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 August 30, 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
August 30, 1998:  3,728,550.
                  ---------



<PAGE>




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


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

                                                            August       March
                                                           30, 1998     1, 1998
                                                           --------     --------
<S>                                                        <C>           <C>
Assets
------
Current assets:
   Cash and cash equivalents, principally
     time deposits                                         $  2,899         752
   Short-term investments                                       -           -
                                                             ------      ------
       Total cash, cash equivalents, and
         short-term investments                               2,899         752
                                                             ------      ------

   Receivables:
     Trade                                                    5,103       8,830
     Notes and other receivables                                106          51
                                                             ------      ------
       Total receivables                                      5,209       8,881
                                                             ------      ------

   Costs and estimated earnings in excess
     of billings                                              5,511       6,774

   Inventories:
     Raw materials                                            1,045         920
     Finished goods and work-in-process                       1,576       1,578
                                                             ------      ------
       Total inventories                                      2,621       2,498
                                                             ------      ------

   Deferred income tax benefits                                 435         435
   Prepaid expenses and other current assets                    203         162
                                                             ------      ------
       Total current assets                                  16,878      19,502
                                                             ------      ------

Property, plant and equipment, at cost:
   Land                                                          27          27
   Buildings and improvements                                 3,387       3,387
   Machinery and equipment                                    4,418       4,180
                                                             ------      ------
                                                              7,832       7,594
   Less:  accumulated depreciation                            6,332       6,131
                                                             ------      ------
       Net property, plant and equipment                      1,500       1,463
                                                             ------      ------

Deferred income tax benefits                                    175         175
Investment in joint venture                                   1,038       1,027
Other assets, at cost less accumulated
   amortization of $83 in 1999 and $78
   in 1998                                                       47          52
                                                             ------      ------
       Total assets                                         $19,638      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>
                                                             August     March
                                                           30, 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                                           2,982      4,044
   Customers' deposits and billings in excess
     of costs and estimated earnings                          2,233      2,218
   Accrued salaries, wages, and commissions                     671      1,495
   Income taxes payable                                         306        380
   Accrued royalties payable                                    215        432
   Accrued other liabilities                                  1,088        960
                                                             ------     ------

     Total current liabilities                                7,504     10,537
                                                             ------     ------
Long-term liabilities:
   Long-term debt, excluding current installments:
     Mortgage payable                                            21         26
                                                             ------     ------
     Total long-term debt                                        21         26
   Deferred compensation                                        209        190
                                                             ------     ------
       Total long-term liabilities                              230        216
                                                             ------     ------

Stockholders' equity:
   Common stock, $1 par value; authorized
     20,000,000 shares; issued 3,728,550
     shares in 1999 and 3,711,826 shares
     in 1988                                                  3,729      3,712
   Additional paid-in capital                                 2,747      2,645
   Retained earnings                                          5,428      5,109
                                                             ------     ------

       Total stockholders' equity                            11,904     11,466
                                                             ------     ------

       Total liabilities and stockholders' equity           $19,638     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          Six Months Ended
                              ------------------------    ----------------------
                                August        August        August      August
                               30, 1998      31, 1997      30, 1998    31, 1997
                              -----------   ----------    ----------  ----------
<S>                           <C>           <C>           <C>         <C>  
Net sales                     $    9,942       10,407        18,742      19,949
Cost of sales                      7,662        8,147        14,149      15,469
                               ---------    ---------     ---------   ---------
Gross profit on sales              2,280        2,260         4,593       4,480
                               ---------    ---------     ---------   ---------

Selling, general and
   administrative expenses         1,594        1,585         3,262       3,072
Product development costs            127           26           246         108
Interest expense                       2            3             4           5
Interest income                      (35)         (25)          (80)        (92)
Equity in income
   of joint venture                   (1)        (177)          (11)       (281)
Other income, net                    (38)        (185)          (71)       (278)
                               ---------    ---------     ---------   ---------
                                   1,649        1,227         3,350       2,534
                               ---------    ---------     ---------   ---------
Earnings before
   income taxes                      631        1,033         1,243       1,946
Income tax expense                   243          404           478         761
                               ---------    ---------     ---------   ---------
Net earnings                  $      388          629           765       1,185
                               =========    =========     =========   =========

