utilizes a common weighing technology for both
of its feeder brands.

      The Company's research and development expenses were $2,768,000,
$2,316,000 and $3,135,000 in fiscal years 1997, 1996 and 1995, respectively.

COMPETITION

      The Company is a leading world-wide producer of feeders and related
equipment for the handling of bulk solids in manufacturing processes. The
Company believes it has reached this position primarily because of its use of
electronic and digital control technology, its use of weighing technology and
its development of various mechanical design improvements to its products. The
Company also relies on other technological advantages and on its reputation and
experience in serving the needs of over 1,000 customers to maintain a
competitive advantage.

      Strong competition exists in every major market that the Company serves.
Competitors range in size from subsidiaries and divisions of large
multinationals with a broad line of products to regional organizations which may
specialize in a limited range of products.

BACKLOG

      At the end of fiscal year 1997, the Company's backlog of unfilled orders
was approximately $18,211,000, compared to a backlog of approximately
$20,504,000 a year earlier, a decrease of approximately 11.2%. Using January 3,
1998 exchange rates, the backlog at the end of fiscal year 1996 was
approximately $19,654,000, representing a decrease in the 1997 backlog of
approximately 7.3%. The backlog of orders, excluding the effect of foreign
currency exchange translations, decreased in 1997 primarily due to a reduced
backlog in the United States.

      The bulk of the Company's backlog represents orders that will be ready for
delivery in less than 120 days. Thus, except for shipments to be made later in
the year at customer requests, it is expected that most of the backlog as of the
end of fiscal 1997 will be shipped prior to April 30, 1998.

EMPLOYEES

      At the end of fiscal 1997, the Company had 491 employees, of which 289
were located in Europe, 183 in the United States, 14 in Singapore, 4 in Canada
and 1 in China.


                                    -7-
<PAGE>   8
      None of the Company's employees are represented by labor unions. The
Company considers relations with its employees to be good.

ITEM 2.     PROPERTIES.

      In the United States, the Company owns a 92,000 square foot building on 17
acres in Pitman, New Jersey where it has manufacturing facilities,
administrative offices, its corporate headquarters, research and development
offices and a tech center for product demonstration and training. A portion
(approximately 10,000 square feet) of the Company's Pitman facility is leased to
a sheet metal business. The Company also has leased facilities in Blackwood, New
Jersey where it assembles electronic circuit boards.

      The Company also has leased facilities in Brantford, Ontario where it
manufactures pneumatic conveying equipment.

      In Niederlenz, Switzerland, the Company owns a 60,000 square foot building
where it has manufacturing facilities and a tech center for product
demonstrations, and an adjacent five floor, 40,000 square foot office building
which houses administrative offices, training facilities and research and
development offices. One floor of the office building is leased to third
parties. The Company also occupies an adjacent leased facility where it
manufactures weight sensors.

      In Colombier, Switzerland, the Company leases a 51,000 square foot
building where it has manufacturing facilities, administrative offices, training
facilities and research and development offices.

      Certain sales and service activities are also conducted at Company-owned
facilities in England (20% leased to a third party) and Germany and from leased
office space in Germany, France and Singapore.

      The Company believes that its present facilities will be sufficient to
meet its needs for the foreseeable future. Based primarily on a one shift/40
hour week, the Company was operating its current manufacturing facilities during
fiscal 1997 at approximately 70% of their present capacity.

ITEM 3.     LEGAL PROCEEDINGS.

      There are no material pending legal proceedings, other than ordinary
routine litigation incidental to the business, to which the Company or any of
its subsidiaries is a party or of which any of their property is the subject.


                                    -8-
<PAGE>   9
ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

      This item is not applicable because there were no matters submitted to a
vote of security holders during the fourth quarter of 1997.

EXECUTIVE OFFICERS OF THE REGISTRANT

      The current executive officers of the Company are as follows:

<TABLE>
<CAPTION>
           Name                  Age                      Position
           ----                  ---                      --------
<S>                              <C>             <C>
      Edward B. Cloues, II       50               Chairman of the Board of
                                                  Directors and Chief Executive
                                                  Officer

      Robert L. Weinberg         61               Senior Executive Vice President,
                                                  Chief Financial Officer and
                                                  Treasurer

      Kevin C. Bowen             46               President and Chief Executive
                                                  Officer of K-Tron America, Inc.

      Lukas Gunthardt            39               Managing Director and Chief
                                                  Executive Officer of K-Tron
                                                  (Switzerland) Ltd.
</TABLE>


        Edward B. Cloues, II has been a director since July 1985 and was most
recently reelected at the 1997 annual meeting of shareholders. He became
Chairman of the Board of Directors and Chief Executive Officer of the Company on
January 5, 1998. Since May 1985, Mr. Cloues has served as Secretary of the
Company. Prior to joining the Company, Mr. Cloues was a senior partner in the
law firm of Morgan, Lewis & Bockius LLP, which is the Company's general counsel.
Mr. Cloues is also a director and non-executive Chairman of the Board of AMREP
Corporation.

        Robert L. Weinberg has been Senior Executive Vice President, Chief
Financial Officer and Treasurer of the Company since March 1994. Mr. Weinberg
was Senior Executive Vice President and Chief Administrative Officer of the
Company from November 1993 until March 1994, Executive Vice President -
Strategic Planning and Marketing from May 1993 until November 1993, Executive
Vice President - Strategic Planning, Product Development and Marketing from
August 1991 until May 1993, Vice President - Marketing, Strategic Planning and
Product Development from March 1990 until August 1991, Vice President - Product
Development, Manufacturing and Marketing from April 1989 until March 1990, and
Vice President - Marketing from October 1988 until April 1989. Prior to joining
the Company in October 1988, he served as a consultant to Arthur D. Little, Inc.
from 1986 until 1988, and in

                                    -9-
<PAGE>   10
various executive positions with marketing and strategic planning
responsibilities at RCA Corporation and Philco Ford Corporation from 1962 until
1986.

        Kevin C. Bowen has been President and Chief Executive Officer of K-Tron
America, Inc. since March 1995. From March 1994 to March 1995, Mr. Bowen was
President of K-Tron North America, the North American sales division of K-Tron
America. Mr. Bowen served as President of K-Tron America from May 1990 to March
1994. From 1979 to May 1990, Mr. Bowen worked at U.S. subsidiaries of the
Company in various manufacturing, sales and marketing capacities. Prior to
joining the Company in 1979, he worked in various capacities for Digital
Equipment Corporation and Motorola.

      Lukas Gunthardt has been Managing Director of K-Tron (Switzerland) Ltd.
since July 1995. From March 1994 until July 1995, he was Managing Director of
the Soder Division of K-Tron (Switzerland) Ltd. and from July 1992 until March
1994 was Director of International Research & Development of the Company. Prior
to 1992, Mr. Gunthardt worked in various engineering capacities for Staefa
Control Systems and Gamewell Corporation.

      The executive officers are elected or appointed by the Board of Directors
of the Company or its appropriate subsidiary to serve until the appointment or
election and qualification of their successors or their earlier death,
resignation or removal.


                                    -10-
<PAGE>   11
                                    PART II

ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

      The Company's Common Stock trades on the National Market segment of The
Nasdaq Stock Market under the symbol "KTII." The following table sets forth the
high and low sales prices for each quarter in 1996 and 1997 as quoted on The
Nasdaq Stock Market.

<TABLE>
<CAPTION>
FISCAL YEAR 1996                                             HIGH         LOW
----------------                                             ----         ---
<S>                                                         <C>          <C>
  First Quarter.....................................        $  7.75      $  5.50
  Second Quarter....................................           9.00         6.75
  Third Quarter.....................................           9.25         7.75
  Fourth Quarter....................................          11.27         8.25

FISCAL YEAR 1997
  First Quarter.....................................          11.75        10.25
  Second Quarter....................................          15.25        10.25
  Third Quarter.....................................          15.75        13.00
  Fourth Quarter....................................          19.75        14.00
</TABLE>

      On March 10, 1998, the closing sale price of a share of Common Stock as
reported by The Nasdaq Stock Market was $17.00.

      The number of record holders of the Company's Common Stock as of March 10,
1998 was 342.

DIVIDEND POLICY

      The Company has never paid a cash dividend on its Common Stock, and it
currently intends to retain all earnings for use in its business. The
declaration and payment of dividends in the future will be determined by the
Board of Directors in light of conditions then existing, including the Company's
earnings, financial condition, capital requirements and other factors.

ITEM 6.   SELECTED FINANCIAL DATA.

      The selected consolidated financial data presented below for, and as of
the end of, each of the Company's last five fiscal years have been derived from
and are qualified by reference to the Company's consolidated financial
statements. The consolidated financial statements of the Company for the fiscal
years ended January 3, 1998, December 28, 1996, December 30, 1995 and December
31, 1994 have been audited by Arthur Andersen LLP, independent public
accountants. The consolidated financial statements of the Company for the fiscal
year in the

                                    -11-
<PAGE>   12
period ended January 1, 1994 have been audited by Deloitte & Touche LLP,
independent public accountants.

      This information should be read in conjunction with the Company's
consolidated financial statements and the related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere herein.

      The Company has not paid any cash dividends on its shares of Common Stock
during the periods presented.

                                    -12-
<PAGE>   13
<TABLE>
<CAPTION>
                                                                                    FISCAL YEAR  ENDED
                                                         ------------------------------------------------------------------------
                                                            JAN. 3     DEC. 28     PRO FORMA    DEC. 30     DEC. 31      JAN. 1
                                                              1998      1996          1995(1)    1995        1994        1994
                                                         ---------   ---------     ---------  ---------   ---------   ---------
<S>                                                      <C>         <C>           <C>        <C>         <C>         <C>
FINANCIAL SUMMARY($000):
  Revenues                                               $  87,152   $  89,871     $  89,640  $ 110,394   $ 104,772   $ 107,966
  Income (loss) before loss on disposition  
    of businesses, cumulative effect of
    accounting changes and taxes                             7,309       5,841         2,717        834      (6,200)     (1,784)

  Income (loss) on disposition of businesses
    and cumulative effect of accounting
    changes (2)                                                                                 (11,278)       (852)        854

  Net income (loss)                                          5,444       4,026         1,408     (9,294)     (6,826)     (1,065)
  Total assets                                              54,249      55,330                   69,296     109,950     101,296
  Working capital                                            9,423      15,362                   23,114        (549)     17,216
  Additions to property, plant and equipment                 3,000       2,081                      370       2,467       3,062
  Depreciation and amortization                              2,977       3,334                    4,844       6,314       6,562

PER SHARE ($):
  Basic net earnings (loss)                              $    1.72   $    1.29     $     .45  $   (3.00)  $   (2.22)  $   (0.35)(3)
  Diluted net earnings (loss)                                 1.69        1.28           .45      (3.00)      (2.22)      (0.35)(3)
  Book value                                                  5.87        4.21                     3.03        6.00        8.08

CAPITALIZATION ($000):
  Shareholders' equity                                   $  18,892   $  13,194                $   9,421   $  18,521   $  24,694
  Long-term debt                                            10,619      20,807                   35,004      27,413      38,571
  Short-term debt (4)                                        3,148         861                    2,133      32,512      14,565
  Total debt                                                13,767      21,668                   37,137      59,925      53,136

RATIOS:
  Return on average shareholders' equity(%)                   33.9        35.6          10.1        N/A         N/A         N/A
  Return on revenues (%)                                       6.2         4.5           1.6        N/A         N/A         N/A
  Long-term debt to shareholders' equity(%)                   56.2       157.7                    371.6       148.0       156.2
  Current assets to current liabilities                       1.41        1.80                     2.05         .99        1.53
  Average inventory turnover                                   4.1         3.2                      2.9         2.9         3.0
  Average accounts receivable turnover                         5.5         4.8                      4.3         3.8         3.8

OTHER DATA:
  Shares outstanding (000) (5)                               3,218       3,137                    3,113       3,088       3,056
  Shareholders of record (6)                                   342         350                      383         423         437
  Number of employees                                          491         461                      466         683         724
</TABLE>

(1)     Reflects pro forma adjustments for loss on disposition of businesses
        described in (2) and the discontinuance of the Company's other
        Colortronic brand business, all as more fully explained in Note 3 of the
        Company's 1997 consolidated financial statements as if such dispositions
        and discontinuances were consummated as of the beginning of the 1995
        fiscal year.

(2)     1995 - loss on disposition of businesses of $10,529 from sale of
        Colortronic GmbH and rights to several related patents and patent
        applications and $749 loss on the sale of Hasler France and Brazilian
        businesses; 1994 - reserves established for the anticipated sale of
        Hasler France and

                                    -13-
<PAGE>   14
        Brazilian businesses; 1993 - cumulative effect of changes in accounting
        principles for the cost of inventory of $504, net of tax, and for income
        taxes of $350.

(3)     Basic and diluted loss per share before cumulative effect of accounting
        changes for fiscal year ended January 1, 1994 was $(0.62).

(4)     Including current portion of long-term debt.

(5)     Net of treasury stock of 1,063 shares for fiscal years 1993 through 1996
        and 1,053 for fiscal year 1997.

(6)     Does not include shareholders whose shares are held in street name.


ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS.

OVERVIEW

      In 1997 and 1996, the Company reported net income of $5,444,000 and
$4,026,000, respectively, compared to a 1995 net loss of $9,294,000. The
principal components of the 1995 loss were a second quarter loss of $10,529,000
recorded in connection with the sale of Colortronic GmbH ("Colortronic"), a
German subsidiary, and related patent and patent applications and third and
fourth quarter losses totaling $749,000 resulting from the sale of the Company's
Brazilian and Hasler France businesses. On a pro forma basis, assuming that
these 1995 transactions, and the discontinuance of the Company's other
Colortronic brand business, had occurred at the beginning of the 1995 fiscal
year, the Company would have had 1995 net income of $1,408,000.

      By early 1996, all debt was subject to forbearance agreements with the
Company's U.S. and Swiss lenders which arose as a result of the significant
losses in 1995 and 1994. During 1996 and early 1997, the Company replaced all of
the U.S. lenders and successfully negotiated revised financing arrangements with
the Swiss lenders. The U.S. forbearance agreement was terminated in 1996, and in
early 1997 the Swiss forbearance agreement was amended and extended to March 31,
1999. Since the Company's Swiss subsidiary achieved better than a 1.5 to 1.0
debt-to-equity ratio as of January 3, 1998, many of the restrictions in the
Swiss forbearance agreement will end on March 31, 1998. Moreover, the Swiss
lenders have requested that the Swiss forbearance agreement also terminate at
that time rather than on March 31, 1999, and the Company's Swiss subsidiary has
agreed in principle to this request provided that satisfactory new loan
arrangements with the Swiss lenders are in place by that date.

      Since the 1995 dispositions of the Company's Colortronic, Brazilian and
Hasler France businesses and the discontinuance of the other Colortronic brand
business (collectively the "Discontinued Businesses"), the Company's results
have improved significantly, and it has reported ten consecutive quarters in
which net income has exceeded net income in the prior year period. Cash flow
from operations has also improved, enabling the Company to reduce indebtedness
for money borrowed by $7,901,000 in 1997, $15,469,000 in 1996 and
                                    -14-
<PAGE>   15
$5,978,000 in the second half of 1995 ($7,103,000, $11,946,000 and $5,368,000,
respectively, after taking into account the effect of foreign currency exchange
translation.)


      K-Tron is an international company with approximately 59% percent of its
revenues derived from products manufactured and services performed from its
facilities outside the United States, primarily in Europe. As such, the
financial position and performance of the Company is sensitive to both
translation and transaction fluctuations in foreign currency exchange rates
("foreign exchange rates").

RESULTS OF OPERATIONS

      The following table sets forth the Company's results of operations
expressed as a percentage of total revenues for the periods indicated. The 1995
pro forma results illustrate the estimated effects on operations of the
disposition of the Colortronic, Brazilian and Hasler France businesses noted
above, and the discontinuance of the Company's other Colortronic brand business,
as if the dispositions and discontinuance (previously defined as "Discontinued
Businesses") were consummated as of the beginning of the 1995 fiscal year:

                                    -15-
<PAGE>   16
<TABLE>
<CAPTION>
                                                            FISCAL YEAR
                                            ---------------------------------------------
                                                                    PRO FORMA
                                                                    ---------
                                                1997        1996        1995        1995
                                            ---------   ---------   ---------   ---------
<S>                                         <C>         <C>         <C>         <C>
Total revenues                                 100.0%      100.0%      100.0%      100.0%
Cost of revenues                                55.2        56.6        58.9        61.3
                                            --------    --------    --------    --------
Gross profit                                    44.8        43.4        41.1        38.7
Selling, general and
 administrative                                 31.9        32.1        32.1        31.4
Research and development                         3.2         2.5         2.8         2.8
Loss on disposition of
businesses                                        --          --          --        10.2
                                            --------    --------    --------    --------
Operating income (loss)                          9.7         8.8         6.2        (5.7)
Interest                                         1.3         2.3         3.2         3.7
                                            --------    --------    --------    --------
Income (loss) before income
taxes                                            8.4%        6.5%        3.0%       (9.4%)
                                            ========    ========    ========    ========
Year-end backlog after
excluding the Discontinued
Businesses (at year end 1997
constant foreign exchange rates,
in thousands)                               $ 18,211    $  19,654   $ 23,066    $ 23,066
                                            ========    =========   ========    ========
</TABLE>

      Translation of the Company's foreign revenues and results of operations
into U.S. dollars is affected by changes in foreign exchange rates, particularly
with respect to the Swiss franc and the Deutsche mark. In addition, revenues and
income of the Company with respect to particular transactions may be affected by
changes in foreign exchange rates where sales are made in other currencies,
including in particular the average U.S. dollar/Swiss franc, U.S.
dollar/Deutsche mark and Deutsche mark/Swiss franc exchange rates. For 1997,
1996 and 1995 the changes in these exchange rates were as follows:

                                    -16-
<PAGE>   17
<TABLE>
<CAPTION>
                                                   FISCAL YEAR
                                     ---------------------------------------
                                       1997            1996             1995
                                       ----            ----             ----
<S>                                  <C>     <C>      <C>     <C>      <C>
Average U.S. dollar equivalent
of one Swiss franc                   $.689            $.810            $.848
% change vs. prior year                      -14.9%           -4.5%

Average U.S. dollar equivalent
of one Deutsche mark                 $.577            $.666            $.699
% change vs. prior year                      -13.4%           -4.7%

Average Swiss franc equivalent
of one Deutsche mark                  .837             .822             .824
% change vs. prior year                       +1.8%           -0.2%
</TABLE>


      Total revenues decreased by $2,719,000 or 3.0% in 1997 when compared to
1996. The decrease in revenues was due to lower exchange translation rates of
certain currencies into U.S. dollars. If the average foreign exchange
translation rates for 1997 were applied to 1996, revenues would have increased
6.8%. The local currency revenue increase was in the United States and Europe.

      Total revenues decreased by $20,500,000 or 18.6% (15.4% when using
constant foreign exchange rates) in 1996 as compared to 1995, and increased by
$200,000 or 0.3% (3.1% when using constant foreign exchange rates) when compared
to the pro forma 1995 revenues. The 1996 revenues decrease versus 1995 was
primarily due to the absence of the Discontinued Businesses as well as to a
weaker Swiss franc and Deutsche mark compared to the U.S. dollar. The 1996
revenue increase as compared to the pro forma 1995 was primarily due to a strong
United States and European backlog at the end of 1995 and strong 1996 order
in-flow, offset in part by lower foreign exchange translation rates.

      Gross profit as a percent of revenues improved to 44.8% in 1997 as
compared to 43.4% in 1996. The change in gross margin in 1997 was primarily due
to sales mix and increased volume in local currencies. Gross margin as a percent
of revenues improved to 43.4% in 1996 as compared to 38.7% in 1995 (41.1% after
excluding the Discontinued Businesses). The improvement in gross margin in 1996
was due to volume, sales mix, price increases and cost reductions as well as the
June 1995 sale and discontinuance of the Colortronic business which had low
margins, offset in part by the inability to pass on increased costs caused by
the appreciation of the Swiss franc to customers in certain European countries,
primarily Germany. The increase in margin when compared to the margins without

                                    -17-
<PAGE>   18
the Discontinued Businesses was primarily due to volume, sales mix, price
increases and cost reductions.

      Selling, general and administrative (SG&A) expense decreased by $1,019,000
or 3.5% in 1997 as compared to 1996. The decrease in SG&A was due to the lower
foreign exchange translation rates previously described offset in part by higher
selling expenses. SG&A expense decreased by $5,800,000 or 16.7% in 1996 as
compared to 1995 (but remained constant after excluding the Discontinued
Businesses). The decrease in SG&A in 1996 was due to the elimination of SG&A
expenses associated with the Discontinued Businesses as well as lower foreign
exchange translation rates. As a percent of sales, SG&A was 31.9% in 1997, 32.1%
in 1996 and 31.4% in 1995 (32.1% after excluding the Discontinued Businesses).

      Research and development (R&D) expenditures increased by $452,000 or 19.5%
in 1997 as compared to 1996. R&D expenses increased due to the development of
new products and enhancement to existing products, offset in part by lower
foreign exchange translation rates. R&D expenditures decreased by $819,000 or
26.1% in 1996 as compared to 1995 due to the elimination of Colortronic expenses
and lower foreign exchange translation rates, offset in part by using for other
purposes certain resources previously allocated to Colortronic. R&D expense as a
percent of revenues was 3.2% in 1997, 2.5% in 1996 and 2.8% in 1995 (2.8%
excluding Colortronic for 1995).

      The 1995 loss on the disposition of businesses included a pre-tax loss of
$10,529,000 from the June 1995 sale of Colortronic and rights to several related
patents and patent applications, as well as a pre-tax loss of $749,000 from the
fourth quarter sale of the Company's Brazilian and Hasler France operations.

      Interest expense decreased by $902,000 or 44.3% in 1997 as compared to
1996, primarily due to lower debt levels and lower foreign exchange translation
rates. Interest expense decreased by $2,107,000 or 50.9% in 1996 as compared to
1995 due to lower debt levels and lower foreign exchange translation rates,
offset in part by increased interest rates. Interest expense as a percent of
sales was 1.3% in 1997, 2.3% in 1996 and 3.7% in 1995 (3.2% after excluding the
Discontinued Businesses).

      Income before income taxes was $7,309,000 in 1997 and $5,841,000 in 1996,
while the loss before income taxes was $10,444,000 in 1995. The change during
the periods was the result of the items discussed above.

      The 1997 and 1996 provision for income tax of $1,865,000 and $1,815,000,
respectively, were related primarily to the United States and German operations.
The Company's 1995 net income tax benefit was comprised of a fourth quarter
$400,000 provision on U.S. operations and a $1,550,000 benefit recognized on
European losses. The Company has available New Jersey state and foreign tax loss
carry forwards that total $3,165,000 and

                                    -18-
<PAGE>   19
$9,417,000, respectively, which, if realized, would have an estimated future
benefit of $190,000 and $2,600,000, respectively.

      The Company does not believe that inflation has had a material impact on
the results of operations during the last three years.

      The Company's backlog decreased by 7.3% at the end of 1997 compared to
1996 (at constant foreign exchange rates), primarily due to reduced backlog in
the United States. The Company's backlog decreased by 15% at the end of 1996
compared to 1995 (excluding the Discontinued Businesses and at constant foreign
exchange rates), primarily due to reduced backlog in the United States and
Germany.

LIQUIDITY AND CAPITAL RESOURCES

      As noted earlier under the "Overview," the Company has entered into new or
amended and extended loan arrangements with respect to its debt, and there are
no defaults under any of the existing loan agreements. All current loan
agreements are with the Company's U.S. and Swiss manufacturing subsidiaries.

      In June 1996, the Company's U.S. manufacturing subsidiary entered into a
two-year secured revolving credit facility with a lender which provides for a
maximum borrowing of $5,700,000, subject to certain limitations based upon
inventory and receivable levels. The interest rate at January 3, 1998 was 10.0%.
At January 3, 1998, there were no borrowings under the agreement. Also in June
1996, the Company's U.S. manufacturing subsidiary obtained a $2,700,000
twenty-year mortgage loan at an interest rate of 9.0%. Monthly principal and
interest payments are $24,293. Every five years the bank has the right to review
the mortgage and adjust its terms, including due dates and interest rates, with
the first such right occurring in June 2001. At January 3, 1998, the amount
borrowed under the mortgage loan was $2,632,000.

      As a result of the Swiss forbearance agreement referred to in the
"Overview," the board of directors of the Company's Swiss manufacturing
subsidiary was expanded from one director to three directors, with one of the
directors being designated by the Swiss lenders. In addition, the Swiss lenders
imposed a number of limitations and requirements on the Swiss subsidiary,
including certain restrictions on intercompany transactions with K-Tron's U.S.
companies and a prohibition on the payment of management fees to the Company
after March 1, 1996. As part of the February 1997 agreement amending and
extending the forbearance agreement with the Swiss lenders to March 31, 1999,
the Swiss subsidiary agreed to a 50% average reduction in the maximum amount
that may be borrowed under its operating lines of credit, effective April 1,
1997, and also agreed not to terminate the existing arrangement prior to March
31, 1998, and the Swiss lenders agreed to continue to defer until March 31, 1999
the repayment of credit lines and the principal payments on fixed loans that
become due prior to that date. Effective April 1, 1997, interest rates on the
Swiss lines of credit were adjusted to

                                    -19-
<PAGE>   20
market rates plus 2% while the rates on other long-term loans were similarly
adjusted on the next renewal dates.

      At January 3, 1998, the Swiss subsidiary achieved better than a 1.5 to 1.0
debt to equity ratio and, accordingly, on March 31, 1998 the 2% interest premium
will terminate, the Swiss lenders will cease to have the right to designate one
director of the Swiss subsidiary and certain other restrictions will end.
Moreover, the Swiss lenders have requested that the Swiss forbearance agreement
also terminate at that time rather than on March 31, 1999, and the Company's
Swiss subsidiary has agreed in principle to this request provided that
satisfactory new loan arrangements with the Swiss lenders are in place by that
date.

