<PAGE>   1

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                  FORM 10-QSB


[X]      Quarterly report under Section 13 or 15(d) of the Securities Exchange
         Act of 1934

         For the quarterly period ended September 30, 1999

[ ]      Transition report pursuant to Section 13 or 15(d) of the Securities
         Exchange Act of 1934

COMMISSION FILE NO. 1-11602


                          SI DIAMOND TECHNOLOGY, INC.
         (Exact name of Small Business Issuer as specified in charter)

                    TEXAS                                76-0273345
                  (State of                             (IRS Employer
               Incorporation)                      Identification Number)

       3006 Longhorn Blvd., Suite 107
                AUSTIN, TEXAS                               78758
   (Address of principal executive office)                (Zip Code)

Registrant's telephone number, including area code:  (512) 339-5020


         Indicate by check mark whether the issuer (1) 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 [ ]

         As of November 3, 1999, the registrant had 53,582,594 shares of common
stock, par value $.001 per share, issued and outstanding.

         Transitional Small Business Disclosure Format.
                                Yes [ ] No [X]
<PAGE>   2

                          SI DIAMOND TECHNOLOGY, INC.
                                     INDEX


<TABLE>
<CAPTION>
Part I  Financial Information                                                                                       PAGE
                                                                                                                    ----

<S>                                                                                                                 <C>
         Item 1. Consolidated Financial Statements

              Consolidated Balance Sheets--September 30, 1999 and December 31, 1998.................................  3

              Consolidated Statements of Operations--Three Months and Nine Months Ended
                September 30, 1999 and 1998.........................................................................  4

              Consolidated Statements of Cash Flows--Nine Months Ended
                September 30, 1999 and 1998.........................................................................  5

              Notes to Consolidated Financial Statements............................................................  6

         Item 2. Management's Discussion and Analysis of Financial Condition
                 and Results of Operations.......................................................................... 11

Part II  Other Information

         Item 1. Legal proceedings.................................................................................. 15

         Item 4. Submission of matters to a vote of security holders................................................ 16

         Item 5. Other Information.................................................................................. 17

         Item 6. Exhibits and Reports on Form 8-K................................................................... 17



Signatures.......................................................................................................... 18
</TABLE>


                                       2
<PAGE>   3

                  SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                                    (UNAUDITED)
                                      ASSETS                                       SEPTEMBER 30,       DECEMBER 31,
                                                                                       1999                1998
                                                                                   -------------       ------------

<S>                                                                                <C>                 <C>
Current assets:
   Cash and cash equivalents .................................................      $  1,427,557       $      2,636
     Accounts receivable, trade ..............................................           547,122            184,020
   Inventory .................................................................           253,521             65,529
   Prepaid expenses and other assets .........................................           713,392            101,508
                                                                                    ------------       ------------

     Total current assets ....................................................         2,941,592            353,693

   Property, plant and equipment, net ........................................           599,619            160,670
   Intangible assets, net ....................................................         1,084,710              9,000
   Other assets ..............................................................             7,250             14,500
                                                                                    ------------       ------------
     Total assets ............................................................      $  4,633,171       $    537,863
                                                                                    ============       ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY  (DEFICIT)

Current liabilities:
   Accounts payable ..........................................................      $    776,830       $  1,419,604
   Notes payable .............................................................           478,400          1,165,000
   Capital lease obligations .................................................            36,319                 --
   Accrued liabilities .......................................................           882,677            584,987
   Billings in excess of costs and estimated earnings on uncompleted contracts           168,755              4,770
                                                                                    ------------       ------------

     Total current liabilities ...............................................         2,342,981          3,174,361

Commitments and contingencies ................................................                --                 --

Stockholders' equity (deficit):
   Preferred stock, $1.00 par value, 2,000,000 shares authorized; Series A
     convertible, 100 shares issued and
       outstanding at December 31, 1998 ......................................                --                100
     Series G convertible, 1,200 and 1,600 shares issued and outstanding at
       September 30, 1999 and December 31, 1998, respectively ................             1,200              1,600
   Common stock, $.00l par value, 120,000,000 shares authorized,
     53,261,279 and 45,986,617 shares issued and outstanding at
     September 30, 1999 and December 31, 1998, respectively ..................            53,261             45,987
Additional paid-in capital ...................................................        55,190,253         52,019,707
Accumulated deficit ..........................................................       (52,954,524)       (54,703,892)
                                                                                    ------------       ------------

     Total stockholders' equity (deficit) ....................................         2,290,190         (2,636,498)
                                                                                    ------------       ------------

     Total liabilities and stockholders' equity (deficit) ....................      $  4,633,171       $    537,863
                                                                                    ============       ============
</TABLE>