Basic earnings per
   share*                     $      .10          .17           .21         .32
                               =========    =========     =========   =========
Diluted earnings
   per share*                 $      .10          .17           .20         .32
                               =========    =========     =========   =========
Cash dividends
   per share**                $        -            -           .10         .07
                               =========    =========     =========   =========

Average shares
   outstanding                 3,721,061    3,700,244     3,721,061   3,700,244
Dilutive effect of
   stock options                  31,604       46,351        31,604      46,351
Dilutive effect of
   phantom stock units            10,111        6,105        10,111       6,105
                               ---------    ---------     ---------   ---------
Average shares
   outstanding
   assuming dilution           3,762,776    3,752,700     3,762,776   3,752,700
                               =========    =========     =========   =========

<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 six months ended August 31, 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>
                                                            Six Months Ended
                                                           -------------------
                                                            August     August
                                                           30, 1998   31, 1997
                                                           --------   -------- 
<S>                                                        <C>        <C>
Cash flows from operating activities:
   Net earnings                                            $   765      1,185
   Adjustments to reconcile net earnings
     to net cash provided (used)
     by operating activities:
       Depreciation of plant and equipment                     201        173
       Amortization of intangibles                               5          5
       Equity in income of joint venture                       (11)      (281)
       Change in operating assets and liabilities:
         Receivables                                         3,672     (1,982)
         Costs and estimated earnings in
           excess of billings                                1,263     (3,722)
         Inventories                                          (123)       (79)
         Prepaid expenses and other
           current assets                                      (41)       (69)
         Other noncurrent assets                               -           (5)
         Accounts payable                                   (1,062)       696
         Customers' deposits and billings
           in excess of costs and estimated
           earnings                                             15        (26)
         Accrued salaries, wages, and
           commissions                                        (824)       131
         Income taxes payable                                  (74)       492
         Accrued royalties payable                            (217)      (218)
         Accrued other liabilities                             128       (144)
         Deferred compensation                                  19         10
                                                            ------     ------
   Net cash provided (used) by
     operating activities                                    3,716     (3,834)
                                                            ------     ------

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                 (238)      (298)
                                                            ------     ------
   Net cash provided (used) by
      investing activities                                    (238)     3,443
                                                            ------     ------
</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>
                                                             Six Months Ended
                                                           --------------------
                                                            August      August
                                                           30, 1998    31, 1997
                                                           --------    --------
<S>                                                        <C>          <C> 
Cash flows from financing activities:
   Sale of common shares in connection
      with employee incentive stock
      option plan                                               45          58
   Repayment of long-term debt                                  (4)         (8)
   Dividends paid on common stock                             (372)       (247)
   Repayment of revolving credit
      loan payable to bank                                  (1,000)          -
                                                            ------      ------
      Net cash used by financing activities                 (1,331)       (197)
                                                            ------      ------

   Increase (decrease) in cash and
      cash equivalents                                       2,147        (588)
   Cash and cash equivalents, beginning
      of period                                                752       1,852
                                                            ------      ------
   Cash and cash equivalents, end of period                $ 2,899       1,264
                                                            ======      ======

   Supplemental disclosures of cash flow information:
      Cash paid during the period for:
         Interest                                          $     4           2
                                                            ======      ======
         Income taxes                                      $   553         269
                                                            ======      ======

   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                        $     -          43
                                                            ======      ======
</TABLE>







                 See accompanying notes to financial statements.

                                      - 6 -

<PAGE>




Item 1.   Financial Statements (Continued)
------    --------------------
SI Handling Systems, Inc.
Notes To Financial Statements
Six Months Ended August 30, 1998 and August 31, 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.