      At January 3, 1998, the Company's Swiss subsidiary had $2,083,000 borrowed
under short-term lines of credit with Swiss lenders. The interest rates,
including the 2% premium described above, on the lines of credit ranged from
5.5% to 9.0%. In addition, at January 3, 1998, the Company's Swiss subsidiary
had mortgage borrowings of $6,638,000 from Swiss lenders. These mortgage loans
carried interest rates of 5.63% to 7.25%.

      At January 3, 1998, the Company had $5,449,000 of availability under its
U.S. revolving credit agreement and $11,180,000 of availability under its Swiss
short-term lines of credit.

      The Company's capitalization as of the end of fiscal years 1997, 1996 and
1995 is set forth below:
<TABLE>
<CAPTION>
                                                 ($'S IN THOUSANDS)
                                          1997        1996         1995
------------------------------------------------------------------------------

<S>                                     <C>         <C>         <C>
Short-term debt, including current
 portion of long-term debt              $ 3,148     $   861     $ 2,133
Long-term debt                           10,619      20,807      35,004
                                        -------     -------     -------
Total debt                               13,767      21,668      37,137
Shareholders' equity                     18,892      13,194       9,421
                                        -------     -------     -------

Total debt and shareholders' equity     $32,659     $34,862     $46,558
                                        =======     =======     =======

Percent debt to total capitalization         42%         62%         80%

Percent long-term debt to equity             56%        158%        372%

Percent total debt to equity                 73%        164%        394%
</TABLE>

      Total debt decreased in 1997 and 1996 by $7,901,000 and $15,469,000,
respectively, of which $7,103,000 and $11,946,000 was from cash provided by
operations and $927,000 and $3,523,000 was due to the effect of foreign exchange
translation.


                                    -20-
<PAGE>   21
      At the end of 1997 and 1996, working capital was $9,423,000 and
$15,362,000, respectively, and the ratio of current assets to current
liabilities was 1.41 and 1.80, respectively. Working capital decreased in 1997
primarily due to the utilization of funds generated from operations and improved
asset management to reduce indebtedness.

      In 1997 and 1996, the Company utilized internally generated funds to meet
its working capital needs.

      Net cash provided by operating activities was $12,594,000 in 1997,
$13,969,000 in 1996 and $6,111,000 in 1995. The increase in operating cash flow
since 1995 was primarily the result of operating profits generated since
mid-1995 and significant reductions in accounts receivable and inventory, offset
in part in 1996 by a reduction in the total amount of accounts payable and
accrued expenses. The significant loss in 1995 was primarily a non-cash loss on
the sale of the Discontinued Businesses.

      Excluding the effect of foreign currency translation, receivables and
inventory provided cash of $3,241,000 in 1997, while the total amount of
accounts payables and accrued expenses increased $1,642,000 during 1997.
Improved asset management enabled the Company to reduce accounts receivable and
inventory in 1997.

      The average number of days to convert accounts receivable to cash was 66
days in 1997 compared to 76 days in 1996 and 84 days in 1995. The average number
of days to convert inventory into accounts receivable was 88 in 1997 compared to
114 days in 1996 and 126 days in 1995.

      Net cash (used in) provided by investing activities was ($3,955,000),
($2,128,000), and $8,943,000 in 1997, 1996 and 1995, respectively. Capital
expenditures were $3,000,000, $2,081,000 and $370,000 in 1997, 1996 and 1995,
respectively. Funds used in 1997 to acquire a Canadian company were $783,000.
The 1995 proceeds from the sale of Colortronic (and related patents and patent
applications) and the Brazilian and Hasler France businesses were $9,000,000 and
$320,000, respectively. The Company has no outstanding material commitments for
capital improvements, but does expect to make normal capital expenditures to
maintain and enhance its operations.

      Cash used in financing activities in 1997, 1996 and 1995, which was
primarily used for the reduction of debt, was obtained from the strong cash flow
provided by operations as well as in 1995 from the proceeds of the disposition
of the Discontinued Businesses. Cash and short-term investments increased to
$5,154,000 at the end of fiscal 1997 from $3,079,000 a year earlier.

      Changes in foreign exchange rates, particularly with respect to the Swiss
franc and Deutsche mark, caused translation adjustment decreases in
shareholders' equity of $560,000 and $393,000 in 1997 and 1996, respectively,
following an increase of $78,000 in 1995.

                                    -21-
<PAGE>   22
OTHER MATTERS

      The Company is completing an evaluation of the possible effects of the
"Year 2000" issue on its business. The Company does not believe that this issue
will have a material adverse effect on the Company.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

      Not Applicable.

ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

      The consolidated financial statements of the Company and its subsidiaries
and supplementary data required by this item are attached to this annual report
on Form 10-K beginning on page F-1.

ITEM 9.     CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
            FINANCIAL DISCLOSURES.

      None.


                                  PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

      The information concerning directors and compliance with Section 16(a) of
the Securities Exchange Act of 1934 called for by Item 10 of Form 10-K will be
set forth under the captions "Election of Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance" in the Company's definitive proxy
statement, to be filed within 120 days after the end of the fiscal year covered
by this annual report on Form 10-K, and is incorporated herein by reference.

      The required information as to executive officers is set forth in Part I
hereof and incorporated herein by reference.


                                    -22-
<PAGE>   23
ITEM 11.    EXECUTIVE COMPENSATION.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

      The information called for by Items 11 and 12 of Form 10-K will be set
forth under the captions "Executive Compensation" and "Security Ownership of
Certain Beneficial Owners and Management," respectively, in the Company's
definitive proxy statement, to be filed within 120 days after the end of the
fiscal year covered by this annual report on Form 10-K, and is incorporated
herein by reference.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

      None.


                                   PART IV

ITEM 14.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

      (a)   1.    Financial Statements.  Financial Statements listed in the
accompanying Index to Financial Statements and Financial Statement Schedules
appearing on page F-1 are filed as part of this annual report on Form 10-K.

            2.    Financial Statement Schedules.  Financial Statement Schedules
listed in the accompanying Index to Financial Statements and Financial Statement
Schedules appearing on page F-1 are filed as part of this annual report on Form
10-K.

            3.    Exhibits. (see (c) below).

      (b)   Reports on Form 8-K.

            The Company did not file a report on Form 8-K during the quarter
ended January 3, 1998.

      (c)   Exhibits.

            The following is a list of exhibits filed as part of this annual
report on Form 10-K. Where so indicated, exhibits which were previously filed
are incorporated by reference. For exhibits incorporated by reference, the
location of the exhibit in the previous filing is indicated in parentheses.


                                    -23-
<PAGE>   24
2.1     Share Purchase Agreement, dated as of June 23, 1995, by and among K-Tron
        Holding AG, K-Tron Deutschland GmbH and Dr. Dolemeyer GmbH (Filed as
        Exhibit 2.1 to the Company's report on Form 8-K dated June 23, 1995 and
        incorporated herein by reference)

3.1     Restated Certificate of Incorporation (Filed as Exhibit 3.1 to the
        Company's annual report on Form 10-K for the year ended January 4, 1992
        ("1991 Form 10-K") and incorporated herein by reference)

3.2     By-Laws, as amended (Filed as Exhibit 3.2 to the Company's annual report
        on Form 10-K for the year ended January 1, 1994 ("1993 Form 10-K") and
        incorporated herein by reference)

4.1     Form of Certificate for Shares of Common Stock (Filed as Exhibit 4.1 to
        the 1993 Form 10-K and incorporated herein by reference)

4.2     Rights Agreement dated as of October 3, 1991 with First Interstate Bank
        of Arizona, N.A., as Rights Agent (Filed as Exhibit 1 to the Company's
        report on Form 8-K dated October 3, 1991 and incorporated herein by
        reference)

10.1    Forbearance Agreement by and among Swiss Bank Corp. Aarau, Credit Suisse
        Aarau, Swiss Volksbank, Union Bank of Switzerland, Banque Cantonale
        Neuchateloise, CS Immobilien Leasing Ltd., K-Tron (Switzerland) Ltd.,
        K-Tron Vertech Ltd., K-Tron Patent Ltd., K-Tron Asia Pacific Pte Ltd,
        K-Tron International Inc. and K-Tron Investment Co. (Filed as Exhibit
        10.1.6 to the Company's annual report on Form 10-K for the year ended
        December 30, 1995 and incorporated herein by reference)

10.2    Amendment 1 to Forbearance Agreement by and among Swiss Bank Corp.
        Aarau, Credit Suisse, Swiss Volksbank, Union Bank of Switzerland, Banque
        Cantonale Neuchateloise, CS Immobilien Leasing Ltd., K-Tron
        (Switzerland) Ltd., K-Tron Asia Pacific Pte Ltd, K-Tron International
        Inc. and K-Tron Investment Co.(Filed as Exhibit 10.1.7 to the Company's
        annual report on Form 10-K for the year ended December 28, 1996 ("1996
        Form 10-K") and incorporated herein by reference)

10.3    Amendment 2 to Forbearance Agreement by and among Swiss Bank Corp.
        Aarau, Credit Suisse, Swiss Volksbank, Union Bank of Switzerland, Banque
        Cantonale Neuchateloise, CS Immobilien Leasing Ltd., K-Tron
        (Switzerland) Ltd., K-Tron Asia Pacific Pte Ltd, K-Tron International
        Inc. and K-Tron Investment Co. (Filed as Exhibit 10.1.8 to the 1996 Form
        10-K and incorporated herein by reference)


                                    -24-
<PAGE>   25
10.4    1986 Stock Option Plan, as amended and restated (Filed as Exhibit 10.2.1
        to the 1991 Form 10-K and incorporated herein by reference)**

10.5    1988 Stock Option Plan for Non-Employee Directors (Filed as Exhibit
        10.2.4 to the Company's annual report on Form 10-K for the fiscal year
        ended December 31, 1988 ("1988 Form 10-K") and incorporated herein by
        reference)**

10.6    K-Tron International, Inc. 1996 Equity Compensation Plan, as amended
        (Filed as Exhibit 10.1 to the Company's quarterly report on Form 10-K
        for the fiscal quarter ended September 28, 1996 ("September 1996 Form
        10-Q") and incorporated herein by reference)**

10.7    K-Tron International, Inc. Amended and Restated Employee Stock Purchase
        Plan (Filed as Exhibit 10.2 to the September 1996 Form 10-Q and
        incorporated herein by reference)**

10.8    K-Tron International, Inc. Profit-Sharing and Thrift Plan, as amended
        and restated (Filed as Exhibit 10.2.5 to the Company's annual report on
        Form 10-K for the year ended December 30, 1989 and incorporated herein
        by reference)**

10.9    Amendment No. 1992-1 to K-Tron International, Inc. Profit-Sharing and
        Thrift Plan (Filed as Exhibit 10.2.6 to the 1991 Form 10-K and
        incorporated herein by reference)**

10.10   Amendment No. 1996-1 to K-Tron International, Inc. Profit-Sharing and
        Thrift Plan (Filed as Exhibit 10.2.7 to the 1996 Form 10-K and
        incorporated herein by reference)**

10.11   K-Tron International, Inc. Supplemental Executive Retirement Plan (Filed
        as Exhibit 10.2.7 to the 1991 Form 10-K and incorporated herein by
        reference)**

10.12   Form of Employment Agreement with certain employees of the Company
        listed on Schedule 10.12, which are identical in all material respects
        except for the employee, amount of salary to be paid and date of
        execution* **

10.13   Employment Agreement dated as of October 6, 1997 by and between K-Tron
        International, Inc. and Edward B. Cloues, II (Filed as Exhibit 10.1 to
        the Company's quarterly report on Form 10-Q for the fiscal quarter ended
        September 27, 1997 and incorporated herein by reference)**


                                    -25-
<PAGE>   26
10.14   Indemnification Agreement with Leo C. Beebe, dated March 23, 1987, and
        Schedule 10.2.9 listing other indemnification agreements which are
        identical in all material respects except for the director or officer
        who is a party thereto (Filed as Exhibit 10.2.9 to the Company's annual
        report on Form 10-K for the year ended January 2, 1988 and incorporated
        herein by reference)**

10.15   Schedule 10.2.11 listing other indemnification agreements which are
        dated November 18, 1988 and are identical in all material respects to
        the Indemnification Agreement set forth in Exhibit 10.2.12 except for
        the director or officer who is a party thereto (Filed as Exhibit 10.2.11
        to the 1988 Form 10-K and incorporated herein by reference)**

10.16   Schedule 10.2.16 listing other indemnification agreements which are
        dated September 20, 1993, November 12, 1993 and January 14, 1994 and are
        identical in all material respects to the Indemnification Agreement set
        forth in Exhibit 10.14 except for the director or officer who is a party
        thereto (Filed as Exhibit 10.2.16 to the 1993 Form 10-K and incorporated
        herein by reference)**

10.17   Leasing Agreement, dated October 30, 1990, between CS Immobilien Leasing
        AG, Zurich and Hasler Freres SA, with limited guaranty of K-Tron Soder
        AG (Filed as Exhibit 10.1(b) to the Company's report on Form 8-K dated
        October 30, 1990 and incorporated herein by reference)

10.18   Amendment, dated January 25, 1991, to Leasing Agreement, dated October
        30, 1990, between CS Immobilien Leasing AG, Zurich and Hasler Freres SA
        and to the related limited guaranty of K-Tron Soder AG (Filed as Exhibit
        10.3.3 to the Company's annual report on Form 10-K for the year ended
        December 29, 1990 and incorporated herein by reference)

21.1    Subsidiaries*

23.1    Consent of Arthur Andersen LLP*

24.1    Power of Attorney (Included on Signature Page)

27.1    Financial Data Schedule*

----------

*       Filed herewith

**      Management contract or compensatory plan or arrangement required to be
        filed or incorporated as an exhibit

                                    -26-
<PAGE>   27
        COPIES OF THE EXHIBITS ARE AVAILABLE TO SHAREHOLDERS (UPON PAYMENT OF A
        $.20 PER PAGE FEE TO COVER THE COMPANY'S EXPENSES IN FURNISHING THE
        EXHIBITS) FROM ROBERT L. WEINBERG, SENIOR EXECUTIVE VICE PRESIDENT AND
        CHIEF FINANCIAL OFFICER, K-TRON INTERNATIONAL, INC., ROUTES 55 AND 553,
        P.O. BOX 888, PITMAN, NEW JERSEY 08071-0888.