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


                                       3
<PAGE>   4


                  SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (UNAUDITED)


<TABLE>
<CAPTION>

                                                           For the Three Months Ended            For the Nine Months Ended
                                                                  September 30,                         September 30,
                                                         -------------------------------       -------------------------------
                                                             1999               1998               1999               1998
                                                         ------------       ------------       ------------       ------------

<S>                                                      <C>                <C>                <C>                <C>
Revenues ..........................................      $    309,117       $    123,339       $  6,108,614       $    574,005
                                                         ------------       ------------       ------------       ------------

Cost of sales .....................................           152,045            110,606            252,136          1,517,008
Selling, general and administrative expenses ......           752,470            607,245          2,548,106          1,862,467
Research and development ..........................           360,925            326,725          1,120,323            912,417
                                                         ------------       ------------       ------------       ------------

     Operating costs and expenses .................         1,265,440          1,044,576          3,920,565          4,291,892

Income (loss) from operations .....................          (956,323)          (921,237)         2,188,049         (3,717,887)

Other income (expense), net .......................           152,345            195,568           (438,681)           791,100
                                                         ------------       ------------       ------------       ------------

Income (loss) before Federal Income Tax ...........          (803,978)          (725,669)         1,749,368         (2,926,787)

Federal Income Tax ................................                --                 --                 --                 --
                                                         ------------       ------------       ------------       ------------

Net Income  (loss) ................................          (803,978)          (725,669)         1,749,368         (2,926,787)

Less preferred stock dividend .....................           (33,221)          (125,782)          (110,916)          (215,107)
                                                         ------------       ------------       ------------       ------------

Net Income (loss) applicable to common shareholders      $   (837,199)      $   (851,451)      $  1,638,452       $ (3,141,894)
                                                         ============       ============       ============       ============

Earnings (loss) per share

     Basic ........................................      $      (0.02)      $      (0.02)      $       0.03       $      (0.09)
                                                         ============       ============       ============       ============
     Diluted ......................................      $      (0.02)      $      (0.02)      $       0.03       $      (0.09)
                                                         ============       ============       ============       ============

Weighted average shares outstanding

     Basic ........................................        52,452,791         43,175,591         50,358,597         34,616,869
                                                         ============       ============       ============       ============
     Diluted ......................................        52,452,791         43,175,591         57,194,036         34,616,869
                                                         ============       ============       ============       ============
</TABLE>





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


                                       4
<PAGE>   5

                  SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)


<TABLE>
<CAPTION>

                                                                                  FOR THE NINE MONTHS ENDED
                                                                                         SEPTEMBER 30,
                                                                                -----------------------------
                                                                                    1999             1998
                                                                                -----------       -----------

<S>                                                                             <C>               <C>
Cash flows from operating activities:
     Net income (loss) ...................................................      $ 1,749,368       $(2,926,787)
       Adjustments to reconcile net income (loss) to net
         cash provided by (used in) operating activities:
       Depreciation and amortization expense .............................           78,894           526,901
       Gain on disposal of assets ........................................               --          (795,697)
       Interest paid in common stock .....................................           44,852                --
       Warrants issued for services ......................................           66,400                --
       Changes in assets and liabilities:
         Accounts receivable, trade ......................................          (58,176)          397,661
         Escrow funds receivable .........................................               --           293,915
         Inventory .......................................................          (27,235)               --
         Prepaid expenses and other current assets .......................         (611,884)           27,339
         Accounts payable and accrued liabilities ........................         (432,203)          146,055
         Billings in excess of costs and estimated earnings on uncompleted
           contracts and customer deposits ...............................           84,434            (1,230)
                                                                                -----------       -----------
              Total adjustments ..........................................         (854,918)          594,944
                                                                                -----------       -----------
         Net cash provided by (used in) operating activities .............          894,450        (2,331,843)
                                                                                -----------       -----------
Cash flows from investing activities:
       Capital expenditures ..............................................          (49,230)          (47,335)
       Cash paid for the acquisition of SignBuilders .....................         (425,911)               --
       Intangible assets .................................................             (648)               --
       Proceeds from the sale of equipment ...............................               --         1,750,480
       Decrease in deposits and other assets .............................            7,250                --
                                                                                -----------       -----------
         Net cash (used in) provided by investing activities .............         (468,539)        1,703,145
                                                                                -----------       -----------
Cash flows from financing activities:
       Repayment of notes payable ........................................         (412,058)         (930,000)
       Bank overdraft ....................................................               --          (156,686)
       Proceeds from notes payable .......................................          250,000         1,185,000
       Redemption of preferred stock .....................................               --          (332,011)
       Proceeds of stock issuance, net of costs ..........................        1,161,068           865,937
                                                                                -----------       -----------
         Net cash provided by financing activities .......................          999,010           632,240
                                                                                -----------       -----------
Net increase in cash and cash equivalents ................................        1,424,921             3,542
Cash and cash equivalents, beginning of period ...........................            2,636             1,000
                                                                                -----------       -----------
Cash and cash equivalents, end of the period .............................      $ 1,427,557       $     4,542
                                                                                ===========       ===========
</TABLE>

