UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    FORM 10-Q


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


                For The Quarterly Period Ended November 29, 1998


                           Commission File No. 0-3362



                            SI HANDLING SYSTEMS, INC.
--------------------------------------------------------------------------------
             (Exact Name Of Registrant As Specified In Its Charter)




         Pennsylvania                                             22-1643428
-------------------------------                             -------------------
(State Or Other Jurisdiction Of                               (I.R.S. Employer
 Incorporation Or Organization)                              Identification No.)



     600 Kuebler Road, Easton, PA                                  18040  
----------------------------------------                         ----------  
(Address Of Principal Executive Offices)                         (Zip Code)



Registrant's Telephone Number, Including Area Code:             610-252-7321
                                                                ------------






Indicate by checkmark  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
                                                                 ---         ---


Number of shares of common stock, par value $1.00 per share, outstanding as of
November 29, 1998:  3,718,862.
                    ---------



<PAGE>




                         PART I - FINANCIAL INFORMATION
                         ------------------------------


Item 1.   Financial Statements
------    --------------------
SI Handling Systems, Inc.
Balance Sheets
  (In Thousands, Except Share Data)

<TABLE>
<CAPTION>
                                                         November       March
                                                         29, 1998      1, 1998  
                                                        ----------    ----------

<S>                                                     <C>             <C>
Assets
Current assets:
   Cash and cash equivalents, principally
     time deposits                                      $  2,238           752
   Short-term investments                                      -             -
                                                          ------        ------
       Total cash, cash equivalents, and
         short-term investments                            2,238           752
                                                          ------        ------

   Receivables:
     Trade                                                 7,749         8,830
     Notes and other receivables                             209            51
                                                          ------        ------
       Total receivables                                   7,958         8,881
                                                          ------        ------

   Costs and estimated earnings in excess
     of billings                                           7,329         6,774

   Inventories:
     Raw materials                                         1,233           920
     Finished goods and work-in-process                    1,222         1,578
                                                          ------        ------
       Total inventories                                   2,455         2,498
                                                          ------        ------

   Deferred income tax benefits                              435           435
   Prepaid expenses and other current assets                 242           162
                                                          ------        ------
       Total current assets                               20,657        19,502
                                                          ------        ------

Property, plant and equipment, at cost:
   Land                                                       27            27
   Buildings and improvements                              3,387         3,387
   Machinery and equipment                                 4,509         4,180
                                                          ------        ------
                                                           7,923         7,594
   Less:  accumulated depreciation                         6,432         6,131
                                                          ------        ------
       Net property, plant and equipment                   1,491         1,463
                                                          ------        ------

Deferred income tax benefits                                 175           175
Investment in joint venture                                1,044         1,027
Other assets, at cost less accumulated
   amortization of $85 in 1999 and $78
   in 1998                                                    45            52
                                                          ------        ------
       Total assets                                     $ 23,412        22,219
                                                          ======        ======
</TABLE>


                 See accompanying notes to financial statements.


                                      - 2 -

<PAGE>




Item 1.   Financial Statements (Continued)
------    --------------------
SI Handling Systems, Inc.
Balance Sheets
  (In Thousands, Except Share Data)

<TABLE>
<CAPTION>
                                                         November       March
                                                         29, 1998      1, 1998
                                                        ----------    ----------   

<S>                                                     <C>             <C>
Liabilities and Stockholders' Equity
Current liabilities:
   Revolving credit loan payable to bank                $      -         1,000
   Current installments of long-term debt                      9             8
   Accounts payable                                        4,038         4,044
   Customers' deposits and billings in excess
     of costs and estimated earnings                       4,319         2,218
   Accrued salaries, wages, and commissions                  723         1,495
   Income taxes payable                                      388           380
   Accrued royalties payable                                 322           432
   Accrued other liabilities                               1,172           960
                                                          ------        ------

     Total current liabilities                            10,971        10,537
                                                          ------        ------

Long-term liabilities:
   Long-term debt, excluding current installments:
     Mortgage payable                                         19            26
                                                          ------        ------
     Total long-term debt                                     19            26
   Deferred compensation                                     215           190
                                                          ------        ------
       Total long-term liabilities                           234           216
                                                          ------        ------

Stockholders' equity:
   Common stock, $1 par value; authorized
     20,000,000 shares; issued 3,718,862
     shares in 1999 and 3,711,826 shares
     in 1998                                               3,719         3,712
   Additional paid-in capital                              2,750         2,645
   Retained earnings                                       5,738         5,109
                                                          ------        ------

       Total stockholders' equity                         12,207        11,466
                                                          ------        ------

       Total liabilities and stockholders' equity       $ 23,412        22,219
                                                          ======        ======
</TABLE>











                 See accompanying notes to financial statements.