                                    -27-
<PAGE>   28
                                 SIGNATURES

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

                           K-TRON INTERNATIONAL, INC.


Date:  March 13, 1998                     By   /s/ Edward B. Cloues, II
                                             --------------------------
                                                Edward B. Cloues, II
                                                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 and in the capacities and on the dates indicated.

      Each person in so signing also makes, constitutes and appoints Edward B.
Cloues, II, Chairman and Chief Executive Officer of K-Tron International, Inc.,
and Robert L. Weinberg, Senior Executive Vice President, Chief Financial Officer
and Treasurer of K-Tron International, Inc., and each of them acting alone, as
his true and lawful attorneys-in-fact, in his name, place and stead, to execute
and cause to be filed with the Securities and Exchange Commission any or all
amendments to this report.

<TABLE>
<CAPTION>

Signature                       Date               Capacity
---------                       ----               --------
<S>                             <C>                <C>
/s/ Edward B. Cloues, II        March 13, 1998     Chief Executive Officer
--------------------------                         (principal executive officer) and
     Edward B. Cloues, II                          Chairman of the Board of
                                                   Directors


/s/ Robert L. Weinberg          March 6, 1998      Senior Executive Vice President,
--------------------------                         Chief Financial Officer and
     Robert L. Weinberg                            Treasurer (principal financial
                                                   officer)


/s/ Alan R. Sukoneck            March 13, 1998     Vice President, Chief
------------------------------                     Accounting and Tax Officer
     Alan R. Sukoneck                              (principal accounting officer)

</TABLE>


                                      -28-
<PAGE>   29
<TABLE>
<CAPTION>
Signature                                Date               Capacity
---------                                ----               --------

<S>                                      <C>                <C>
/s/ Leo C. Beebe                         March 13, 1998     Director
-----------------------------
     Leo C. Beebe

-----------------------------                               Director
     Norman Cohen

/s/ Richard J. Pinola                    March 13, 1998     Director
-----------------------------
     Richard J. Pinola

/s/ Hans-Jurg Schurmann                  March 13, 1998     Director
-----------------------------
     Hans-Jurg Schurmann

/s/ Jean Head Sisco                      March 13, 1998     Director
----------------------------
     Jean Head Sisco

/s/ Johannes Wirth                       March 13, 1998     Director
----------------------------
     Johannes Wirth
</TABLE>



                                    -29-
<PAGE>   30

                     K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES

                     CONSOLIDATED FINANCIAL STATEMENTS
                     AS OF JANUARY 3, 1998
                     TOGETHER WITH AUDITORS' REPORT
<PAGE>   31
                  K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES



        INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES





<TABLE>
<S>                                                                                   <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS                                              F-2
                                                                             
K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES:                                 
                                                                             
  Consolidated Balance Sheets -- January 3, 1998 and December 28, 1996                F-3
                                                                             
  Consolidated Statements of Operations for the Fiscal Year Ended            
    January 3, 1998, December 28, 1996, and December 30, 1995                         F-5
                                                                             
  Consolidated Statements of Changes in Shareholders' Equity for the Fiscal  
    Year Ended January 3, 1998, December 28, 1996 and December 30, 1995               F-6
                                                                             
  Consolidated Statements of Cash Flows for the Fiscal Year Ended            
    January 3, 1998, December 28, 1996 and December 30, 1995                          F-7
                                                                             
  Notes to Consolidated Financial Statements                                          F-9
                                                                             
  Schedule I--Condensed Financial Information of Registrant                           S-1
                                                                             
  Schedule II--Valuation Reserves                                                     S-5
</TABLE>





                                     F-1
<PAGE>   32
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS




To K-Tron International, Inc.:

We have audited the accompanying consolidated balance sheets of K-Tron
International, Inc. (a New Jersey corporation) and subsidiaries as of January
3, 1998 and December 28, 1996, and the related consolidated statements of
operations, changes in shareholders' equity, and cash flows for each of the
three fiscal years in the period ended January 3, 1998.  These financial
statements and the schedules referred to below are the responsibility of the
Company's management.  Our responsibility is to express an opinion on these
financial statements and 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 financial position of K-Tron
International, Inc. and subsidiaries as of January 3, 1998 and December 28,
1996, and the results of their operations and their cash flows for each of the
three fiscal years in the period ended January 3, 1998, in conformity with
generally accepted accounting principles.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole.  The schedules listed in the index to
financial statements as of January 3, 1998 and December 28, 1996, and for each
of the three years in the period ended January 3, 1998, are presented for
purposes of complying with the Securities and Exchange Commission's rules and
are not part of the basic financial statements.  These schedules have been
subjected to the auditing procedures applied in our audit of the basic
financial statements and, in our opinion, fairly state in all material respects
the financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.


                                                        Arthur Andersen LLP     



Philadelphia, Pa.,
    February 10, 1998





                                      F-2
<PAGE>   33
                  K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES


                          CONSOLIDATED BALANCE SHEETS

                             (dollars in thousands)

                                     ASSETS



<TABLE>
<CAPTION>
                                                                          January 3,       December 28,
                                                                             1998              1996      
                                                                      -----------------  -----------------
 <S>                                                                     <C>               <C>
 CURRENT ASSETS:
    Cash and cash equivalents                                            $     5,154       $       3,079
    Accounts receivable (less allowance for doubtful
       accounts of $1,119 and $1,037)                                         15,336              16,336
    Inventories                                                               10,010              13,258
    Deferred income taxes                                                        950                 641
    Prepaid expenses and other current assets                                  1,196               1,353
                                                                         -----------       -------------
                  Total current assets                                        32,646              34,667
                                                                                           
 PROPERTY, PLANT AND EQUIPMENT, net of                                                     
    accumulated depreciation of $24,588 and $27,023                           15,437              15,624
 PATENTS, net of accumulated amortization of $2,997                                        
    and $2,956                                                                   694                 493
 GOODWILL, net                                                                             
    of accumulated amortization of $3,376 and $3,086                           4,844               4,422
 OTHER ASSETS                                                                    628                 124
                                                                         -----------       -------------
                  Total assets                                           $    54,249       $      55,330
                                                                         ===========       =============
</TABLE>





   The accompanying notes are an integral part of these financial statements.



                                      F-3
<PAGE>   34
                  K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

                    (dollars in thousands except share data)

                      LIABILITIES AND SHAREHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                                                        January 3,        December 28,
                                                                           1998               1996      
                                                                      --------------     -------------
<S>                                                                    <C>                 <C>
CURRENT LIABILITIES:
   Notes payable to banks                                              $    2,088          $     494
   Current portion of long-term debt                                        1,060                367
   Accounts payable                                                         5,426              5,641
   Accrued expenses and other current liabilities                           4,270              3,440
   Accrued payroll                                                          3,869              2,579
   Accrued commissions                                                      2,463              2,407
   Customer advances                                                        1,627              2,318
   Accrued warranty                                                           912                826
   Income taxes payable                                                     1,508              1,226
   Deferred income taxes                                                     --                    7
                                                                       ----------          ---------
                 Total current liabilities                                 23,223             19,305
                                                                       ----------          ---------
LONG-TERM DEBT, net of current portion                                     10,619             20,807
                                                                       ----------          ---------
DEFERRED INCOME TAXES                                                         431                459
                                                                       ----------          ---------
OTHER NONCURRENT LIABILITIES                                                1,084              1,565
                                                                       ----------          ---------
COMMITMENTS AND CONTINGENCIES (Note 12)                                                    

SERIES A JUNIOR PARTICIPATING PREFERRED                                                    
   SHARES, $.01 par value, 50,000 shares authorized;                                       
   none issued                                                              --                 --   
                                                                       ----------          ---------
SHAREHOLDERS' EQUITY:                                                                      
   Preferred stock, $.01 par value; 950,000 shares                                         
      authorized; none issued                                               --                 --
   Common stock, $.01 par value; 15,000,000 shares                                         
      authorized; 4,271,300 and 4,200,328 shares issued                        43                 42
   Paid-in capital                                                         14,833             14,120
   Retained earnings                                                       15,246              9,802
   Cumulative translation adjustment                                         (766)              (206)
                                                                       ----------          --------- 
                                                                           29,356             23,758
   Treasury stock, 1,052,950 and 1,062,950 shares, at cost                (10,464)           (10,564)
                                                                       ----------          --------- 
                 Total shareholders' equity                                18,892             13,194
                                                                       ----------          ---------
                 Total liabilities and shareholders' equity            $   54,249          $  55,330
                                                                       ==========          =========
</TABLE>

  The accompanying notes are an integral part of these financial statements.





                                     F-4
<PAGE>   35
                  K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES


                     CONSOLIDATED STATEMENTS OF OPERATIONS

                    (dollars in thousands except share data)



<TABLE>
<CAPTION>
                                                                   For the Fiscal Year Ended
                                                          -------------------------------------------
                                                          January 3,     December 28,    December 30,
                                                             1998            1996            1995    
                                                          -----------    ------------    ------------
<S>                                                       <C>              <C>            <C>
REVENUES                                                  $   87,152       $  89,871      $  110,394

COST OF REVENUES                                              48,121          50,839          67,658
                                                          ----------       ---------      ----------
             Gross profit                                     39,031          39,032          42,736
                                                          ----------       ---------      ----------
OPERATING EXPENSES:                                                                       
   Selling, general and administrative                        27,821          28,840          34,625
   Research and development                                    2,768           2,316           3,135
   Loss on disposition of businesses                            --              --            11,278
                                                          ----------       ---------      ----------
                                                              30,589          31,156          49,038
                                                          ----------       ---------      ----------
             Operating income (loss)                           8,442           7,876          (6,302)
INTEREST EXPENSE                                               1,133           2,035           4,142
                                                          ----------       ---------      ----------
             Income (loss) before income taxes                 7,309           5,841         (10,444)
INCOME TAX PROVISION (BENEFIT)                                 1,865           1,815          (1,150)
                                                          ----------       ---------      ---------- 
             Net income (loss)                            $    5,444       $   4,026      $   (9,294)
                                                          ==========       =========      ========== 
BASIC EARNINGS (LOSS) PER SHARE                           $     1.72       $    1.29      $    (3.00)
                                                          ==========       =========      ==========
DILUTED EARNINGS (LOSS) PER SHARE                         $     1.69       $    1.28      $    (3.00)
                                                          ==========       =========      ==========
</TABLE>



   The accompanying notes are an integral part of these financial statements.



                                      F-5
<PAGE>   36

                  K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

                             (dollars in thousands)



<TABLE>
<CAPTION>
                                     Common Stock                               Cumulative        Treasury Stock                    
                                 --------------------    Paid-in    Retained    Translation   ----------------------                
                                  Shares      Amount     Capital    Earnings     Adjustment     Shares       Amount      Total      
                                 ---------  --------    ---------   --------   ------------   ----------     -------    --------    
<S>                              <C>        <C>         <C>         <C>        <C>             <C>          <C>         <C>        
BALANCE, 
  JANUARY 1, 1995                4,150,887  $      41   $  13,865   $  15,070  $       109     1,062,950    $(10,564)   $  18,521  

    Issuance of Common stock        24,698          1         115       --            --             --         --            116   

    Net loss                         --         --          --         (9,294)        --             --         --         (9,294)  

    Translation adjustments          --         --          --          --              78           --         --             78   
                                 ---------  ---------   ---------   ---------  -----------    -----------   --------    ---------   
                                                                                                                                    
BALANCE,                                                                                                                            
  DECEMBER 30, 1995              4,175,585         42      13,980       5,776          187     1,062,950     (10,564)       9,421   

    Issuance of Common stock        24,743      --            140       --            --             --         --            140   

    Net income                       --         --          --          4,026         --             --         --          4,026   

    Translation adjustments          --         --          --           --           (393)          --         --           (393) 
                                 ---------  ---------   ---------   ---------  -----------    -----------   --------    ---------  
BALANCE,                                                                                                                            
  DECEMBER 28, 1996              4,200,328         42      14,120       9,802         (206)    1,062,950     (10,564)      13,194   

    Issuance of Common stock        70,972          1         713       --            --         (10,000)        100          814   

    Net income                       --         --          --          5,444         --             --         --          5,444   

    Translation adjustments          --         --          --           --           (560)          --         --           (560) 
                                 ---------  ---------   ---------   ---------  -----------    -----------   --------    ---------  
BALANCE,                                                                                                                            
  JANUARY 3, 1998                4,271,300  $      43   $  14,833   $  15,246  $      (766)    1,052,950    $(10,464)   $  18,892  
                                 =========  =========   =========   =========  ===========    ===========   =========   =========  
</TABLE>



   The accompanying notes are an integral part of these financial statements.