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


                                       5
<PAGE>   6

                  SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

         The accompanying unaudited consolidated financial statements of SI
Diamond Technology, Inc. and Subsidiaries (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and in compliance with the instructions to Form 10-QSB.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments consisting only of normal
recurring adjustments considered necessary for a fair presentation, have been
included. All significant intercompany transactions and balances have been
eliminated in consolidation. Operating results for the three and nine months
ended September 30, 1999 are not necessarily indicative of the results that may
be expected for the full year ending December 31, 1999. For further
information, refer to the consolidated financial statements and footnotes
thereto for the year ended December 31, 1998, included in the Company's 1998
Annual Report on Form 10-KSB. The consolidated balance sheet information for
December 31, 1998 has been derived from the audited consolidated financial
statements at that date.

2. Supplemental Cash Flow Information

         Cash paid for interest for the nine months ended September 30, 1999
and 1998 was approximately $24,484 and $27,319, respectively.

3. Stockholders' Equity

         In February 1999, the Company issued 200,000 restricted shares of its
common stock for a total of $110,000 in cash in an exempt offering under
Regulation D of the Securities Act of 1933. The Company also received $508,880
and issued 1,275,337 common shares as the result of the exercise of options and
received $542,188 and issued 730,000 common shares as the result of the
exercise of warrants during the nine months ended September 30, 1999.

         In March 1999, all outstanding shares of the Company's Series A
preferred shares were converted into 125,275 shares of its common stock. During
the nine months ended September 30, 1999, 400 shares of the Company's Series G
preferred shares were converted into 480,643 shares of its common stock.

         As described in greater detail in Note 4, a total of 4,240,275 shares
of the Company's common stock were issued during the nine months ended
September 30, 1999 in connection with convertible notes payable issued by the
Company.

         As described in greater detail in Note 10, the Company issued a total
of 423,132 shares of common stock in connection with its acquisition of the
assets of Sign Builders of America, Inc.

4. Notes Payable

         As described in greater detail in the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1998, the Company had a total of
$1,165,000 in short term notes payable outstanding at December 31, 1998. A
total of $805,000 of these notes were convertible into shares of the Company's
common stock at the option of the lender. During January 1999, the Company
borrowed an additional $200,000 under similar convertible notes and $50,000
under notes payable in cash. During the nine months ended September 30, 1999,
$1,005,000 of the convertible notes, including accrued interest, were converted
into 4,240,275 shares of the Company's common stock. A total of $410,000 of
short-term notes payable, including accrued interest, were repaid in cash.

         At December 31, 1998, $100,000 of short-term convertible notes payable
were payable to the Company's Chief Executive Officer. These notes resulted
from the CEO's personal guarantee of a loan made by an investor. The loan was
made to the CEO, who in turn loaned the money to the Company under the same
terms. In April 1999, these notes payable were assigned by the CEO to the
holder of the underlying note payable. The assignee of these notes payable
converted the notes, including accrued interest, into 442,904 shares of the
Company's common stock in April 1999.


                                       6
<PAGE>   7

                  SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. Contingencies

Customer Claim at Plasmatron Coatings and Systems, Inc.

         On May 20, 1996, Semi-Alloys Company ("Plaintiff"), a former customer
of Plasmatron Coatings and Systems, Inc. ("Plasmatron"), a wholly-owned
subsidiary of the Company, filed a complaint with the Supreme Court of the
State of New York, County of Westchester. The complaint names Plasmatron, the
Company and Westchester Fire Insurance Company as defendants. Plaintiff claims
a breach of contract related to $1 million of coating equipment delivered by
Plasmatron in 1993, prior to the Company's ownership of Plasmatron. The
Plaintiff claims the equipment does not perform as required under the contract.
Plaintiff seeks to recover compensatory, consequential and incidental damages.
The amount of this claim is to be determined at trial. The trial was originally
scheduled for August 1999, however the trial date has been postponed by the
court and not been rescheduled. At this time, the outcome cannot be predicted
with any certainty and the potential liability, if any, is unknown. The Company
believes it has meritorious defenses and intends to continue to vigorously
defend this action.