                                      - 3 -

<PAGE>




Item 1.   Financial Statements (Continued)
------    --------------------
SI Handling Systems, Inc.
Statements of Operations
  (In Thousands, Except Share And Per Share Data)

<TABLE>
<CAPTION>

                                 Three Months Ended         Nine Months Ended      
                              ------------------------   -----------------------
                                 November    November      November    November
                                 29, 1998    30, 1997      29, 1998    30, 1997 
                              ------------ -----------   ----------- -----------
                                                          
<S>                           <C>          <C>           <C>         <C>        
Net sales                     $    11,349      12,422        30,091      32,371
Cost of sales                       9,074       9,665        23,223      25,134
                                ---------   ---------     ---------   ---------   
Gross profit on sales               2,275       2,757         6,868       7,237
                                ---------   ---------     ---------   ---------

Selling, general, and
   administrative expenses          1,549       1,684         4,811       4,756
Product development costs             115          53           361         161
Interest expense                        6           3            10           8
Interest income                       (37)        (23)         (117)       (115)
Equity in income
   of joint venture                    (6)        (33)          (17)       (314)
Other income, net                     (67)        (80)         (138)       (358)
                                ---------   ---------     ---------   ---------
                                    1,560       1,604         4,910       4,138
                                ---------   ---------     ---------   ---------     
Earnings before
   income taxes                       715       1,153         1,958       3,099
Income tax expense                    270         454           748       1,215
                                ---------   ---------     ---------   ---------
Net earnings                  $       445         699         1,210       1,884
                                =========   =========     =========   =========

Basic earnings per
   share*                     $       .12         .19           .33         .51
                                =========   =========     =========   =========
Diluted earnings
   per share*                 $       .12         .19           .32         .50
                                =========   =========     =========   =========
Cash dividends
   per share**                $         -           -           .10         .07
                                =========   =========     =========   =========

Average shares
   outstanding                  3,721,558   3,703,719     3,721,558   3,703,719
Dilutive effect of
   stock options                   29,258      44,016        29,258      44,016
Dilutive effect of
   phantom stock units             10,714       6,619        10,714       6,619
                                ---------   ---------     ---------   ---------
Average shares
   outstanding
   assuming dilution            3,761,530   3,754,354     3,761,530   3,754,354
                                =========   =========     =========   =========

<FN>
*   On October 14, 1997, the Board of Directors  declared a three-for-two  stock
    split that was distributed on November 10, 1997 to shareholders of record on
    October 27, 1997. Basic earnings per share for all periods presented reflect
    the  three-for-two  stock split and are based on the weighted average number
    of shares outstanding.  Diluted earnings per share for all periods presented
    reflect the three-for-two  stock split and are based on the weighted average
    number of shares  outstanding  and  equivalent  shares from  dilutive  stock
    options and phantom stock units.
**  Dividends  per  share  for the nine  months  ended  November  30,  1997 were
    adjusted for the three-for-two  stock split that was distributed on November
    10, 1997 to shareholders of record on October 27, 1997.
</FN>
</TABLE>

                 See accompanying notes to financial statements.

                                      - 4 -

<PAGE>




Item 1.   Financial Statements (Continued)
SI Handling Systems, Inc.
Statements of Cash Flows
  (In Thousands, Except Share Data)

<TABLE>
<CAPTION>
                                                            Nine Months Ended
                                                         ----------------------
                                                          November     November
                                                          29, 1998     30, 1997  
                                                         ---------    ---------
<S>                                                      <C>           <C>
Cash flows from operating activities:
   Net earnings                                          $  1,210        1,884
   Adjustments to reconcile net earnings
     to net cash provided (used)
     by operating activities:
       Depreciation of plant and equipment                    301          259
       Amortization of intangibles                              7            8
       Equity in income of joint venture                      (17)        (314)
       Change in operating assets and liabilities:
         Receivables                                          923        1,317
         Costs and estimated earnings in
           excess of billings                                (555)      (5,822)
         Inventories                                           43         (411)
         Prepaid expenses and other
           current assets                                     (80)        (135)
         Other noncurrent assets                                -           (4)
         Accounts payable                                      (6)       1,295
         Customers' deposits and billings
           in excess of costs and estimated
           earnings                                         2,101         (867)
         Accrued salaries, wages, and
           commissions                                       (772)         414
         Income taxes payable                                   8          191
         Accrued royalties payable                           (110)        (105)
         Accrued other liabilities                            212          (23)
         Deferred compensation                                 25           28
                                                           ------       ------
   Net cash provided (used) by
     operating activities                                   3,290       (2,285)
                                                           ------       ------

Cash flows from investing activities:
   Sales of short-term investments                              -        5,213
   Purchase of short-term investments                           -       (1,472)
   Additions to property, plant and equipment                (329)        (449)
                                                           ------       ------
   Net cash provided (used) by
      investing activities                                   (329)       3,292
                                                           ------       ------
</TABLE>








                 See accompanying notes to financial statements.