     SI  Handling   Systems,   Inc.   ("SI"  or  the  "Company")  and  Automated
Prescription  Systems,  Inc.  ("APS") are  co-venturers in a joint venture named
SI/BAKER, INC. ("SI/BAKER" or the "joint venture"). The joint venture draws upon
the automated materials handling systems experience of SI and the automated pill
counting and dispensing  products of APS to provide automated  pharmacy systems.
Each member company contributed $100,000 in capital to fund the joint venture.
     On  September  29,  1998,  McKesson  Corporation  [NYSE:MCK],  the  leading
healthcare supply management company in North America,  announced the completion
of its acquisition of APS. APS will be renamed McKesson APS.
     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 $2,899,000 during the
first six months of fiscal  1999 from  $752,000 at the end of fiscal  1998.  The
increase resulted from cash provided by operating activities totaling $3,716,000
and  proceeds of $45,000 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
$4,000 and the revolving credit loan payable to bank of $1,000,000, purchases of
capital equipment of $238,000,  and the payment of $372,000 in cash dividends to
shareholders.  Funds used by operating activities during the first six months of
fiscal 1998 were $3,834,000.
     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

                                      - 7 -

<PAGE>




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

Liquidity and Capital Resources (Continued)
-------------------------------
compliance  with all  covenants  during  the  first six  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 six 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 Handling Systems, Inc. and Automated
Prescriptions  Systems,  Inc., 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 August 31, 1998, SI/BAKER's related debt outstanding
under the Facility was $900,000. SI/BAKER intends to satisfy the note during the
second half of fiscal 1999. The Facility has an expiration  date of November 30,
1998.
     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.
     The Company  anticipates  that its  financial  resources  consisting of its
current  assets,  anticipated  cash flow,  and the  available  revolving  credit
facility will adequately  finance its operating  requirements in 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)  Six Months Ended August 30, 1998 Versus Six Months Ended August 31, 1997
     ------------------------------------------------------------------------
     The  Company's  net  earnings  for the first six months of fiscal 1999 were
$765,000  compared  to net  earnings of  $1,185,000  for the first six months of
fiscal  1998.
     Backlog at the end of the first half of fiscal 1999 was $34,535,000. During
the  first  half  of  fiscal  1999,  the  Company   received   orders   totaling
approximately $31,200,000. The two largest orders received during the first half
of fiscal 1999 were for  automated  distribution  systems.  The first  contract,
totaling  approximately  $12,400,000,   engages  the  Company  to  automate  the
distribution process,  including a unique utilization of robotics.  This project
is scheduled  to be  completed by the end of the first half of fiscal 2000.  The
second  contract,  totaling  approximately  $4,500,000,  engages  the Company to
develop an integrated order fulfillment system to handle foreign currency orders
for international travelers.  This project is anticipated to be completed during
the second half of fiscal 1999. These systems  integration  contracts  contain a
high degree of ancillary  products which provide lower gross profit margins than
sales of the Company's proprietary products.

                                      - 8 -

<PAGE>




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

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

(a)  Six Months Ended August 30, 1998 Versus Six Months Ended August 31, 1997
     ------------------------------------------------------------------------
     (Continued)    
     Net sales of $18,742,000  for the first six months of fiscal 1999 decreased
6.1%  compared  to net sales of  $19,949,000  for the first six months of fiscal
1998.  The sales  decrease in the first six 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  six  months  of  fiscal  1999,  Order  Selection  sales of  approximately
$5,700,000  declined  approximately  $2,800,000  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 contractual  negotiations,
along with the prior year comparable period containing revenue for progress made
on two contracts for warehousing and distribution systems.  During the first six
months of fiscal 1999,  Switch-Cart sales of approximately  $5,000,000  declined
approximately  $1,600,000 from the prior year comparable period due primarily to
the fiscal 1998  comparable  period  containing a greater  amount of revenue for
progress  made 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 six months of fiscal 1999 was an increase in
sales of  approximately  $3,200,000  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 24.5% for the first six months of
fiscal  1999  compared  to 22.5% for the first six  months of fiscal  1998.  The
attainment of the higher gross profit  percentage during the first six months of
fiscal 1999 was primarily  attributable to the 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 six months of fiscal 1999. Partially offsetting the increase in
the gross profit percentage was 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 proprietary products. The lower gross profit
percentage during the first six months of fiscal 1998 was primarily attributable
to a higher  content of ancillary  products  with lower  margins than  contracts
containing a larger degree of higher margin proprietary products.
     Selling,  general, and administrative expenses of $3,262,000 were higher by
$190,000  in the first six months of fiscal 1999 than in the  comparable  fiscal
1998 period. The increase in selling,  general,  and administrative  expenses is
primarily  attributable  to costs  associated  with 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.
The increase in selling, general, and administrative expenses occurred primarily
in the first quarter of fiscal 1999.
     Product  development costs of $246,000 were higher by $138,000 in the first
six months of fiscal 1999 than in the comparable fiscal 1998 period. Development
programs in the first six months of fiscal  1999  included  enhancements  to the
Company's  product  controls and features and  improvements to the Sortation and
Order Selection product lines.  Development  programs in the first six months of
fiscal