         On April 30, 1998, Universal Bonding Company, managing general agent
for Westchester Fire Insurance Company filed a complaint with the Superior
Court of New Jersey, Atlantic county. The Complaint named Richland Glass
Company, Inc., Robert Williams, Joan Williams, Bawa Singh, Narinder Singh,
Gaylord Evey and Doris Evey, all guarantors under the bond, as defendants. All
defendants were former owners, or associated with former owners, of Plasmatron.
Defendant Gaylord Evey filed an answer with the court naming Plasmatron, the
Company, Nicholas Rettino, and the Rettino Insurance agency as third party
defendants and asking for indemnification by the third party defendants. A
separate indemnification claim filed by Richland Glass against the same third
party defendants was consolidated with this case. The amount of this claim is
to be determined at trial; however, any potential amounts due by either the
Company or its subsidiary are dependent upon the finding of liability against
the bonding company in the New York case. No trial date has been set in the New
Jersey case.

Customer Claim at Diamond Tech One, Inc.

         On August 18, 1998, KDF Electronic & Vacuum Services, Inc., a vendor
of Diamond Tech One, Inc. ("DTO"), filed a complaint in the United Sates
District Court for the Southern District of New York against the Company for
unpaid debts of its subsidiary, Diamond Tech One, Inc. The Company was served
with notice of this suit on October 14, 1998. The Company settled the suit in
April 1999 by paying a portion of the amount owed by Diamond Tech One, Inc. in
exchange for a complete release from all further liability.

DiaGasCrown Venture

         In February 1995, the Company entered into an agreement with
Diagascrown, Inc. ("DGC"), a Russian joint stock Company controlled by
Gazcomplektimpex, a subsidiary of Gazprom, the Russian national natural gas
Company. In return for an equity position in the Company, DGC paid the Company
$5,000,000 and granted the Company an exclusive license to DGC display and
related diamond technology and license rights to all related background
patents. The Company has committed to perform $2.5 million in research and
development in Russia through February 1997. This research was allowed to be in
the form of travel and service performed by the Company's employees in Russia,
government funded research performed in Russia and through direct funding of
Russian efforts related to displays. According to its internal records, the
Company has spent approximately $2,000,000 on this research. Further spending
in Russia has been halted since 1996 pending agreement as to the nature and
amount of services to be performed in Russia for the remaining balance to be
spent under the original agreement


                                       7
<PAGE>   8

                  SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


5. Contingencies

Outlook

         As a result of the royalty agreement signed with Canon, Inc. in March
1999, the Company was profitable for the nine months ended September 30, 1999.
It is anticipated that the Company will be profitable for 1999, based on this
royalty agreement, as it continues to fund the development of its DFE
technology and its electronic billboard and related electronic display
products. There can be no assurance that the Company will be profitable in the
future. Full commercial development of the Company's DFE technology and
electronic billboard may require additional funds that may not be available at
terms acceptable to the Company; however, the Company expects to be able to
obtain the funding necessary.

         The Company has developed contingency plans to allow it to maintain
operations until the Company is able to sustain itself on its own revenue. The
plan is primarily dependent on raising funds through the licensing of its
technology and through strategic partners and debt offerings. The Company is
also concentrating on raising revenue by seeking customers on a revenue sharing
basis for its electronic billboard product. Management believes that it has the
ability to continue to raise additional funding, if necessary, to enable it to
continue operations until its plan can be completed. At the present time the
Company has existing resources available, including commitments, to sustain
itself for a period of approximately six months from the date of this report at
current spending levels and based on current spending plans.

         This plan is based on current development plans, current operating
plans, the current regulatory environment, historical experience in the
development of electronic products and general economic conditions. Changes
could occur which would cause certain assumptions on which this plan is based
to be no longer valid. The Company's plan is primarily dependent on increasing
revenues and raising additional funds through strategic partners and additional
debt offerings. If adequate funds are not available from operations, or
additional sources of financing, the Company may have to eliminate, or reduce
substantially, expenditures for research and development, testing and
production of its products. The Company also has the option of obtaining funds
by assigning, or selling, rights to certain of its technologies or products.

6. Business Developments

         In March 1999, the Company signed a license agreement with Canon, Inc.
a large Japanese manufacturer of information and office products. Under the
terms of this agreement, the Company received $5,000,000 on March 31, 1999
representing gross royalties of $5,555,556, less related foreign taxes of
$555,556. In exchange for this payment, the Company granted Canon Inc., a paid
up worldwide non-exclusive license to certain of the Company's patents and
patent applications.