                                      - 5 -

<PAGE>




Item 1.   Financial Statements (Continued)
------    --------------------
SI Handling Systems, Inc.
Statements of Cash Flows (Continued)
  (In Thousands, Except Share Data)

<TABLE>
<CAPTION>
                                                            Nine Months Ended  
                                                          ---------------------      
                                                          November     November
                                                          29, 1998     30, 1997  
                                                         ---------    ---------
<S>                                                      <C>           <C>
 

Cash flows from financing activities:
   Sale of common shares in connection
      with employee incentive stock
      option plan                                              60           59
   Repayment of long-term debt                                 (6)         (10)
   Dividends paid on common stock                            (372)        (247)
   Repayment of revolving credit
      loan payable to bank                                 (1,000)           -
   Repurchase and retirement of
      common stock                                           (157)           -
   Dividends paid to shareholders for
      fractional shares in connection
      with three-for-two stock split                            -           (2)
                                                           ------       ------
      Net cash used by financing activities                (1,475)        (200)
                                                           ------       ------

   Increase in cash and
      cash equivalents                                      1,486          807
   Cash and cash equivalents, beginning
      of period                                               752        1,852
                                                           ------       ------
   Cash and cash equivalents, end of period              $  2,238        2,659
                                                           ======       ======

   Supplemental disclosures of cash flow information:
      Cash paid during the period for:
         Interest                                        $      9            4
                                                           ======       ======
         Income taxes                                    $    740        1,024
                                                           ======       ======

   Supplemental disclosures of noncash
   financing activities:
      Issuance of 14,886 common shares in
      exchange for 5,978 common shares
         delivered to the Company by officers
         in connection with the employee
         incentive stock option plan                     $     74            -
                                                           ======       ======

      Issuance of 18,225 common shares in
      exchange for 8,064 common shares
         delivered to the Company by officers
         in connection with the employee
         incentive stock option plan                     $      -           88
                                                           ======       ======
</TABLE>


                 See accompanying notes to financial statements.

                                      - 6 -

<PAGE>




Item 1.   Financial Statements (Continued)
------    --------------------
SI Handling Systems, Inc.
Notes To Financial Statements
Nine Months Ended November 29, 1998 and November 30, 1997

(1)  The  information  contained in this 10-Q report is unaudited and is subject
     to year-end  adjustments and audit.  However, in the opinion of management,
     the interim  financial  statements  furnished  reflect all  adjustments and
     accruals which are necessary to a fair statement of results for the interim
     periods  presented.   Results  for  interim  periods  are  not  necessarily
     indicative of results  expected for the fiscal year. Refer to the Company's
     10-K  for the  year  ended  March  1,  1998  for  more  complete  financial
     information.

     SI Handling  Systems,  Inc. ("SI" or the "Company") and McKesson  Automated
Prescription  Systems,  Inc.  ("McKesson  APS"),  formerly  known  as  Automated
Prescription Systems,  Inc., are co-venturers in a joint venture named SI/BAKER,
INC.  ("SI/BAKER"  or the "joint  venture").  On September  29,  1998,  McKesson
Corporation  [NYSE:MCK],  a healthcare supply management company,  announced the
completion of its acquisition of Automated  Prescription Systems, Inc. Automated
Prescription Systems, Inc. was recently renamed McKesson Automated  Prescription
Systems,  Inc. The SI/BAKER  joint venture  draws upon the  automated  materials
handling systems experience of SI and the automated pill counting and dispensing
products of McKesson  APS to provide  automated  pharmacy  systems.  Each member
company contributed $100,000 in capital to fund the joint venture.
     The  joint  venture  designs  and  installs  computer   controlled,   fully
automated,  integrated systems for managed care pharmacy  operations.  The joint
venture's systems are viewed as labor saving devices which address the issues of
improved productivity and cost reduction.  Systems can be expanded as customers'
operations  grow and they may be integrated with a wide variety of components to
meet specific customer needs.
     Schedule  A  contains  the  SI/BAKER,   INC.  financial   statements.   The
information  contained in the SI/BAKER,  INC. financial  statements is unaudited
and is subject to year-end  adjustments  and audit.  However,  in the opinion of
management,  the interim financial  statements furnished reflect all adjustments
and accruals  which are necessary to a fair statement of results for the interim
periods presented.


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

Liquidity And Capital Resources
-------------------------------
     The Company's cash and cash equivalents  increased to $2,238,000 during the
first nine months of fiscal 1999 from  $752,000 at the end of fiscal  1998.  The
increase resulted from cash provided by operating activities totaling $3,290,000
and  proceeds of $60,000 from the sale of common  stock in  connection  with the
employee incentive stock option plan.  Partially offsetting the increase in cash
and cash equivalents from these sources were the repayments of long-term debt of
$6,000 and the revolving credit loan payable to bank of $1,000,000, purchases of
capital  equipment  of  $329,000,  the payment of $372,000 in cash  dividends to
shareholders,  and the payment of $157,000 in connection with the repurchase and
retirement of the Company's  common  stock.  Funds used by operating  activities
during the first nine months of fiscal 1998 were $2,285,000.