                                      F-6
<PAGE>   37
                  K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES


                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                             (dollars in thousands)



<TABLE>
<CAPTION>
                                                                        For the Fiscal Year Ended             
                                                          ----------------------------------------------------
                                                            January 3,        December 28,       December 30,
                                                               1998               1996               1995      
                                                          ---------------   ----------------   ----------------
<S>                                                          <C>               <C>               <C>
OPERATING ACTIVITIES:
  Net income (loss)                                          $  5,444          $   4,026         $   (9,294)
  Adjustments to reconcile net income (loss) to
    net cash provided by operating activities-
      Loss on disposition of businesses                         --                 --                11,278
      Depreciation and amortization                             2,977              3,338              4,844
      Amortization of deferred gain on
         sale/leaseback transaction                              (380)              (447)              (468)
      Deferred income taxes                                      (321)               443             (1,651)
      Changes in assets and liabilities
         excluding effects of dispositions--
           Accounts receivable, net                               250              3,266              1,802
           Inventories                                          2,991              4,101              1,353
           Prepaid expenses and other
               current assets                                      88                 20               (678)
           Other assets                                          (532)                52                739
           Accounts payable                                      (286)            (3,027)                (5)
           Accrued expenses and other
               current liabilities                              1,928              1,598             (2,317)
           Accrued warranty                                       112                 18                201
           Income taxes                                           323                581                307
                                                             --------          ---------         ----------
               Net cash provided by                                                               
                 operating activities                          12,594             13,969              6,111
                                                             --------          ---------         ----------
INVESTING ACTIVITIES:                                                                             
  Business acquired                                              (783)             --                 --
  Proceeds from disposition of businesses                       --                 --                 9,320
  Capital expenditures                                         (3,000)            (2,081)              (370)
  Investment in patents                                          (172)               (47)                (7)
                                                             --------          ---------         ---------- 
               Net cash (used in) provided by                                                     
                investing activities                           (3,955)            (2,128)             8,943
                                                             --------          ---------         ----------
</TABLE>


                                  (continued)





                                      F-7
<PAGE>   38
                  K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES


                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                             (dollars in thousands)

                                  (continued)



<TABLE>
<CAPTION>
                                                                        For the Fiscal Year Ended               
                                                         ---------------------------------------------------
                                                            January 3,     December 28,       December 30,
                                                               1998              1996             1995      
                                                         --------------    --------------   ----------------
<S>                                                      <C>               <C>              <C>
FINANCING ACTIVITIES:                                                                   
  Net repayments under notes payable to banks            $    (6,925)      $    (17,684)    $    (12,224)
  Proceeds from issuance of long-term debt                       689              6,037            --
  Principal payments on long-term debt                          (867)              (299)          (1,013)
  Proceeds from issuance of Common stock                         814                140              116
                                                         -----------       ------------     ------------
               Net cash used in                                                         
                   financing activities                       (6,289)           (11,806)         (13,121)
                                                         -----------       ------------     ------------ 
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH                                        
  EQUIVALENTS                                                   (275)              (195)             220
                                                         -----------       ------------     ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS           2,075               (160)           2,153          
                                                               
CASH AND CASH EQUIVALENTS:                                                              
  Beginning of year                                            3,079              3,239            1,086
                                                          ----------       ------------     ------------
  End of year                                             $    5,154       $      3,079     $      3,239
                                                          ==========       ============     ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                                      
    Cash paid during the year for-                                                      
      Interest                                            $    1,182       $      1,928     $      3,597
                                                          ==========       ============     ============
      Income taxes                                        $    1,951       $        699     $        345
                                                          ==========       ============     ============
</TABLE>


   The accompanying notes are an integral part of these financial statements.



                                      F-8
<PAGE>   39

                  K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       FISCAL YEAR ENDED JANUARY 3, 1998



1. NATURE OF OPERATIONS:

K-Tron International, Inc. and its subsidiaries (the "Company") design,
produce, market, and sell gravimetric and volumetric feeders and related
equipment for the handling of bulk solids in a wide variety of manufacturing
processes. The Company has manufacturing facilities in the United States,
Switzerland and Canada, and its equipment is sold throughout the world.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and
its subsidiaries, all of which are wholly owned.  All material intercompany
accounts and transactions have been eliminated.

Fiscal Year

The Company's fiscal year is reported on a fifty-two/fifty-three week period.
The fiscal year ended January 3, 1998 (referred to herein as "1997") includes
fifty-three weeks, while the fiscal year ended December 28, 1996 (referred to
herein as "1996") and December 30, 1995 (referred to herein as "1995") each
include fifty-two weeks.

Cash and Cash Equivalents

Cash equivalents represent all highly liquid, interest-bearing investments
purchased with maturities of three months or less.

Inventories

Inventories are stated at the lower of cost (first-in, first-out) method or
market.

Property, Plant and Equipment

Property, plant and equipment is carried at cost and is depreciated and
amortized on a straight-line basis over the following estimated useful lives:
buildings and improvements, 25 to 50 years; automotive equipment, 3 years;
machinery and equipment, 3 to 10 years; and furniture and fixtures, 5 to 7
years.  Leasehold improvements are amortized over the shorter of the estimated
useful lives of such assets or the remaining term of the applicable lease.





                                      F-9
<PAGE>   40
Patents

Patents are stated at cost less accumulated amortization.  The costs of patents
are amortized on a straight-line basis over the remaining economic life of the
respective asset, but in no event longer than the remaining legal life.

Goodwill

Excess of cost over net assets acquired is being amortized on a straight-line
basis over 15 years.  Subsequent to an acquisition, the Company continually
evaluates whether later events and circumstances have occurred that indicate
the remaining estimated useful life of this asset may warrant revision or that
the remaining balance may not be recoverable.

Income Taxes

Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes."  Deferred
income taxes are provided for differences between amounts shown for financial
reporting purposes and those included with tax return filings that will reverse
in future periods.  Additionally, the effects of income taxes are measured
based upon enacted tax laws and rates.

Research and Development

Expenditures for research, development and engineering of products are expensed
as incurred.

Foreign Currency Translation

Assets and liabilities denominated in foreign currencies are translated to U.S.
dollars at current rates of exchange.  Revenues and expenses are translated at
average rates prevailing during the year.  The Company incurred a foreign
currency transaction gain of approximately $177,000 in 1997 and losses
amounting to $96,000 and $1,589,000 for 1996 and 1995, respectively.
Translation gains and losses are recorded as a separate component of
shareholders' equity.

Fair Value Disclosures

The carrying value of financial instruments such as cash, accounts receivables
and payables, and other current assets and liabilities approximates their fair
value, based on the short-term nature of these instruments.  The carrying
amount of the Company's long-term debt and notes payable approximates their
fair value.  The fair value is estimated based on the current rates offered to
the Company for debt and notes payable of the same remaining maturities.





                                      F-10
<PAGE>   41
Use of Estimates

The preparation of 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 at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period.  Actual results could differ from these estimates.

3. DISPOSITION OF BUSINESSES:

In June 1995, the Company sold Colortronic GmbH and rights to several related
patents and patent applications to an investment group including former members
of the Company's management for $9 million, resulting in a pre-tax loss of
$10,529,000 on the sale.  Proceeds from the sale were used to pay down non-U.S.
and U.S. borrowings.  The Company discontinued its other Colortronic brand
business.

Additionally, in the fourth quarter of 1995, the Company sold certain
operations in France to a former member of the Company's management and its
operation in Brazil to a third party for a total of $951,000, resulting in a
pre-tax loss of $749,000 in 1995.

The following unaudited pro forma consolidated statement of operations for 1995
illustrates the estimated effect of the dispositions and the application of the
net proceeds, and the discontinuance of the other Colortronic brand business,
as if the transactions were consummated as of the beginning of 1995 (in
thousands except per-share data):


<TABLE>
             <S>                                     <C>       
             Revenues                                $         89,640
             Cost of revenues                                  52,819
                                                     ----------------
               Gross profit                                    36,821
             Operating expenses                                31,236
                                                     ----------------
               Operating income                                 5,585
             Interest expense                                   2,868
                                                     ----------------
               Income before taxes                              2,717
             Income taxes                                       1,309
                                                     ----------------
               Net income                            $          1,408
                                                     ================
             Basic earnings per share                $            .45
                                                     ================
             Diluted earnings per share              $            .45
                                                     ================
</TABLE>

Pro forma adjustments include only the effects of events directly attributable
to the transactions and are expected to have a continuing impact.  The above
unaudited pro forma financial information is not necessarily indicative of the
results that would actually have been obtained if the transactions had been
effected at the beginning of 1995 or that may be obtained in the future.





                                     F-11
<PAGE>   42
4. INVENTORIES:

Inventories consist of the following:

<TABLE>
<CAPTION>
                                            January 3,     December 28,
                                              1998             1996      
                                            --------       -----------
                                                 (in thousands)
            <S>                             <C>             <C>
            Components                      $   7,926       $  10,608
            Work-in-process                     1,796           1,773
            Finished goods                        288             877
                                            ---------       ---------
                                            $  10,010       $  13,258
                                            =========       =========
</TABLE>

5. PROPERTY, PLANT AND EQUIPMENT:

Property, plant and equipment consist of the following:

<TABLE>
<CAPTION>
                                               January 3,   December 28,
                                                  1998          1996      
                                               ----------   ------------
                                                   (in thousands)
            <S>                                <C>          <C>
            Land                               $   1,163    $    1,234
            Buildings and improvements            16,736        17,130
            Automotive equipment                     592           739
            Machinery and equipment               11,282        11,799
            Furniture and fixtures                10,252        11,745
                                               ---------    ----------
                                                  40,025        42,647
            Less- Accumulated depreciation                  
               and amortization                  (24,588)      (27,023)
                                               ---------    ---------- 
                                               $  15,437    $   15,624
                                               =========    ==========
</TABLE>

Depreciation of property, plant and equipment for 1997, 1996 and 1995 was
$2,457,000, $2,467,000 and $3,521,000, respectively.

6. NOTES PAYABLE TO BANKS AND LONG-TERM DEBT:

Prior to 1996, all debt was subject to U.S. and non-U.S. forbearance agreements
which arose as a result of the significant losses in prior years.  During 1996
and early 1997, the Company replaced all of the U.S. lenders and successfully
negotiated financing arrangements with the non-U.S. lenders.  The U.S.
forbearance agreement was terminated in 1996, and in early 1997 the non-U.S.
forbearance agreement was amended and extended to March 31, 1999.

In June 1996, the Company's U.S. manufacturing subsidiary obtained a 20-year
mortgage for $2.7 million at an interest rate of 9%.  Monthly principal and
interest payments are $24,293 and are due through June 2001.  The bank has the
right to review and adjust the terms of the mortgage every five years.

Also in June 1996, the U.S. manufacturing subsidiary entered into a two-year
secured revolving credit facility with a lender that provides for a maximum
borrowing of $5.7





                                      F-12
<PAGE>   43
million, subject to certain maximum borrowing limitations based upon inventory
and receivable levels.  The interest rate as of January 3, 1998 was 10.0%.  As
of January 3, 1998, there were no outstanding borrowings under the agreement
and $5,449,000 was available for borrowing.

Under the terms of the U.S. mortgage and revolving credit facilities,
$10,529,000 of receivables and inventory and $3,358,000 of fixed assets are
pledged as collateral.  In addition, $5,075,000 of accounts receivable are
pledged as collateral under the non-U.S. lines of credit and $6,635,000 of
fixed assets are pledged as collateral under the non-U.S. mortgages.

At January 3, 1998, the Company's Swiss subsidiary had $2,083,000 borrowed
under short-term lines of credit with its Swiss bank lenders and $11,180,000
was available for future borrowing.  The interest rates, including a 2% premium
(discussed below), on these lines of credit ranged from 5.5% to 9.0%. As part
of the extension of the agreement with the non-U.S. lenders, the interest rates
on these short-term lines of credit and non-U.S. mortgages were adjusted to
market plus 2%, effective April 1, 1997.  The 2% interest rate premium will
terminate on April 1, 1998 since the Company's Swiss subsidiary had achieved a
1.5 to 1.0 debt-to-equity ratio as of January 3, 1998 as stipulated in the
forbearance agreement.  Moreover, the Swiss lenders to the Company have agreed
in principle that the non-U.S. forbearance agreement will also terminate on
April 1, 1998.