         In August 1999, the Company entered into an agreement to sell its
domain name, diamond.com, to a newly formed entity, Diamond.com, LLC. The
Company received a deposit of $75,000 at the time the agreement was signed in
August 1999 and it received an additional $75,000 in October 1999 when the
transfer was officially completed by the registrar. In addition, the Company
received a note payable in the amount of $100,000 payable in six equal monthly
installments from October 1999 to March 2000. The Company's FEPET subsidiary
also received a 10% interest in the newly formed entity. In the event
Diamond.com, LLC is sold, FEPET is guaranteed to receive minimum proceeds equal
to the greater of $750,000 or 10% of the sales price. The guaranteed minimum
increases by $100,000 at the end of each of October, 2000, 2001, and 2002.

         In September 1999, the Company acquired substantially all the assets
of, and assumed certain liabilities of SignBuilders of America, Inc. ("Sign
Builders") for a total of $1,800,000. The Company paid $450,000 in cash, issued
a note payable in the amount of $450,000 and issued 423,132 shares of common
stock based on the average share price of $2.127 per share for the five day
period preceding the date of the sale. See note 10 for additional details
related to the acquisition.


                                       8
<PAGE>   9

                  SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


7. Related Party Transactions

         As described in greater detail in Item 12 of the Company's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1998, the
Company's subsidiary, Electronic Billboard Technology, Inc. has entered into a
Patent Assignment and Royalty Agreement with Advanced Technology Incubator,
Inc., ("ATI"). ATI is owned by Dr. Zvi Yaniv, the Company's President and Chief
Operating Officer. The assignment is conditioned on an initial payment of
$200,000 from the Company to ATI. The payment was initially due February 15,
1999, but the time for payment was extended to April 15, 1999. In April 1999,
the agreement was amended to allow additional extensions, in three month
increments, for a period of up to one year from April 15, 1999. In exchange for
each three month extension, the Company is obligated to pay ATI $12,500. The
$200,000 initial payment required for the actual assignment of the Patent under
the agreement will be reduced for any amounts paid for the extension periods.
In April 1999, the Company paid ATI $12,500 and extended the payment period for
three months until July 15, 1999. In each of July and October 1999, the Company
paid an additional $12,500 to extend the patent until October 15, 1999 and
January 15, 2000, respectively. In January 2000 the Company can either complete
the patent assignment in exchange for a payment of $162,500, extend it for
another three months for a payment of $12,500, or allow the agreement to lapse.

8. Income Taxes

         As discussed in more detail in the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1998, the Company had a net
operating loss available to it for federal income tax purposes as of December
31, 1998. A portion of this net operating loss carryforward was used to offset
the taxable income for the nine month period ended September 30, 1999. If this
net operating loss carryforward had not been available, the Company would have
recorded approximately $625,000 in income tax for the nine month period ended
September 30, 1999.

9. Earnings Per Share

         The Company computes Earnings per share in accordance with SFAS No.
128, "Earnings per Share" and SEC Staff Accounting Bulletin No. 98 ("SAB 98").
Under the provisions of SFAS No. 128 and SAB 98, basic earnings per share is
computed by dividing the net income available to common stockholders for the
period by the weighted average number of common shares outstanding during the
period. Common equivalent shares, composed of incremental common shares
issuable upon the exercise of stock options or warrants, the conversion of
convertible debts securities, or the conversion of convertible preferred stock
are included in diluted earnings per share to the extent such shares are
dilutive.


                                       9
<PAGE>   10

                  SI DIAMOND TECHNOLOGY, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



10. Acquisition of Sign Builders of America, Inc.

         Effective August 31, 1999, the Company purchased substantially all of
the assets and assumed certain liabilities of Sign Builders. The assets
acquired and liabilities assumed were recorded at fair values as a purchase
acquisition and have been accounted for as a non-cash transaction in the
consolidated statement of cash flows. The Company used cash of $450,000,
executed a note payable bearing interest at an annual rate of 6% in the amount
of $450,000, and issued common stock valued at $900,000 to finance the
transaction. The assets acquired and liabilities assumed are as follows:

<TABLE>
         <S>                                                 <C>
         Cash                                                $    24,089
         Accounts receivable                                     304,926
         Inventory                                               160,757
         Property and equipment                                  446,898
         Goodwill and covenant not to compete                  1,096,777
         Accounts payable                                        (52,931)
         Accrued expenses                                        (34,188)
         Customer deposits                                       (79,551)
         Notes payable                                           (28,829)
         Capital leases payable                                  (37,948
                                                             -----------

         Total Purchase Price                                $ 1,800,000
                                                             ===========
</TABLE>

The cash paid of $450,000 is reflected in the consolidated statement of cash
flows net of the $24,089 of cash received in connection with the acquisition of
the assets. The purchase agreement contains certain contingencies related to
the sales of the acquired business during the time period from September 1,
1999 through December 31, 1999 which could result in downward adjustments to
the purchase price. If Sign Builders sales do not equal or exceed $1,124,759
for the period from September 1, 1999 through December 31, 1999, the purchase
price is reduced by 50% of the dollar amount of the shortfall. Any such
downward adjustments would result in change in the total purchase price and
accordingly, the purchase price allocation reflected above and would reduce the
amounts payable under the notes payable issued in connection with the
transaction.