                                      - 7 -

<PAGE>




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

Liquidity and Capital Resources (Continued)
-------------------------------
     The Company has a $5,000,000  committed  revolving credit facility which is
secured by a lien  position on accounts  receivable,  land,  and  buildings  and
contains  various  restrictive  covenants  relating to additional  indebtedness,
asset acquisitions or dispositions, and maintenance of certain financial ratios.
The Company was in compliance with all covenants during the first nine months of
fiscal  1999.  Currently,   the  committed  revolving  credit  facility  has  an
expiration  date of August 31, 2000.  The Company  repaid its  outstanding  debt
under the committed  revolving credit facility on March 2, 1998, and the Company
did not have any  additional  borrowings  under the committed  revolving  credit
facility during the first nine months of fiscal 1999.
     On March 4, 1996, SI/BAKER established a $2,500,000 Line of Credit Facility
(the  "Facility")  with its  principal  bank (the  "Bank").  Under  terms of the
Facility, SI/BAKER's parent companies, SI and McKesson APS, have each provided a
limited  guarantee  and  surety in an  amount  not to  exceed  $1,000,000  for a
combined  guarantee of $2,000,000 to the Bank for the payment and performance of
the related  note,  including  any  further  renewals  or  modifications  of the
Facility.  During fiscal 1998, the Bank increased the borrowing  availability to
$3,000,000 and extended the expiration date of the Facility.  As of November 30,
1998, SI/BAKER did not have any borrowings under the Facility.  The Facility has
an expiration date of August 31, 1999.
     On October 14,  1997,  the Board of  Directors  of the  Company  declared a
three-for-two  stock  split that was  distributed  on  November  10, 1997 to the
shareholders  of record on October 27, 1997.  The purpose of the stock split was
to  increase  the  number  of  outstanding  shares  and  broaden  ownership  and
availability of the Company's common stock.
     On October 14,  1998,  the Board of  Directors  of the  Company  authorized
management to purchase up to $400,000 of the Company's common stock through open
market  transactions  or  negotiated   transactions  at  prices  not  to  exceed
prevailing  market prices.  The stock  repurchase  program allows the Company to
take  advantage  of  opportunities  to purchase  the  Company's  common stock at
favorable prices.
     The Company believes that its financial resources consisting of its current
assets,  anticipated cash flow, and the available revolving credit facility will
adequately finance its operating requirements for the foreseeable future.
     The  Company  plans to  consider  expansion  opportunities  as they  arise,
although  ongoing  operating  results  of  the  Company,  the  economics  of the
expansion, and the circumstances justifying the expansion will be key factors in
determining  the  amount  of  resources  the  Company  will  devote  to  further
expansion.  At this  time,  the  Company  does  not have  any  material  capital
commitments.

Results Of Operations
---------------------

(a)  Nine Months Ended  November 29, 1998 Versus Nine Months Ended  November 30,
     ---------------------------------------------------------------------------
     1997
     ----
     The  Company's  net  earnings for the first nine months of fiscal 1999 were
$1,210,000  compared to net earnings of $1,884,000  for the first nine months of
fiscal 1998.
     Backlog at the end of the first nine months of fiscal 1999 was $27,266,000.
During  the first  nine  months of fiscal  1999,  the  Company  received  orders
totaling   approximately   $35,300,000.   One  order,   totaling   approximately
$12,500,000, engages the Company to automate the distribution process at a major
health and beauty aids