                                      - 9 -

<PAGE>




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

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

(a)  Six Months Ended August 30, 1998 Versus Six Months Ended August 31, 1997
     ------------------------------------------------------------------------
     (Continued)
1998 included efforts directed at improvements across various product lines, and
efforts  associated  with the  introduction  of the  Henke  light-duty  overhead
transportation product.
     Interest  income of $80,000 was lower by $12,000 in the first six months of
fiscal 1999 than in the comparable fiscal 1998 period.  The decrease in interest
income is  primarily  attributable  to the lower  level of funds  available  for
short-term  investments during the first six months of fiscal 1999. The decrease
in interest income occurred primarily in the first quarter of fiscal 1999.
     Equity in income of joint venture  represented the Company's  proportionate
share of its  investment  in  SI/BAKER  which is being  accounted  for under the
equity method. The unfavorable  variance of $270,000 for the first six months of
fiscal  1999 in the  equity in  income  of joint  venture  was  attributable  to
SI/BAKER's  decline in sales to  approximately  $3,900,000  as  compared  to the
comparable fiscal 1998 period of approximately  $12,700,000.  The sales decrease
in  fiscal  1999 was  primarily  attributable  to a  smaller  backlog  of orders
entering  fiscal  1999  versus a larger  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.  Also  contributing  to the  unfavorable
variance were  increased  development  expenses of $68,000 for  enhancements  to
software and controls  capabilities for various products.  Partially  offsetting
the  unfavorable   variance  were  SI/BAKER's   decreases  of  (1)  $357,000  in
revenue-based  royalty  costs due to the  parent  companies  and (2)  $89,000 in
selling,  general,  and  administrative  expenses  for those  expenses  based on
revenue and profit performance.
     The  unfavorable  variance of $207,000 in other  income,  net, is primarily
attributable to a decrease of $179,000 in  revenue-based  royalty income related
to the SI/BAKER joint venture.
     The Company  incurred  income tax expense of $478,000  during the first six
months of fiscal  1999  compared  to  income  tax  expense  of  $761,000  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.

(b)  Three  Months  Ended  August 30, 1998 Versus  Three Months Ended August 31,
     1997 Changes in the second  quarter of the current  fiscal year compared to
     the prior
year were consistent with those previously noted above for the six month period,
except for the following areas:
     The increase in selling,  general, and administrative  expenses for the six
month period noted above occurred primarily in the first quarter of fiscal 1999,
while  second  quarter  selling,   general,  and  administrative  expenses  were
relatively the same as the comparable prior year period.
     Interest  income of $35,000 was higher by $10,000 in the second  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 second quarter of fiscal 1999.

                                     - 10 -

<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.



                                     - 11 -

<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.















                                     - 12 -

<PAGE>




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

Item 4.   Submission of Matters to a Vote of Security Holders
------    ---------------------------------------------------
     The Company's Annual Meeting of Shareholders was held on July 28, 1998 with
the following item being submitted to a vote by shareholders:

     1.  The election of five directors.

     Details of the proposal  noted above were provided to  shareholders  in the
form of a Notice of Annual Meeting and Proxy  Statement  dated June 26, 1998 and
mailed  on July 6,  1998,  with  such  solicitation  being  in  accordance  with
Regulation 14 of the Securities and Exchange Act of 1934.
     There was no solicitation in opposition to the management's nominees listed
in the Proxy Statement, and all management's nominees were elected.
     The voting results on the election of directors are set forth as follows:

     1.  Election of Directors:
         ---------------------

         Name of Nominee        Votes For    Votes Withheld    Non-Voting
         ---------------        ---------    --------------    ----------
         L. Jack Bradt          3,140,905        18,755          552,166
         Edward J. Fahey        3,140,956        18,704          552,166
         Elmer D. Gates         3,140,843        18,817          552,166
         Michael J. Gausling    3,140,905        18,755          552,166
         Leonard S. Yurkovic    3,140,956        18,704          552,166


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

Discretionary Proxy Voting Authority/Shareholder Proposals
----------------------------------------------------------
     On May 21, 1998 the Securities and Exchange Commission adopted an
amendment to Rule 14a-4, as promulgated under the Securities and Exchange Act of
1934.  The  amendment  to Rule  14a-4(c)(1)  governs  the  Company's  use of its
discretionary  proxy voting  authority  with respect to a  shareholder  proposal
which  the  shareholder  has  not  sought  to  include  in the  Company's  proxy
statement. The new amendment provides that if a proponent of a proposal fails to
notify the Company at least 45 days prior to the month and day of mailing of the
prior  year's  proxy  statement  (or any date  specified  in an  advance  notice
provision),   then  the  management   proxies  will  be  allowed  to  use  their
discretionary  voting  authority  when the  proposal  is raised at the  meeting,
without any discussion of the matter in the proxy statement.
     With respect to the Company's 1999 Annual Meeting of  Shareholders,  if the
Company is not provided notice of a shareholder proposal,  which the shareholder
has not previously  sought to include in the Company's proxy  statement,  by May
24, 1999,  the  management  proxies  will be allowed to use their  discretionary
authority as outlined above.


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 August 30,
1998.

                                     - 13 -

<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:    October 14, 1998
          ----------------











                                     - 14 -

<PAGE>




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











                                 SI/BAKER, INC.

                              Financial Statements
                                 August 31, 1998




















                                     - 15 -

<PAGE>




SI/BAKER, INC.
Balance Sheets
August 31, 1998 and February 28, 1998
  (In Thousands, Except Share Data)

<TABLE>
<CAPTION>
                                                           August      February
                                                          31, 1998     28, 1998
                                                          --------     --------
<S>                                                       <C>            <C>  
Assets
Current assets:
   Cash and cash equivalents, principally
     time deposits                                        $   543          388

Receivables:
   Trade                                                    1,791        2,881
   Other receivables                                           24           51
                                                            -----        -----
     Total receivables                                      1,815        2,932
                                                            -----        -----
 
   Costs and estimated earnings in
     excess of billings                                     3,321        3,263
   Inventories                                                  -          118
   Deferred income tax benefits                               309          309
   Prepaid expenses and other current
     assets                                                   274           18
                                                            -----        -----

       Total current assets                                 6,262        7,028
                                                            -----        -----

   Machinery and equipment, at cost                           163          125
     Less:  accumulated depreciation                           79           64
                                                            -----        -----
   Net machinery and equipment                                 84           61
                                                            -----        -----

   Equipment leased to customer                               487          487
   Less:  accumulated depreciation                            309          249
                                                            -----        -----
     Net equipment leased to customer                         178          238
                                                            -----        -----

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

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

       Total assets                                        $6,645        7,419
                                                            =====        =====
</TABLE>



                                     - 16 -

<PAGE>




SI/BAKER, INC.
Balance Sheets
August 31, 1998 and February 28, 1998
  (In Thousands, Except Share Data)

<TABLE>
<CAPTION>
                                                            August     February
                                                           31, 1998    28, 1998
                                                           --------    --------
<S>                                                       <C>            <C>  
Liabilities and Stockholders' Equity
Current liabilities:
   Note payable to bank                                    $   900         900
   Accounts payable:
     Trade                                                     422         930
     Affiliated companies                                       23          97
                                                             -----       -----
       Total accounts payable                                  445       1,027
                                                             -----       -----