The following unaudited pro forma data summarize the results of operations for
the periods indicated as if the Sign Builders acquisition had been completed as
of the beginning of the periods presented. The pro forma data give effect to
actual operating results prior to the acquisition and adjustments to interest
expense, goodwill amortization and income taxes. No effect has been given to
cost reductions or synergies in this presentation. These pro forma amounts do
not purport to be indicative of the results that would have actually been
obtained if the acquisition had occurred as of the beginning of the periods
presented or that may be obtained in the future.

<TABLE>
<CAPTION>

                                              For the three months ended          For the nine months ended
                                                     September 30                        September 30
                                               1999              1998              1999               1998

<S>                                        <C>               <C>                <C>               <C>
Revenues                                     690,812           123,339           7,983,855            574,005

Net Income (loss)                           (813,309)         (780,382)          1,821,531         (3,105,685)

Earnings (loss) per common share
       Basic                               $   (0.02)        $   (0.02)         $     0.03        $     (0.09)
       Diluted                             $   (0.02)        $   (0.02)         $     0.03        $     (0.09)
</TABLE>


                                      10
<PAGE>   11

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

         NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998

                                    OVERVIEW

                  During the nine months ended September 30, 1999, the
         Company's primary revenues were earned as a result of a license
         agreement signed by the Company's Field Emission Picture Element
         Technology, Inc. ("FEPET") subsidiary with Canon, Inc. The Company
         continued to incur substantial expenses at Field Emission Picture
         Element Technology, Inc. ("FEPET") in support of the development of
         its proprietary Diamond Based Field Emission ("DFE") Technology.
         Effective August 31, 1999, the Company purchased substantially all of
         the assets of, and assumed certain liabilities of Sign Builders of
         America, Inc. The Company also continued to incur significant product
         development costs at Electronic Billboard Technology, Inc. ("EBT") in
         connection with the completion of the working model of its electronic
         billboard product. As more fully discussed in the Company's Annual
         Report on Form 10-KSB for the year ended December 31, 1998, the
         Company expects to incur additional research and development expenses
         throughout 1999 in developing the Company's DFE technology and in
         refining, commercializing, and installing its electronic billboard
         product.

                              RECENT DEVELOPMENTS

                  In March 1999, the Company signed a license agreement with
         Canon, Inc., a large Japanese manufacturer of information and office
         products. Under the terms of this agreement, the Company received
         $5,000,000 on March 31, 1999 representing gross royalties of
         $5,555,556, less related foreign taxes of $555,556. In exchange for
         this payment, the Company granted Canon, Inc. a paid up worldwide
         non-exclusive license to substantially all of the Company's patents
         and patent applications.

                  In August 1999, the Company signed an agreement to sell its
         domain name, diamond.com, to a newly formed entity, Diamond.com, LLC.
         In exchange, the Company received cash of $150,000, a note receivable
         in the amount of $100,000 payable in equal monthly installments from
         October 1999 through March 2000. In addition, the Company's FEPET
         subsidiary received a 10% ownership interest in the newly formed
         entity. In the event Diamond.com, LLC is sold, FEPET is guaranteed to
         receive minimum proceeds equal to the greater of $750,000 or 10% of
         the sales price. The guaranteed minimum increases by $100,000 at the
         end of each of October 2000, 2001, and 2002. This sale was completed
         and the domain name was transferred to Diamond.com, LLC in October
         1999.

                  In September 1999, the Company acquired substantially all the
         assets of, and assumed certain liabilities of Sign Builders of
         America, Inc. for a total of $1,800,000. The Company paid $450,000 in
         cash, issued a note payable in the amount of $450,000 and issued
         423,132 shares of common stock based on the average share price of
         $2.127 per share for the five day period preceding the date of the
         sale. The purchase price is subject to downward of adjustment if
         certain minimum sales levels are not achieved for the period from
         September 1, 1999 through December 31, 1999. Any such downward
         adjustments will reduce the amount due under the notes payable.