                                      - 8 -

<PAGE>




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

Results of Operations
---------------------

(a)  Nine Months Ended November 29, 1998 Versus Nine Months Ended November
     ---------------------------------------------------------------------
     30, 1997 (Continued)
     --------
company,  including a unique utilization of robotics.  This systems  integration
contract  contains a high degree of ancillary  products,  providing  lower gross
profit margins than sales of the Company's proprietary products and is scheduled
to be completed by the end of the first half of fiscal 2000.  Other  contractual
work,  totaling  approximately  $4,500,000,   engages  the  Company  to  provide
proprietary product for automating three sites for one of the leading automotive
manufacturers  and is  anticipated  to be completed  during the first quarter of
fiscal 2000.
     Net sales of $30,091,000 for the first nine months of fiscal 1999 decreased
7.0%  compared to net sales of  $32,371,000  for the first nine months of fiscal
1998.  The sales  decrease in the first nine months of fiscal 1999 is attributed
primarily  to a smaller  backlog of orders  entering  fiscal  1999  ($22,092,000
versus a $31,029,000  backlog  beginning  fiscal 1998).  The largest declines in
sales occurred in the Order Selection and Switch-Cart  product lines. During the
first  nine  months of  fiscal  1999,  Order  Selection  sales of  approximately
$11,000,000  declined  approximately  $975,000  from the prior  year  comparable
period due to delays in  earlier  periods by  prospective  customers  in signing
contracts  often caused by expanding  project  scope or  protracted  contractual
negotiations. However, Order Selection sales of $5,350,000 for the third quarter
of fiscal 1999 rose by  $1,850,000  when compared to the third quarter of fiscal
1998 due to progress on a large systems integration  contract.  During the first
nine  months of  fiscal  1999,  Switch-Cart  sales of  approximately  $7,000,000
declined  approximately  $5,250,000  from the prior year  comparable  period due
primarily to the fiscal 1998  comparable  period  containing a greater amount of
revenue for progress on the contract  with the Defense  Logistics  Agency of the
United States  government.  Partially  offsetting the decline in Order Selection
and  Switch-Cart  sales  during  the first  nine  months  of fiscal  1999 was an
increase  in  sales of  approximately  $3,950,000  across  the  Company's  other
products  lines,  with the  majority  of the  increase  relating to sales of the
Company's Cartrac, Sortation, and Automated Guided Vehicle product lines.
     Gross profit as a  percentage  of sales was 22.8% for the first nine months
of fiscal  1999  compared  to 22.4% for the first  nine  months of fiscal  1998.
Although the gross profit  percentage  was relatively the same as the comparable
prior year  period,  the fiscal 1999 gross  profit  percentage  was  impacted by
favorable performance on several contracts, principally for the Company's higher
margin  proprietary  products,  initiated  in the  prior  fiscal  year that were
completed or nearing  completion during the first half of fiscal 1999.  However,
offsetting the favorable  performance  was progress  during the third quarter of
fiscal  1999 on systems  integration  contracts  which  contain a high degree of
ancillary  products  and provide  lower gross  profit  margins than sales of the
Company's higher margin proprietary products.
     Selling,  general, and administrative expenses of $4,811,000 were higher by
$55,000 in the first nine  months of fiscal 1999 than in the  comparable  fiscal
1998 period. The increase in selling,  general,  and administrative  expenses is
attributable  to (1) increases of  approximately  $400,000 for costs  associated
with  inflationary  factors and product  promotion  and sales  efforts  aimed at
expanding the Company's customer base of business  consistent with the Company's
strategic plan to grow the business as a systems integrator and (2) increases of
approximately   $65,000  in  professional  fees  and  expenses  associated  with
increasing the visibility of the

                                      - 9 -

<PAGE>




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

Results of Operations
---------------------

(a)  Nine Months Ended November 29, 1998 Versus Nine Months Ended November
     ---------------------------------------------------------------------
     30, 1997 (Continued)
     --------
Company and  exploring  business  opportunities  and  strategic  alliances.  The
increases in selling, general, and administrative expenses occurred primarily in
the first half of fiscal  1999.  Partially  offsetting  the increase in selling,
general, and administrative  expenses was a reduction of approximately  $380,000
for expenses  associated with the Company's  incentive-based  compensation  plan
which provides for gain sharing as a means of promoting performance excellence.
     Product  development costs of $361,000 were higher by $200,000 in the first
nine  months  of  fiscal  1999  than  in  the  comparable  fiscal  1998  period.
Development   programs  in  the  first  nine  months  of  fiscal  1999  included
enhancements to the Company's  product controls and features and improvements to
the Order Selection product line.  Development programs in the first nine months
of fiscal 1998 included efforts directed at improvements  across various product
lines,  and efforts  associated with the  introduction  of the Henke  light-duty
overhead transportation product.
     Equity in income of joint venture  represents  the Company's  proportionate
share of its  investment  in  SI/BAKER  which is being  accounted  for under the
equity method. The unfavorable variance of $297,000 for the first nine months of
fiscal  1999 in the  equity in  income  of joint  venture  was  attributable  to
SI/BAKER's  decline in sales to  approximately  $5,993,000  as  compared  to the
comparable fiscal 1998 period of approximately  $17,253,000.  The sales decrease
in  fiscal  1999 was  primarily  attributable  to a  smaller  backlog  of orders
entering  fiscal  1999  versus a record  high  opening  backlog of orders at the
beginning  of  fiscal  1998.  Fiscal  1998  sales  were  favorably  impacted  by
performance on contracts wherein customer  specifications required systems to be
commercially  operable by the end of fiscal 1998; however, the fiscal 1998 gross
profit  percentage was  unfavorably  impacted by  difficulties  in executing and
concluding  several  contracts  as  additional  costs  became  necessary to meet
contractual  throughput   requirements.   Also  contributing  to  fiscal  1999's
unfavorable variance was increased development expenses of $334,000 for software
and controls  capabilities for various new products  addressing  changing market
requirements.  Partially  offsetting the  unfavorable  variance were  SI/BAKER's
decreases  of (1)  $450,000  in  revenue-based  royalty  costs due to the parent
companies and (2) $55,000 in selling,  general, and administrative  expenses for
those expenses based on revenue and profit performance. The decrease in selling,
general,  and  administrative  expenses occurred  primarily in the first half of
fiscal 1999;  however,  selling,  general,  and administrative  expenses for the
third  quarter of fiscal 1999  increased  when  compared to the third quarter of
fiscal 1998 due to costs associated with sales and administrative  efforts aimed
at expanding SI/BAKER's customer base of business.
     The  unfavorable  variance of $220,000 in other  income,  net, is primarily
attributable  to a decrease in the  revenue-based  royalty income related to the
SI/BAKER joint venture.
     The Company  incurred  income tax expense of $748,000 during the first nine
months of fiscal  1999  compared  to income  tax  expense of  $1,215,000  in the
comparable  fiscal 1998  period.  Income tax expense was  generally  recorded at
statutory federal and state tax rates expected to apply for each fiscal year.