In addition to the short-term lines of credit, the Company's Swiss subsidiary
had mortgage borrowings of $6,638,000 with maturities through 1999 from its
Swiss bank lenders.  These mortgages carried interest rates of 5.63% and 7.25%,
including the 2% premium referred to above.

Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                                          January 3,         December 28,
                                                                             1998                1996     
                                                                        --------------     ---------------
                                                                                  (in thousands)
         <S>                                                              <C>                <C>
         Non-U.S. long-term lines of credit                               $    --            $      8,999
         U.S. mortgage, interest at 9.0% per annum                             2,632                2,680
         Non-U.S. mortgages, interest at market rates (5.5% to 7.25%
            at January 3, 1998 and 3.6% to 8.25% at December 28,
            1996) payable annually                                             7,934                8,781
         Other                                                                 1,113                  714
                                                                          ----------         ------------
                                                                              11,679               21,174
         Less-  Current portion                                               (1,060)                (367)
                                                                          ----------         ------------ 
                                                                          $   10,619         $     20,807
                                                                          ==========         ============
</TABLE>





                                      F-13
<PAGE>   44
Future annual payments required on long-term debt are as follows (in
thousands):

<TABLE>
<CAPTION>
                 Fiscal Year                      Amount
                 -----------                      ------
                 <S>                             <C>
                 1998                            $   1,060
                 1999                                6,792
                 2000                                   98
                 2001                                   80
                 2002                                   86
                 Thereafter                          3,563
                                                 ---------
                                                 $  11,679
                                                 =========
</TABLE>                             

7. EMPLOYEE BENEFIT PLANS:

The Company has a profit-sharing and thrift plan for all domestic employees who
have worked for the Company for at least one year and who are employed at the
end of the year.  All Company contributions to the plan are at the discretion
of the Board of Directors.  The Company's profit-sharing contribution vests
over a seven-year period.  In addition, employees may voluntarily participate
in the thrift plan and authorize payroll deductions ranging from 1% to 15% of
their compensation.  Related matching Company contributions are vested
immediately.  In 1997, 1996, and 1995, the Board of Directors authorized
matching contributions of up to 6% of participants' compensation.  The Board of
Directors did not authorize any 1997, 1996, or 1995 contribution to the
profit-sharing portion of the plan.

Substantially all foreign employees participate in defined contribution group
pension plans.  Contributions are paid by the employee and employer at
percentages that vary according to age and other factors.

The expense associated with the domestic profit-sharing and thrift plan for
1997, 1996, and 1995 was $355,000, $269,000 and $225,000, respectively.  The
foreign pension expense for 1997, 1996, and 1995 was $1,066,000, $1,122,000 and
$1,402,000, respectively.

In 1995, the Colortronic GmbH employees participated in an unfunded defined
benefit plan.  The net periodic pension cost for the unfunded defined benefit
plan was $177,000 for 1995.  (See Note 3 for further discussion on the
Colortronic disposition).

In June 1981, the Company adopted an employee stock purchase plan under which
eligible employees of the Company may elect to participate through payroll
deductions for up to 10% of their gross compensation, but not to exceed
$25,000.  Such deductions are used to purchase Common stock of the Company at a
price equal to 85% of the market value.  Under this plan, the Company issued
17,468 shares of Common stock with an average price of $10.72 in 1997, 24,743
shares of Common stock at an average price of $5.67 in 1996 and 24,698 shares
of Common stock at an average price of $4.68 in 1995.





                                      F-14
<PAGE>   45
8. SHAREHOLDERS' EQUITY:

In 1991, the Board of Directors determined the rights on 50,000 shares of the
authorized Preferred stock as the Series A Junior Participating Preferred
Shares (the "Series A Preferred Shares").  Each one one-hundredth of a share of
the Series A Preferred Shares carries voting and dividend rights that are
equivalent to one share of the Common stock.  The voting and dividend rights
are subject to adjustment in the event of a dividend on Common stock which is
payable in Common stock or any subdivisions or combinations with respect to the
outstanding shares of Common stock (see Note 9).

The Board of Directors has not determined the rights on the remaining 950,000
shares of the authorized Preferred stock as of January 3, 1998.

The Company has a stock option plan for  nonemployee directors (the "1988
nonemployee directors' plan").  The plan provides that each eligible director
is granted a single option to purchase 10,000 shares of the Company's Common
stock at a price equal to the fair market value at the date of grant.  The
aggregate number of shares which may be issued under the plan is 100,000.
These options have a term of 10 years and become exercisable in four equal
annual installments beginning on the date of the grant.

The Company's 1986 Stock Option Plan, as amended (the "1986 plan"), expired in
January 1996, but option grants under the 1986 plan remain outstanding under
the 1996 plan.  Key employees of and consultants to the Company could be
granted options to purchase shares of the Company's Common stock.  These
options could be either incentive stock options or nonqualified stock options.
The Stock Option Committee (the "Committee") under the 1986 plan determined the
term of each option, but no option could be exercisable more than 10 years from
the date the option is granted.  The Committee also determined the option
exercise price per share.  With respect to incentive stock options, the
exercise price must at least equal the fair market value of a share of Common
stock as of the date the option is granted.

In 1996, the Company replaced the 1986 plan with the 1996 Equity Compensation
Plan, as amended (the "1996 plan") with features similar to the 1986 plan,
except that the maximum number of shares that may be issued is 450,000.  The
1996 plan is administered by a committee selected by the Board of Directors.





                                      F-15
<PAGE>   46
A summary of the Company's stock option activity for its stock option plans for
the three fiscal years ended January 3, 1998, is as follows:

<TABLE>
<CAPTION>
                                                                      Options                  
                                                    ---------------------------------------------
                                                                        Average
                                        Shares                           Price
                                       Reserved      Outstanding       Per Share       Available  
                                     ------------    -----------      ------------    -----------
   <S>                               <C>             <C>            <C>             <C>
   BALANCE,                                          
      JANUARY 1, 1995                     553,315        287,543       $     --          265,772
          Granted                           --            74,000             6.25        (74,000)
          Canceled                          --          (107,859)           10.50        107,859
                                     ------------    -----------                      ----------
   BALANCE,                                          
      DECEMBER 30, 1995                   553,315        253,684                         299,631
          Granted                           --       
          Canceled                         (5,000)        (5,000)            8.45         --
          1996 Plan Adoption              450,000           --               --          450,000
          1986 Plan                                  
            Expiration                   (249,631)          --               --         (249,631)
                                     ------------    -----------                      ----------
   BALANCE,                                          
      DECEMBER 28, 1996                   748,684        248,684                         500,000
          Granted                                        100,000            14.00       (100,000)
          Canceled                         (1,500)        (1,500)            8.00         --
          Exercised                       (56,150)       (56,150)            9.37         --   
                                     ------------    -----------                      ----------
   BALANCE,                                                            
      JANUARY 3, 1998                     691,034        291,034                         400,000
                                     ============    ===========                      ==========
</TABLE>

As of January 3, 1998, 40 employees held options under the 1986 plan for an
aggregate of 152,134 shares at exercise prices from $6.25 to $14.00 with a
weighted average option price of $8.66.  These options expire in varying
amounts through the year 2005.  As of January 3, 1998, one employee held
options under the 1996 plan for an aggregate of 100,000 shares at an exercise
price of $14.00.  The options expire in 2007.  As of  January 3, 1998, under
the 1988 nonemployee directors' plan, four directors held options for an
aggregate of 38,900 shares at exercise prices from $9.25 to $11.00 with a
weighted average option price of $10.39.  These options expire in varying
amounts through the year 2004.





                                      F-16
<PAGE>   47
Pro Forma Information

SFAS No. 123 requires the Company to disclose pro forma net income and pro
forma earnings per share amounts as if compensation expense were recognized for
options granted after fiscal year 1994.  Using this approach, net income and
earnings per share would have been reduced to the pro forma amounts indicated
in the table:

<TABLE>
<CAPTION>
                                                               1997                   1996
                                                           ------------           ------------
                                                              (millions, except per share)
           <S>                                               <C>                   <C>
           Net income - as reported                          $  5,444              $  4,026
           Net income - pro forma                               5,256                 3,947
           Basic earnings per share - as reported                1.72                  1.29
           Basic earnings per share - pro forma                  1.66                  1.27
           Diluted earnings per share - as reported              1.69                  1.28
           Diluted earnings per share - pro forma                1.63                  1.26
</TABLE>


This pro forma impact may not be representative of the effects for future years
and is likely to increase as additional options are granted and amortized over
the vesting period.

For disclosure purposes, the fair value of each stock option granted is
estimated on the date of grant using the Black-Scholes option-pricing model
with the following weighted average  assumptions: no dividend yield; expected
volatility of 43.60% and 41.60%; risk-free interest rate of 6.02% and 6.06%;
and expected life of 6 years in 1997 and 1996, respectively.

The Black-Scholes option-pricing model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable.  In addition, option-pricing models require the input of
subjective assumptions, including the expected stock price volatility.





                                      F-17
<PAGE>   48
9. SHAREHOLDER RIGHTS PLAN:

The Company has a Shareholder Rights Plan (the "Rights Agreement") which was
adopted by the Board of Directors on October 3, 1991.  The Rights Agreement
provides that each share of the Company's Common stock outstanding as of
October 14, 1991 has associated with it one right (a  "Right") to purchase one
one-hundredth of a share of the Series A Preferred Shares at an exercise price
of $40 per share.  Such exercise price is subject to adjustment as described in
the Rights Agreement.

The Rights will be exercisable only if a person or group obtains the right to
acquire beneficial ownership of 20% or more of the outstanding Common stock of
the Company, or after the commencement of a tender offer or an exchange offer
that would result in a person or group beneficially owning 20% or more of the
outstanding Common stock.  If anyone acquires 20% or more of the Company's
outstanding Common stock, the Rights would entitle shareholders (other than the
20% acquiror) to purchase for $40 the number of shares of the Company's Common
stock which would have a market value of $80.  In the event that the Company is
acquired in a merger or other business combination, the Rights would entitle
the shareholders (other than the acquiror) to purchase securities of the
surviving company at a similar discount.  In lieu of requiring payment of the
exercise price of the Rights upon the occurrence of the above-noted events, the
Company may permit the holders to simply surrender the Rights and receive the
number of shares of the Company's Common stock which would have a market value
of $40.

The Company can redeem the Rights at $.01 per Right at any time until the 20th
day following a public announcement that a person or a group has acquired or
obtained the right to acquire beneficial ownership of at least 20% of the
Company's outstanding Common stock.  Under certain circumstances set forth in
the Rights Agreement, the decision to redeem shall require the concurrence of a
majority of the Continuing Directors, as defined in the Rights Agreement.  The
redemption period may be extended by the Board of Directors as long as the
Rights are still redeemable.  The Rights expire October 14, 2001.

10. INCOME TAXES:

Following are the domestic and foreign components of the income (loss) before
income taxes:

<TABLE>
<CAPTION>
                                                                 Fiscal Year Ended                 
                                               ---------------------------------------------------
                                                 January 3,       December 28,       December 30,
                                                    1998              1996               1995      
                                               --------------    ---------------    --------------
                                                                 (in thousands)
       <S>                                       <C>              <C>                <C>
       United States                             $     2,387      $      2,648       $       756
       Foreign                                         4,922             3,193           (11,200)
                                                 -----------      ------------       ----------- 
         Income (loss) before income taxes       $     7,309      $      5,841       $   (10,444)
                                                 ===========      ============       ============
</TABLE>





                                      F-18
<PAGE>   49
The income tax provision (benefit) consists of the following:

<TABLE>
<CAPTION>
                                                                   Fiscal Year Ended                  
                                                 ----------------------------------------------------
                                                    January 3,        December 28,      December 30,
                                                       1998               1996              1995     
                                                  -------------     ---------------    --------------
                                                                    (in thousands)
       <S>                                         <C>                <C>                <C>
       Current:                                                                          
         Federal                                   $    2,061         $     1,056        $       501
         Foreign                                          125                 316              --   
                                                   ----------         -----------        -----------
              Total current                             2,186               1,372                501
                                                   ----------         -----------        -----------
       Deferred:                                                                         
         Federal and State                               (325)               (141)              (106)
         Foreign                                            4                  (8)              (526)
         Benefit of foreign net operating                                                
            loss carryforwards                          --                    592             (1,019)
                                                   ----------         -----------        ----------- 
              Total deferred                             (321)                443             (1,651)
                                                   ----------         -----------        ----------- 
       Total income tax provision (benefit)        $    1,865         $     1,815        $    (1,150)
                                                   ==========         ===========        ===========
</TABLE> 

Significant components of the deferred tax accounts at January 3, 1998 and
December 28, 1996, are as follows:

<TABLE>
<CAPTION>
                                                     January 3,        December 28,
                                                        1998               1996   
                                                    ------------       ------------
                                                             (in thousands)    
        <S>                                            <C>               <C>
        Deferred tax assets:                                        
          Depreciation                                 $   172           $     101
          Accrued liabilities                              672                 541
          Net operating loss carryforwards               2,790               5,448
          Inventory basis differences                      291                 281
          Other                                            177                  93
                                                       -------           ---------
                                                         4,102               6,464
          Valuation allowance                           (2,993)             (5,676)
                                                       -------           --------- 
              Total assets                               1,109                 788
                                                       -------           ---------
        Deferred tax liabilities:                                   
          Depreciation                                    (210)               (301)
          Other                                           (380)               (312)
                                                       -------           --------- 
              Total liabilities                           (590)               (613)
                                                       -------           --------- 
        Net deferred asset                             $   519           $     175
                                                       =======           =========
</TABLE>


Foreign and U.S. state operating loss carryforwards as of January 3, 1998 were
$9.4 million and $3.2 million, respectively.  Of the $9.4 million of foreign
losses, $7.9 million are





                                      F-19
<PAGE>   50
available to offset future income through 2003.  The balance of $1.5 million
has an unlimited carryforward period.  U.S. state operating losses are
available through 2004.