                             RESULTS OF OPERATIONS

                  The Company's revenues for the third quarter ended September
         30, 1999 totaled $309,117 compared to $123,339 for the third quarter
         of 1998. The Company earned $6,108,614 in revenues during the nine
         month period ended September 30, 1999, (the "1999 Period") as compared
         with $574,005 during the nine month period ended September 30, 1998
         (the "1998 Period"). During the 1999 Period, the Company had revenues
         of $5,721,846 from its FEPET subsidiary, $228,944 in revenues from its
         EBT subsidiary,157,825 from its Sign Builders of America, Inc. ("Sign
         Builders") subsidiary. FEPET had revenues of $5,555,556 from licensing
         certain of its patents and patent applications. The remaining $166,290
         of FEPET revenue was derived from its collaborative efforts with
         Diamond Pro-Shop Nomura Co., Ltd. ("DPN"). Virtually all of the EBT
         revenues resulted from its royalty agreement with Texas Digital
         Systems ("TDS"). The Sign Builders revenues resulted from sale and
         construction of signs during the period it was owned by the Company
         from September 1, 1999 through September 30, 1999. Revenues in the
         1998 Period were substantially all from fabrication and assembly
         services at the Company's Diamond Tech One, Inc. ("DTO") subsidiary.
         The operating assets of DTO were sold in May 1998.


                                      11
<PAGE>   12

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS (CONT.)

                  The Company had a revenue backlog of $72,423 as of September
         30, 1999 at FEPET and approximately $266,000 at SignBuilders. The
         backlog at FEPET is the result of funds that have been received from
         DPN, but not yet recognized as revenue because the services related to
         these funds are to be performed in the future. The backlog at
         Sign Builders results from orders received, but not yet completed as of
         September 30, 1999. EBT has no revenue backlog at March 31, 1999. For
         purposes of calculating its backlog, the Company includes only those
         verifiable commitments that exist as of the backlog date. Under the
         Company's agreement with TDS, the Company receives a royalty when TDS
         ships a product. During the 1999 Period, EBT received approximately
         $225,000 in royalties related to the TDS agreement. TDS has an
         agreement with a major national fast food chain, whereby the TDS
         product is available to franchisees. The Company's agreement with TDS
         ends in December 1999.

                  The Company had no contract research revenues for the either
         the 1999 Period or the 1998 Period. At September 30, 1999 and 1998,
         the Company had no research backlog of anticipated future revenues
         from governmental research contracts. The Company is continuing to
         fund research and development of the DFE technology despite the
         unavailability of any further reimbursement for these costs. In
         October 1999, the Company received a commitment for a government grant
         in the amount of approximately $70,000.

                  For the 1999 Period, the Company's cost of sales were
         $252,136, or a gross margin of 96%, as compared with $1,517,008 or a
         negative gross margin of 164%, for the 1998 Period. This increased
         margin resulted from a combination of factors. First, substantially
         all of the Company's revenue in the 1999 Period resulted from royalty
         agreements that have minimal ongoing costs associated with the
         agreement. In addition, the Company's DTO subsidiary, which accounted
         for the majority of sales and costs of sales in the 1998 Period had a
         negative margin due to low utilization of its facility which had
         relatively high fixed costs associated with its clean rooms.

                  The Company's general and administrative expenses were
         $2,548,106 for the 1999 Period, compared with $1,862,467 for the 1998
         Period. The primary reason for the increase was a $500,000 fee paid in
         1999 to an unrelated third party in connection with the Canon patent
         license agreement that the Company completed in March 1999. In
         addition, there were increased professional fees during the 1999
         Period as a result of expenses associated with the Company's
         acquisition of Sign Builders. Company sponsored research and
         development expenses for the 1999 Period were $1,120,323, as compared
         to $912,417 for the 1998 Period. This increase in research expense is
         primarily the result of the spending on the development of the
         Company's Electronic Billboard. The Company expects to continue to
         incur expense in 1999 in support of additional research and
         development activities related to the commercial development of its
         DFE technology and its electronic billboard technology. The amount of
         these expenditures is dependent upon the amount of funding obtained
         from outside sources to support the research activities and level of
         spending on other internal activities.

                  The Company had other expense of $438,681 in the 1999 Period
         compared to other income of $791,100 in the 1998 Period. The other
         expense in 1999 was primarily the result of foreign taxes of $555,556
         associated with the Company's royalty agreement signed with Canon,
         Inc. during March 1999, partially offset by the gain recorded on the
         sale of the Company's domain name. The other income in the 1998 Period
         was primarily the result of gains on the sale of assets associated
         with the Company's DTO subsidiary in May 1998.


                                      12
<PAGE>   13

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS (CONT.)

                        LIQUIDITY AND CAPITAL RESOURCES

                  At September 30, 1999, the Company had cash and cash
         equivalents in the amount of $1,427,557 as compared with cash and cash
         equivalents of $2,636 at December 31, 1998. This increase in cash is
         primarily the result of the cash provided by operations in the 1999
         Period. The cash provided by operations was the result of the
         $5,555,556 of licensing revenue received by the Company in connection
         with its patent license agreement, partially offset by operating costs
         during the period. Based on the developmental stages of the Company's
         DFE and electronic billboard technologies, additional debt, equity,
         joint ventures, sale of product distribution or technology rights, or
         other financing will be required in the future. There can be no
         assurance that any of these financing alternatives can be arranged on
         commercially acceptable terms.