                                     - 10 -

<PAGE>




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

Results of Operations
---------------------

(b)  Three Months Ended November 29, 1998 Versus Three Months Ended November 30,
     ---------------------------------------------------------------------------
     1997 
     ----
     Changes in the third  quarter of the current  fiscal  year  compared to the
prior year were consistent with those  previously noted above for the nine-month
period, except for the following areas:
     Gross  profit as a percentage  of sales was 20.0% for the third  quarter of
fiscal 1999 compared to 22.2% for the third quarter of fiscal 1998.  The decline
in gross profit percentage was primarily  attributable to a larger proportion of
progress  on  systems  integration  contracts  which  contain  a high  degree of
ancillary  products  and provide  lower gross  profit  margins than sales of the
Company's higher margin proprietary products.
     Selling,  general, and administrative  expenses of $1,549,000 were lower by
$135,000 in the third quarter of fiscal 1999 than in the comparable  fiscal 1998
period.  The  decrease  in  selling,  general,  and  administrative  expenses is
primarily  attributable to a reduction of expenses associated with the Company's
incentive-based  compensation plan which provides for gain sharing as a means of
promoting performance excellence.
     Interest  income of $37,000  was higher by $14,000 in the third  quarter of
fiscal 1999 than in the comparable fiscal 1998 period.  The increase in interest
income is  primarily  attributable  to the higher level of funds  available  for
short-term investments during the third quarter of fiscal 1999.


















                                     - 11 -

<PAGE>




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

Year 2000
---------
     The  Year  2000  issue   relates  to  the  ability  of  computer   systems,
microprocessors,  and other electronic  devices to deal appropriately with dates
on or after  January  1,  2000 and other  dates  used for  special  programmatic
functions  (e.g.,  9999). The effect of the Year 2000 issue may include computer
failures and business interruption.
     The  Company has  assembled a team of internal  staff to oversee the matter
and is underway in completing its Year 2000 assessment.  Internally, the Company
has upgraded its business system to address the Year 2000 issue. Externally, the
Company has and will continue to survey its suppliers,  financial  institutions,
and other  organizations to ensure that those parties have appropriate  plans to
remediate Year 2000 issues where their systems or business activities may impact
the Company's  operations.  However,  the Company cannot presently  estimate the
impact  of the  failure  of  third  parties  to be Year  2000  compliant.  Also,
customers may utilize the services,  on a fee basis,  of the Company's  customer
support group to assess and upgrade their materials  handling systems  purchased
from the Company in prior years for Year 2000 compliance. Costs incurred to date
and estimated costs to complete the Company's Year 2000  compliance  efforts are
not expected to be material.
     The outline of the general  phases of the Company's Year 2000 project is as
follows:  (1) Year 2000  methodology and compliance  training for key personnel;
(2)  inventorying  Year 2000 items,  internally  and  externally;  (3) assigning
priorities to identified Year 2000 items; (4) assessing the Year 2000 compliance
of items determined to be material to the Company;  (5) remediating or replacing
material items that are determined  not to be Year 2000  compliant;  (6) testing
material  items for Year 2000  compliance;  and (7) designing  and  implementing
contingency plans to the extent deemed necessary.  The Company has substantially
completed  phases (1)  through  (5)  relating  to  existing  internal  hardware,
software,  facilities  and equipment;  however,  testing is ongoing as hardware,
software, and equipment are remediated, upgraded or replaced.  Additionally, the
Company  continues to assess and test newly engaged suppliers and their products
for Year 2000 compliance as part of the Company's  normal  business  operations.
The Company has not completed its external surveys or made contingency  plans in
the case that it is not Year 2000  compliant by the Year 2000.  The Company will
continue  to monitor its Year 2000  compliance  program,  address  any  material
issues, and develop contingency planning as it deems appropriate.
     The scheduled completion date for the Company's efforts to address the Year
2000 issue is July 1999. The failure to identify or correct a material Year 2000
problem could result in an  interruption  in, or a failure of, certain  business
activities or operations such as the Company's ability to service its customers.
Such failures  could  materially and adversely  affect the Company's  results of
operations,  liquidity,  and financial condition. Due to the general uncertainty
inherent in the Year 2000 problem, resulting in part from the uncertainty of the
Year 2000  readiness  of  suppliers  and  customers,  the  Company  is unable to
determine at this time whether the  consequences of Year 2000 failures will have
a  material  impact on the  Company's  results  of  operations,  liquidity,  and
financial  condition.  The Company's Year 2000 assessment process is expected to
significantly  reduce the  Company's  level of  uncertainty  about the Year 2000
problem and, in particular,  about the Year 2000 compliance and readiness of its
material suppliers and customers.