A valuation allowance is provided when it is more likely than not that some
portion or all of the deferred tax assets will not be realized.  The Company
has established valuation allowances for all foreign and state net operating
loss carryforwards generated from losses prior to 1995 and certain other
deferred tax assets for which realization is dependent on future taxable
earnings.

At January 3, 1998, retained earnings include $9.4 million of undistributed net
income of foreign subsidiaries.  Management considers such income to have been
permanently invested and, therefore, no federal income taxes have been provided
for these items.

A reconciliation of the provision for income taxes and the amounts that would
be computed using the statutory federal income tax rates is set forth below:

<TABLE>
<CAPTION>
                                                                    Fiscal Year Ended                 
                                                   -----------------------------------------------------
                                                      January 3,       December 28,       December 30,
                                                         1998              1996               1995      
                                                   --------------    ----------------   ----------------
                                                                       (in thousands)
    <S>                                             <C>               <C>                 <C>
      Income tax provision (benefit) on income
        (loss) before income tax at statutory
        federal income tax rates                     $    2,485         $     1,986         $   (3,551)
      Foreign tax rate differential                        (237)                 80                918
      State tax, net of federal benefit                     133                  28                (27)
      Goodwill amortization and other permanent
        differences                                         708                 325                175
      Change in valuation allowance                      (1,307)               (640)             1,345
      Other                                                  83                  36                (10)
                                                    -----------         -----------         ----------
 
      Income tax provision (benefit)                $     1,865         $     1,815         $   (1,150)
                                                    ===========         ===========         ========== 
</TABLE>


11. EARNINGS (LOSS) PER SHARE:

In 1997, the Company adopted SFAS No. 128, "Earnings Per Share."  SFAS No. 128
requires that the Company report Basic and Diluted Earnings Per Share.  Basic
Earnings Per Share represents net income less preferred dividends divided by
the weighted average common shares outstanding.  Diluted Earnings Per Share is
calculated similarly, except that the denominator includes weighted average
common shares outstanding plus the dilutive effect of options, warrants,
convertible securities and other instruments with dilutive effects if
exercised.





                                      F-20
<PAGE>   51
The Company's Basic and Diluted Earnings Per Share are calculated as follows:

<TABLE>
<CAPTION>
                                                           For the Fiscal Year Ended January 3, 1998         
                                               ------------------------------------------------------------
                                                  Income Available
                                                     To Common                                 Per Share
                                                    Shareholders            Shares              Amount    
                                               ----------------------  ----------------     ---------------
 <S>         <C>                                  <C>                  <C>                      <C>   
 Basic       Net Income                           $      5,444,000            3,162,000         $  1.72 
                                                  ----------------     ----------------         ------- 
                                                                                                        
             Common Share Equivalent of                                                                 
               Options Issued                                --                  65,000           ( .03)
                                                  ----------------     ----------------         ------- 
                                                                                                        
 Diluted                                          $      5,444,000            3,227,000         $  1.69 
                                                  ================     ================         ======= 
</TABLE>


<TABLE>
<CAPTION>
                                                       For the Fiscal Year Ended December 28, 1996 
                                                 ---------------------------------------------------------
 <S>         <C>                                  <C>                  <C>                      <C>   
 Basic       Net Income                           $      4,026,000            3,120,000          $  1.29 
                                                  ----------------      ---------------          ------- 

             Common Share Equivalent of                                                                  
               Options Issued                                --                  16,000            ( .01)
                                                  ----------------      ---------------          ------- 
                                                                                                         
 Diluted                                          $      4,026,000            3,136,000          $  1.28 
                                                  ================      ===============          ======= 
</TABLE>

<TABLE>
<CAPTION>
                                                        For the Fiscal Year Ended December 30, 1995                
                                                 ---------------------------------------------------------
 <S>         <C>                                  <C>                  <C>                      <C>   
 Basic       Net Income                           $     (9,294,000)           3,096,000          $  (3.00)
                                                  ----------------       --------------          -------- 
                                                                                                          
             Common Share Equivalent of                                                                   
               Options Issued                                --                   --                  --  
                                                  ----------------       --------------          -------- 
                                                                                                          
 Diluted                                          $     (9,294,000)           3,096,000          $  (3.00)
                                                  ================       ==============          ======== 
</TABLE>


Earnings (loss) per common share are based on the weighted average number of
common and common equivalent shares outstanding during each year.  Such average
shares include the weighted average number of common shares outstanding plus
the shares issuable upon exercise of stock options after the assumed repurchase
of common shares with the related proceeds.





                                      F-21
<PAGE>   52
12. COMMITMENTS AND CONTINGENCIES:

The Company leases certain office and plant facilities and equipment under
noncancelable leases.  These leases expire in periods ranging from one to five
years and, in certain instances, provide for purchase options.

Immediately prior to the acquisition of Hasler in 1990, the Company's large
heavy duty feeder division, the acquired company entered into a sale/leaseback
agreement on its real property in Switzerland.  The net proceeds of this
transaction were distributed to the seller as a dividend.  The gain from this
transaction has been classified as Other Noncurrent Liabilities in the
Company's consolidated balance sheets.  This deferred gain is being amortized
over the life of the resulting operating lease (10 years).  Amortization of the
deferred gain for 1997, 1996 and 1995 was $380,000, $447,000 and $468,000,
respectively.

As of January 3, 1998, future minimum payments under operating leases having
noncancelable terms in excess of one year are summarized below:

<TABLE>
<CAPTION>
                                            Operating
                                              Leases     
                                         ----------------
                                          (in thousands)
                <S>                          <C>
                1998                         $     847
                1999                               659
                2000                               417
                2001                                28
                2002                                77
                                             ---------
                                             $   2,028
                                             =========
</TABLE>

Rent expense for 1997, 1996 and 1995 was $647,000, $1,129,000 and $1,719,000,
respectively.

The Company has employment contracts with eight executives.  Generally, these
contracts may be terminated by the Company on one year's advance notice.  Under
the agreements, each individual is guaranteed minimum compensation over the
contract period.  As of January 3, 1998, the estimated future obligation under
these contracts is $1,282,000 (1998), $380,000 (1999) and $380,000 (2000).





                                      F-22
<PAGE>   53
13. GEOGRAPHIC AREA INFORMATION:

The Company is engaged in one business segment, the development, manufacturing
and marketing of gravimetric and volumetric feeders and related equipment.


<TABLE>
<CAPTION>
                                                   United         Western        Elimi-        Consoli-
                                                   States          Europe        nations         dated    
                                                -------------    -----------   -----------   -------------
                                                                      (in thousands)
   <S>                                          <C>              <C>           <C>           <C>
   FISCAL YEAR ENDED                                         
     JANUARY 3, 1998:                                        
       Revenues-                                             
         Sales to unaffiliated customers        $      35,507    $   51,645    $    --       $     87,152
         Sales to affiliates                            1,976         1,931        (3,907)          --    
                                                -------------    ----------    ----------    -------------
                    Total sales                 $      37,483    $   53,576    $   (3,907)   $     87,152
                                                =============    ==========    ==========    ============
       Operating income                         $       3,040    $    5,607    $     (205)   $      8,442
                                                =============    ==========    ==========                
       Interest expense                                                                             1,133
                                                                                             ------------
       Income before income taxes                                                            $      7,309
                                                                                             ============
                    Total assets                $      21,276    $   32,973    $    --       $     54,249
                                                =============    ==========    ===========   ============
   FISCAL YEAR ENDED                                         
     DECEMBER 28, 1996:                                      
       Revenues-                                             
         Sales to unaffiliated customers        $      34,123    $   55,748    $    --       $     89,871
         Sales to affiliates                            4,204         2,995        (7,199)          --   
                                                -------------    ----------    ----------    ------------
                    Total sales                 $      38,327    $   58,743    $   (7,199)   $     89,871
                                                =============    ==========    ==========    ============
       Operating income                         $       3,297    $    4,485    $       94    $      7,876
                                                =============    ==========    ==========                
       Interest expense                                                                            (2,035)
                                                                                             ------------ 
       Income before income taxes                                                            $      5,841
                                                                                             ============
                    Total assets                $      17,863    $   37,467    $    --       $     55,330
                                                =============    ==========    ==========    ============
   FISCAL YEAR ENDED                                         
     DECEMBER 30, 1995:                                      
       Revenues-                                             
         Sales to unaffiliated customers        $      32,156    $   78,238    $    --       $    110,394
         Sales to affiliates                            3,445         4,034        (7,479)          --   
                                                -------------    ----------    ----------    ------------
                    Total sales                 $      35,601    $   82,272    $   (7,479)   $    110,394
                                                =============    ==========    ==========    ============
       Operating income (loss)                  $       2,014    $   (8,282)   $      (34)   $     (6,302)
                                                =============    ==========    ==========                 
       Interest expense                                                                            (4,142)
                                                                                             ------------ 
       Loss before income taxes                                                              $    (10,444)
                                                                                             ============ 
                    Total assets                $      21,553    $   47,843    $     (100)   $     69,296
                                                =============    ==========    ==========    ============
</TABLE>





                                      F-23
<PAGE>   54









                   K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES

                          FINANCIAL STATEMENT SCHEDULES



<PAGE>   55
                                                                      SCHEDULE I
                           K-TRON INTERNATIONAL, INC

                 CONDENSED FINANCIAL INFORMATION OF REGISTRANT 

                                 BALANCE SHEETS

                    (dollars in thousands except share data)


<TABLE>
<CAPTION>
                                                                          January 3,      December 28,
                                ASSETS                                       1998             1996     
                                ------                                  -------------    ---------------
  <S>                                                                    <C>                <C>
  CURRENT ASSETS:
     Cash and cash equivalents                                           $        1         $        13
     Deferred income taxes                                                      950                 641
     Prepaid expenses and other current assets                                  193                 171
                                                                         ----------         -----------
               Total current assets                                           1,144                 825
  PROPERTY, PLANT AND EQUIPMENT, net                                             45                  44
  INVESTMENT IN SUBSIDIARIES                                                 21,827              14,788
                                                                         ----------         -----------
               Total assets                                              $   23,016         $    15,657
                                                                         ==========         ===========
                 LIABILITIES AND SHAREHOLDERS' EQUITY                                       
                 ------------------------------------                                       
  CURRENT LIABILITIES:                                                                      
     Accrued expenses and other current liabilities                      $    2,184         $     1,736
     Intercompany payables, net                                               1,713                 473
                                                                         ----------         -----------
               Total current liabilities                                      3,897               2,209
                                                                         ----------         -----------
  DEFERRED INCOME TAXES                                                         227                 254
                                                                         ----------         -----------
  SERIES A JUNIOR PARTICIPATING PREFERRED                                                   
     SHARES, $.01 par value, authorized 50,000 shares;                                      
     none issued                                                              --                  --   
                                                                         ----------         -----------
  SHAREHOLDERS' EQUITY:                                                                     
     Preferred stock, $.01 par value;                                                       
        950,000 shares authorized; none issued                                --                  --
     Common stock, $.01 par value;                                                          
        15,000,000 shares authorized; 4,271,300 and                                         
        4,200,328 shares issued                                                  43                  42
     Paid-in capital                                                         14,833              14,120
     Retained earnings                                                       15,246               9,802
     Cumulative translation adjustments                                        (766)               (206)
                                                                         ----------         ----------- 
               Total                                                         29,356              23,758
     Treasury stock, 1,052,950 and 1,062,950 shares, at cost                (10,464)            (10,564)
                                                                         ----------         ----------- 
               Total shareholders' equity                                    18,892              13,194
                                                                         ----------         -----------
               Total liabilities and shareholders' equity                $   23,016         $    15,657
                                                                         ==========         ===========
</TABLE>


    The accompanying note is an integral part of these financial statements.





                                      S-1
<PAGE>   56
                                                                      SCHEDULE I
                                                                     (Continued)

                          K-TRON INTERNATIONAL, INC. 