   Customers' deposits and billings in
     excess of costs and estimated
     earnings                                                1,941       1,740
   Accrued salaries, wages, and
     commissions                                                71         413
   Income taxes payable                                          -          44
   Accrued royalties payable                                   306         288
   Accrued product warranties                                  777         799
   Accrued other liabilities                                    19          43
                                                             -----       -----
       Total current liabilities                             4,459       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                                          1,875      1,854
                                                              -----      -----
       Total stockholders' equity                             2,075      2,054
                                                              -----      -----

       Total liabilities and stockholders'
         equity                                              $6,645      7,419
                                                              =====      =====
</TABLE>


                                     - 17 -

<PAGE>




SI/BAKER, INC.
Statements of Operations
Six Months Ended August 31, 1998 and 1997
  (In Thousands)

<TABLE>
<CAPTION>
                                     Three Months Ended       Six Months Ended
                                    -------------------      -------------------
                                     August     August        August     August
                                    31, 1998   31, 1997      31, 1998   31, 1997
                                    --------   --------      --------   --------

<S>                                 <C>        <C>            <C>        <C>
Net sales                           $ 1,787     8,019          3,861     12,723
Cost of sales                         1,416     6,818          3,159     10,714
                                     ------    ------         ------     ------

Gross profit on sales                   371     1,201            702      2,009
                                     ------    ------         ------     ------

Selling, general and
   administrative
   expenses                             233       265            437        526
Product development
   costs                                 71         -             71          3
Royalty expense
   to parent companies                   71       323            154        511
Interest income                          (3)       (8)            (5)       (15)
Interest expense                         21        27             35         60
Other income, net                       (23)       (6)           (25)       (26)
                                     ------    ------         ------     ------
                                        370       601            667      1,059
                                     ------    ------         ------     ------

Earnings before
   income taxes                           1       600             35        950
Income tax expense                        -       245             14        387
                                     ------    ------         ------     ------

Net earnings                        $     1       355             21        563
                                     ======    ======         ======     ======
</TABLE>



                                     - 18 -

<PAGE>




SI/BAKER, INC.
Statements of Cash Flows
Six Months Ended August 31, 1998 and 1997
  (In Thousands)

<TABLE>
<CAPTION>
                                                            Six Months Ended
                                                          ---------------------
                                                           August       August
                                                          31, 1998     31, 1997
                                                          --------     --------  
<S>                                                       <C>           <C> 
Cash flow from operating activities:
   Net earnings                                           $    21         563
   Adjustments to reconcile net earnings
     to net cash provided by
     operating activities:
       Depreciation of machinery and
         equipment and leased equipment                        75          71
       Changes in operating assets and
         liabilities:
           Receivables                                      1,117           -
           Costs and estimated earnings
              in excess of billings                           (58)       (657)
           Inventories                                        118          23
           Prepaid expenses and other
              current assets                                 (256)         18
           Other assets                                       (29)          -
           Accounts payable                                  (582)        723
           Customers' deposits and
              billings in excess of costs
              and estimated earnings                          201       1,049
           Accrued salaries, wages, and
              commissions                                    (342)        (27)
           Income taxes payable                               (44)         45
           Accrued royalties payable                           18         297
           Accrued product warranties                         (22)        (54)
           Accrued other liabilities                          (24)       (112)
                                                            -----       -----
Net cash provided
   by operating activities                                    193       1,939
                                                            -----       -----

Cash flows used in investing activities:
   Additions to machinery and equipment                       (38)        (15)
                                                            -----       -----

Cash flows used by financing activities:
   Repayment of note payable to bank                            -      (1,750)
                                                            -----       -----

Increase in cash and cash equivalents                         155         174
Cash and cash equivalents,
   beginning of period                                        388         484
                                                            -----       -----
Cash and cash equivalents, end of period                  $   543         658
                                                            =====       =====

Supplemental disclosure of cash flow information:
     Cash paid during the period for:
       Income taxes                                       $   307         342
                                                            =====       =====
       Interest                                           $    46          64
                                                            =====       =====
</TABLE>


                                     - 19 -

<PAGE>




                            SI HANDLING SYSTEMS, INC.

                                    FORM 10-Q

                                  EXHIBIT INDEX



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

27         Financial Data Schedule.





























                                     - 20 -