                                     - 12 -

<PAGE>




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

Cautionary Statement
--------------------
     Certain  statements  contained  herein are not based on historical fact and
are  "forward-looking  statements"  within the meaning of the Private Securities
Litigation  Reform Act of 1995.  Among other  things,  they regard the Company's
earnings, liquidity, financial condition, and certain operational matters. Words
or  phrases  denoting  the  anticipated   results  of  future  events,  such  as
"anticipate,"  "believe,"  "estimate,"  "expect,"  "may," "will," "will likely,"
"are expected to," "will  continue,"  "project,"  and similar  expressions  that
denote uncertainty,  are intended to identify such  forward-looking  statements.
The  Company's  actual  results,   performance,  or  achievements  could  differ
materially from the results  expressed in, or implied by, such  "forward-looking
statements": (1) as a result of risks and uncertainties identified in connection
with  those  forward-looking  statements,  including  those  factors  identified
herein,  and in the Company's  other publicly filed reports;  (2) as a result of
factors  over which the  Company  has no  control,  including  the  strength  of
domestic  and foreign  economies,  sales  growth  competition,  and certain cost
increases; or (3) if the factors on which the Company's conclusions are based do
not conform to the Company's expectations.




















                                     - 13 -

<PAGE>




                           PART II - OTHER INFORMATION
                           ---------------------------


Item 5.   Other Information
-------   -----------------

Effective  January 1, 1999,  Leonard S. Yurkovic,  President and Chief Executive
Officer, was elected Vice Chairman of the Board of Directors of the Company.


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

     (a) Exhibit 27 - Financial Data Schedule.

     (b) No reports on Form 8-K were filed during the quarter ended November 29,
         1998.



















                                    




                                     - 14 -

<PAGE>




SI Handling Systems, Inc.





                                    SIGNATURE
                                    ---------

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

                                                 SI HANDLING SYSTEMS, INC.

                                                 /s/ Barry V. Mack  

                                                 Barry V. Mack
                                                 Vice President - Finance
                                                   (Principal Financial Officer)

Dated:    January 13, 1999    
          ----------------
























                                     - 15 -

<PAGE>




                                                                      Schedule A
                                                                      ----------











                                 SI/BAKER, INC.

                              Financial Statements
                                November 30, 1998






















                                     - 16 -

<PAGE>




SI/BAKER, INC.
Balance Sheets
November 30, 1998 and February 28, 1998
  (In Thousands, Except Share Data)

<TABLE>
<CAPTION>
                                                         November      February
                                                         30, 1998      28, 1998
                                                       -----------    ----------

<S>                                                     <C>             <C>    
Assets
------
Current assets:
   Cash and cash equivalents, principally
     time deposits                                      $    388           388

Receivables:
   Trade                                                     558         2,881
   Other receivables                                           -            51
                                                          ------        ------
     Total receivables                                       558         2,932
                                                          ------        ------

   Costs and estimated earnings in
     excess of billings                                    2,364         3,263
   Inventories                                                 -           118
   Deferred income tax benefits                              309           309
   Prepaid expenses and other current
     assets                                                  312            18
                                                          ------        ------

       Total current assets                                3,931         7,028
                                                          ------        ------

   Machinery and equipment, at cost                          173           125
     Less:  accumulated depreciation                          86            64
                                                          ------        ------
   Net machinery and equipment                                87            61
                                                          ------        ------

   Equipment leased to customer                              487           487
   Less:  accumulated depreciation                           340           249
                                                          ------        ------
     Net equipment leased to customer                        147           238
                                                          ------        ------

   Deferred income tax benefits                               35            35
                                                          ------        ------

   Other assets                                               86            57
                                                          ------        ------

       Total assets                                     $  4,286         7,419
                                                          ======        ======
</TABLE>



                                     - 17 -

<PAGE>




SI/BAKER, INC.
Balance Sheets
November 30, 1998 and February 28, 1998
  (In Thousands, Except Share Data)

<TABLE>
<CAPTION>
                                                         November      February
                                                         30, 1998      28, 1998
                                                       -----------    ----------