                 CONDENSED FINANCIAL INFORMATION OF REGISTRANT 

                            STATEMENTS OF OPERATIONS

                    (dollars in thousands except share data)



<TABLE>
<CAPTION>
                                                                              Fiscal Year Ended                  
                                                          ------------------------------------------------------
                                                             January 3,        December 28,        December 30,
                                                               1998                1996                1995       
                                                          ---------------   -----------------   ----------------
<S>                                                         <C>                  <C>                <C>
REVENUES:                                                                                        
   Management fees                                          $     1,816          $    2,203         $    4,393
   Other income, net                                              --                  --                    10
                                                            -----------          ----------         ----------
             Total revenues                                       1,816               2,203              4,403
                                                            -----------          ----------         ----------
OPERATING EXPENSES:                                                                                 
   Selling, general and administrative                            3,703               3,690              3,385
   Research and development                                         251               --                    95
   Loss on disposition of business                                --                  --                 1,045
                                                            -----------          ----------         ----------
                                                                  3,954               3,690              4,525
                                                            -----------          ----------         ----------
OPERATING (LOSS)                                                 (2,138)             (1,487)              (122)
INTEREST EXPENSE                                                    150                 415                803
                                                            -----------          ----------         ----------
               Loss before income tax benefit and net                                               
                 (income) loss of subsidiaries                   (2,288)             (1,902)              (925)
INCOME TAX BENEFIT                                                 (778)               (647)              (314)
                                                            -----------          ----------         ---------- 
               Loss before net income (loss)                                                        
                 of subsidiaries                                 (1,510)             (1,255)              (611)
EQUITY IN NET INCOME (LOSS)                                                                         
   OF SUBSIDIARIES                                                6,954               5,281             (8,683)
                                                            -----------          ----------         ---------- 
               Net income (loss)                            $     5,444          $    4,026         $   (9,294)
                                                            ===========          ==========         ========== 
BASIC EARNINGS (LOSS) PER SHARE                             $      1.72          $     1.29         $    (3.00)
                                                            ===========          ==========         ========== 
DILUTED EARNINGS (LOSS) PER SHARE                           $      1.69          $     1.28         $    (3.00)
                                                            ===========          ==========         ========== 
</TABLE>





    The accompanying note is an integral part of these financial statements.




                                      S-2
<PAGE>   57
                                                                      SCHEDULE I
                                                                     (Continued)

                           K-TRON INTERNATIONAL, INC.


                 CONDENSED FINANCIAL INFORMATION OF REGISTRANT 

                            STATEMENTS OF CASH FLOWS

                             (dollars in thousands)


<TABLE>
<CAPTION>
                                                                                   Fiscal Year Ended                    
                                                               ---------------------------------------------------------
                                                                  January 3,         December 28,        December 30,
                                                                     1998                1996                1995     
                                                               ----------------    ----------------    ----------------
  <S>                                                            <C>                  <C>                 <C>
  OPERATING ACTIVITIES:                                                                                   
     Net income (loss)                                           $     5,444          $     4,026         $    (9,294)
     Equity in net (income) loss of subsidiaries                      (7,599)              (5,281)              8,683
     Depreciation and amortization                                        31                  151                 129
     Other, primarily working capital changes                          1,330                5,945               6,273
                                                                 -----------          -----------         -----------
                 Net cash (used in) provided by operating                                                 
                   activities                                           (794)               4,841               5,791
                                                                 -----------          -----------         -----------
  INVESTING ACTIVITIES:                                                                                   
     Capital expenditures                                                (32)                  (8)                (25)
                                                                 -----------          -----------         ----------- 
                 Net cash used in investing activities                   (32)                  (8)                (25)
                                                                 -----------          -----------         ----------- 
  FINANCING ACTIVITIES:                                                                                   
     Net (repayments) borrowings under                                                                    
        bank agreements                                                --                  (5,005)             (5,845)
     Proceeds from issuance of Common stock                              814                  140                 116
                                                                 -----------          -----------         -----------
                 Net cash provided by (used in) financing                                                 
                   activities                                            814               (4,865)             (5,729)
                                                                 -----------          -----------         ----------- 
                 Net (decrease) increase in cash                                                          
                   and cash equivalents                                  (12)                 (32)                 37
  CASH AND CASH EQUIVALENTS,                                                                              
     BEGINNING OF YEAR                                                    13                   45                   8
                                                                 -----------          -----------         -----------
  CASH AND CASH EQUIVALENTS,                                                                              
     END OF YEAR                                                 $         1          $        13         $        45
                                                                 ===========          ===========         ===========
</TABLE>




    The accompanying note is an integral part of these financial statements.





                                      S-3
<PAGE>   58
                                                                      SCHEDULE I
                                                                     (Continued)


                          K-TRON INTERNATIONAL, INC. 


                 CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                          NOTE TO FINANCIAL STATEMENTS

                                JANUARY 3, 1998




Note 1:    These schedules should be read in conjunction with the Company's
           consolidated financial statements and notes thereto beginning on
           page F-3.





                                     S-4
<PAGE>   59
                                                                     SCHEDULE II

                  K-TRON INTERNATIONAL, INC. AND SUBSIDIARIES


                               VALUATION RESERVES



<TABLE>
<CAPTION>
                                         Balance at                       Additions
                                         Beginning                         Charged                               Balance at
                                          of Period       Disposed(2)     to Income      Deductions(1)         End of Period    
                                        -------------     ----------      ---------      -------------        ---------------
   <S>                                  <C>               <C>             <C>              <C>                <C>
   Fiscal year ended 1/3/98:                                          
     Allowance for doubtful accounts    $ 1,037,000       $     --        $ 184,000     $     102,000         $    1,119,000
                                                                      
   Fiscal year ended 12/28/96:                                        
     Allowance for doubtful accounts      1,077,000             --          366,000           406,000              1,037,000
                                                                      
   Fiscal year ended 12/30/95:                                        
     Allowance for doubtful accounts      1,523,000        (956,000)        564,000            54,000              1,077,000
</TABLE>





(1)  Accounts written off less recoveries, net of foreign exchange translation
     adjustment.

(2)  Reduction due to sale of subsidiaries.





                                     S-5
<PAGE>   60
                                EXHIBIT INDEX


Exhibit
Number      Description

2.1         Share Purchase Agreement, dated as of June 23, 1995, by and among
            K-Tron Holding AG, K-Tron Deutschland GmbH and Dr. Dolemeyer GmbH
            (Filed as Exhibit 2.1 to the Company's report on Form 8-K dated June
            23, 1995 and incorporated herein by reference)

3.1         Restated Certificate of Incorporation (Filed as Exhibit 3.1 to the
            Company's annual report on Form 10-K for the year ended January 4,
            1992 ("1991 Form 10-K") and incorporated herein by reference)

3.2         By-Laws, as amended (Filed as Exhibit 3.2 to the Company's annual
            report on Form 10-K for the year ended January 1, 1994 ("1993 Form
            10-K") and incorporated herein by reference)

4.1         Form of Certificate for Shares of Common Stock (Filed as
            Exhibit 4.1 to the 1993 Form 10-K and incorporated herein by
            reference)

4.2         Rights Agreement dated as of October 3, 1991 with First Interstate
            Bank of Arizona, N.A., as Rights Agent (Filed as Exhibit 1 to the
            Company's report on Form 8-K dated October 3, 1991 and incorporated
            herein by reference)

10.1        Forbearance Agreement by and among Swiss Bank Corp. Aarau, Credit
            Suisse Aarau, Swiss Volksbank, Union Bank of Switzerland, Banque
            Cantonale Neuchateloise, CS Immobilien Leasing Ltd., K-Tron
            (Switzerland) Ltd., K-Tron Vertech Ltd., K-Tron Patent Ltd., K-Tron
            Asia Pacific Pte Ltd, K-Tron International Inc. and K-Tron
            Investment Co. (Filed as Exhibit 10.1.6 to the Company's annual
            report on Form 10-K for the year ended December 30, 1995 and
            incorporated herein by reference)
<PAGE>   61
Exhibit
Number      Description

10.2        Amendment 1 to Forbearance Agreement by and among Swiss Bank Corp.
            Aarau, Credit Suisse, Swiss Volksbank, Union Bank of Switzerland,
            Banque Cantonale Neuchateloise, CS Immobilien Leasing Ltd., K-Tron
            (Switzerland) Ltd., K-Tron Asia Pacific Pte Ltd, K-Tron
            International Inc. and K-Tron Investment Co.(Filed as Exhibit 10.1.7
            to the Company's annual report on Form 10-K for the year ended
            December 28, 1996 ("1996 Form 10-K") and incorporated herein by
            reference)

10.3        Amendment 2 to Forbearance Agreement by and among Swiss Bank Corp.
            Aarau, Credit Suisse, Swiss Volksbank, Union Bank of Switzerland,
            Banque Cantonale Neuchateloise, CS Immobilien Leasing Ltd., K-Tron
            (Switzerland) Ltd., K-Tron Asia Pacific Pte Ltd, K-Tron
            International Inc. and K-Tron Investment Co. (Filed as Exhibit
            10.1.8 to the 1996 Form 10-K and incorporated herein by reference)

10.4        1986 Stock Option Plan, as amended and restated (Filed as
            Exhibit 10.2.1 to the 1991 Form 10-K and incorporated herein
            by reference)**

10.5        1988 Stock Option Plan for Non-Employee Directors (Filed as Exhibit
            10.2.4 to the Company's annual report on Form 10-K for the fiscal
            year ended December 31, 1988 ("1988 Form 10-K") and incorporated
            herein by reference)**

10.6        K-Tron International, Inc. 1996 Equity Compensation Plan, as amended
            (Filed as Exhibit 10.1 to the Company's quarterly report on Form
            10-K for the fiscal quarter ended September 28, 1996 ("September
            1996 Form 10-Q") and incorporated herein by reference)**

10.7        K-Tron International, Inc. Amended and Restated Employee
            Stock Purchase Plan (Filed as Exhibit 10.2 to the September
            1996 Form 10-Q and incorporated herein by reference)**

10.8        K-Tron International, Inc. Profit-Sharing and Thrift Plan, as
            amended and restated (Filed as Exhibit 10.2.5 to the Company's
            annual report on Form 10-K for the year ended December 30, 1989 and
            incorporated herein by reference)**
<PAGE>   62
Exhibit
Number      Description

10.9        Amendment No. 1992-1 to K-Tron International, Inc. Profit-
            Sharing and Thrift Plan (Filed as Exhibit 10.2.6 to the 1991
            Form 10-K and incorporated herein by reference)**

10.10       Amendment No. 1996-1 to K-Tron International, Inc. Profit-
            Sharing and Thrift Plan (Filed as Exhibit 10.2.7 to the 1996
            Form 10-K and incorporated herein by reference)**

10.11       K-Tron International, Inc. Supplemental Executive Retirement
            Plan (Filed as Exhibit 10.2.7 to the 1991 Form 10-K and
            incorporated herein by reference)**

10.12       Form of Employment Agreement with certain employees of the Company
            listed on Schedule 10.12, which are identical in all material
            respects except for the employee, amount of salary to be paid and
            date of execution* **

10.13       Employment Agreement dated as of October 6, 1997 by and
            between K-Tron International, Inc. and Edward B. Cloues, II
            (Filed as Exhibit 10.1 to the Company's quarterly report on
            Form 10-Q for the fiscal quarter ended September 27, 1997 and
            incorporated herein by reference)**

10.14       Indemnification Agreement with Leo C. Beebe, dated March 23, 1987,
            and Schedule 10.2.9 listing other indemnification agreements which
            are identical in all material respects except for the director or
            officer who is a party thereto (Filed as Exhibit 10.2.9 to the
            Company's annual report on Form 10-K for the year ended January 2,
            1988 and incorporated herein by reference)**

10.15       Schedule 10.2.11 listing other indemnification agreements which are
            dated November 18, 1988 and are identical in all material respects
            to the Indemnification Agreement set forth in Exhibit 10.2.12 except
            for the director or officer who is a party thereto (Filed as Exhibit
            10.2.11 to the 1988 Form 10-K and incorporated herein by
            reference)**
<PAGE>   63
Exhibit
Number      Description

10.16       Schedule 10.2.16 listing other indemnification agreements which are
            dated September 20, 1993, November 12, 1993 and January 14, 1994 and
            are identical in all material respects to the Indemnification
            Agreement set forth in Exhibit 10.2.14 except for the director or
            officer who is a party thereto (Filed as Exhibit 10.2.16 to the 1993
            Form 10-K and incorporated herein by reference)**

10.17       Leasing Agreement, dated October 30, 1990, between CS Immobilien
            Leasing AG, Zurich and Hasler Freres SA, with limited guaranty of
            K-Tron Soder AG (Filed as Exhibit 10.1(b) to the Company's report on
            Form 8-K dated October 30, 1990 and incorporated herein by
            reference)

10.18       Amendment, dated January 25, 1991, to Leasing Agreement, dated
            October 30, 1990, between CS Immobilien Leasing AG, Zurich and
            Hasler Freres SA and to the related limited guaranty of K-Tron Soder
            AG (Filed as Exhibit 10.3.3 to the Company's annual report on Form
            10-K for the year ended December 29, 1990 and incorporated herein by
            reference)

21.1        Subsidiaries*

23.1        Consent of Arthur Andersen LLP*

24.1        Power of Attorney (Included on Signature Page)

27.1        Financial Data Schedule*

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

*     Filed herewith

**    Management contract or compensatory plan or arrangement required to
      be filed or incorporated as an exhibit