<S>                                                     <C>             <C>    

Liabilities and Stockholders' Equity
Current liabilities:
   Note payable to bank                                 $      -           900
   Accounts payable:
     Trade                                                   411           930
     Affiliated companies                                     94            97
                                                          ------        ------
       Total accounts payable                                505         1,027
                                                          ------        ------

   Customers' deposits and billings in
     excess of costs and estimated
     earnings                                                750         1,740
   Accrued salaries, wages, and
     commissions                                              51           413
   Income taxes payable                                        -            44
   Accrued royalties payable                                 155           288
   Accrued product warranties                                615           799
   Accrued other liabilities                                  11            43
                                                          ------        ------
       Total current liabilities                           2,087         5,254
                                                          ------        ------

Deferred compensation                                        111           111
                                                          ------        ------

Stockholders' equity:
   Common stock, $1 par value; authorized
     1,000 shares; issued 200 shares                           -             -
   Additional paid-in capital                                200           200
   Retained earnings                                       1,888         1,854
                                                          ------        ------
       Total stockholders' equity                          2,088         2,054
                                                          ------        ------

       Total liabilities and stockholders'
         equity                                         $  4,286         7,419
                                                          ======        ======
</TABLE>



                                     - 18 -

<PAGE>




SI/BAKER, INC.
Statements of Operations
Nine Months Ended November 30, 1998 and 1997
  (In Thousands)

<TABLE>
<CAPTION>
                                      Three Months Ended      Nine Months Ended   
                                    --------------------    --------------------
                                     November   November    November    November
                                     30, 1998   30, 1997    30, 1998    30, 1997 
                                    ---------  ---------    ---------  --------- 
                                    
<S>                                 <C>         <C>          <C>        <C> 
Net sales                           $  2,132      4,530        5,993     17,253
Cost of sales                          1,497      4,036        4,656     14,750
                                      ------     ------       ------     ------

Gross profit on sales                    635        494        1,337      2,503
                                      ------     ------       ------     ------

Selling, general and
   administrative
   expenses                              238        204          675        730
Product development
   costs                                 266          -          337          3
Royalty expense
   to parent companies                    86        179          240        690
Interest income                           (1)        (6)          (6)       (21)
Interest expense                          25         33           60         93
Other income, net                          -        (25)         (25)       (51)
                                      ------     ------       ------     ------
                                         614        385        1,281      1,444
                                      ------     ------       ------     ------

Earnings before
   income taxes                           21        109           56      1,059
Income tax expense                         8         43           22        430
                                      ------     ------       ------     ------

Net earnings                        $     13         66           34        629
                                      ======     ======       ======     ======
</TABLE>





















                                     - 19 -

<PAGE>




SI/BAKER, INC.
Statements of Cash Flows
Nine Months Ended November 30, 1998 and 1997
  (In Thousands)

<TABLE>
<CAPTION>
                                                           Nine Months Ended       
                                                        -----------------------
                                                         November      November
                                                         30, 1998      30, 1997  
                                                        ---------     ---------

<S>                                                     <C>             <C>  
Cash flow from operating activities:
   Net earnings                                         $     34           629 
   Adjustments to reconcile net earnings
     to net cash provided (used) by
     operating activities:
       Depreciation of machinery and
         equipment and leased equipment                      113           108
       Changes in operating assets and
         liabilities:
           Receivables                                     2,374        (1,747)
           Costs and estimated earnings
              in excess of billings                          899           657
           Inventories                                       118            36
           Prepaid expenses and other
              current assets                                (294)            5
           Other assets                                      (29)            -
           Accounts payable                                 (522)         (268)
           Customers' deposits and
              billings in excess of costs
              and estimated earnings                        (990)          174
           Accrued salaries, wages, and
              commissions                                   (362)           16
           Income taxes payable                              (44)           80
           Accrued royalties payable                        (133)           23
           Accrued product warranties                       (184)          265
           Accrued other liabilities                         (32)          (96)
                                                          ------        ------
Net cash provided (used)
   by operating activities                                   948          (118)
                                                          ------        ------

Cash flows used in investing activities:
   Additions to machinery and equipment                      (48)          (19)
                                                          ------        ------

Cash flows used by financing activities:
   Increase (repayment) of note payable to bank             (900)          250
                                                          ------        ------

Increase in cash and cash equivalents                          -           113
Cash and cash equivalents,
   beginning of period                                       388           484
                                                          ------        ------
Cash and cash equivalents, end of period                $    388           597
                                                          ======        ======

Supplemental disclosure of cash flow information:
     Cash paid during the period for:
       Income taxes                                     $    325           350
                                                          ======        ======
       Interest                                         $     71            88
                                                          ======        ======
</TABLE>



                                     - 20 -

<PAGE>




                            SI HANDLING SYSTEMS, INC.

                                    FORM 10-Q

                                  EXHIBIT INDEX



Exhibit No.
----------

27         Financial Data Schedule.

























                                     - 21 -