                  As described in greater detail in the notes to the financial
         statements, the Company received proceeds of $1,161,068 from the
         issuance of common stock and $250,000 from the issuance of notes
         payable during the nine months ended September 30, 1999. The Company
         also repaid $412,058 of notes payable during this period. This
         resulted in net cash provided by financing activities of $999,010 for
         the 1999 Period. Cash provided by financing activities was $632,240
         for the 1998 Period.

                  Cash provided by operating activities was $894,450 for the
         1999 Period compared to cash used in operating activities of
         $2,331,843 for the 1998 Period. The increase in the cash provided by
         operating activities was primarily the result of the patent license
         agreement signed during the 1999 Period.

                  Cash used in investing activities during the 1999 Period was
         $468,539 as compared with cash provided by investing activities of
         $1,703,145 for the 1998 Period. The cash provided in the 1998 Period
         resulted primarily from sale of the DTO assets, while the cash used in
         the 1999 Period was primarily the result of equipment purchases and
         the acquisition of substantially all of the assets of Sign Builders.

                  The principal source of the Company's liquidity has been the
         funds received from its initial public offering and from the
         subsequent foreign and exempt offerings of common stock or debt
         instruments. The Company may receive additional funds from the
         exercise of warrants, although there can be no assurance that such
         warrants will be exercised. When the Company needs additional funds,
         the Company may seek to sell additional debt or equity securities,
         secure joint venture partnerships, or sell certain technology rights.
         The Company may seek to increase its liquidity through bank borrowings
         or other financing. There can be no assurance that any of these
         financing alternatives can be arranged on commercially acceptable
         terms. The Company believes that its success in reaching profitability
         will be dependent upon the viability of its products and their
         acceptance in the marketplace, and its ability to obtain additional
         financing in the future. Wallace Sanders & Co., independent auditors
         of the Company, expressed substantial doubt as to the ability of the
         Company to continue as a going concern based on accumulated losses
         from operations. See "Independent Auditors' Report." included in the
         Company's 1998 Annual Report on Form 10-KSB.

                  The Company expects to continue to incur substantial expenses
         for research and development ("R&D"), product testing, and product
         marketing. It is anticipated that the commercialization of the
         Company's existing and proposed products will require additional
         capital in excess of the Company's current funding. The combined
         effect of the foregoing may prevent the Company from achieving
         sustained profitability for an extended period of time. Because the
         timing and receipt of revenues from the sale of products will be tied
         to the achievement of certain product development, testing and
         marketing objectives which cannot be predicted with certainty, there
         may be substantial fluctuations in the Company's results of
         operations. If revenues do not increase as rapidly as anticipated, or
         if product development and testing and marketing require more funding
         than anticipated, the Company may be required to cut back some of its
         operations and seek additional financing from other sources.


                                      13
<PAGE>   14

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS (CONT.)



                                    OUTLOOK

                  As of September 30, 1999, the Company eliminated its deficit
         in both stockholder's equity and working capital. As a result of the
         royalty agreement signed in March 1999 with Canon, Inc., it is
         anticipated that the Company will be profitable in 1999 as it
         continues to fund the development of its DFE technology and its
         electronic billboard and related electronic display products. There
         can be no assurance that the Company will be profitable in the future.
         Full commercial development of the Company's DFE technology and
         electronic billboard may require additional funds that may not be
         available at terms acceptable to the Company. The Company has a
         contingency plan to allow it to maintain operations until the Company
         is able to sustain itself on its own revenue. At the present time the
         Company has the existing resources, including commitments, to sustain
         it for a period of approximately six months from the date of this
         report at current spending levels and given current spending plans.
         The plan is primarily dependent on raising funds through the licensing
         of its technology and through strategic partners and debt offerings.
         The Company is also concentrating on raising revenue by seeking
         customers for its electronic billboard product. Management believes
         that it has the ability to continue to raise additional funding, if
         necessary, to enable it to continue operations until its plan can be
         completed.

                  Management's belief that it has the resources to sustain
         itself for approximately six months from the date of this report is
         based on current development plans, the current state of the Company's
         business, the current regulatory environment, historical experience in
         the development of electronic products and general economic
         conditions. No assurance can be given that there will be no change
         that would cause available resources to be consumed before such time.
         Thereafter, if adequate funds are not available from operations or
         additional sources of financing, the Company may have to reduce
         substantially or eliminate expenditures for research and development,
         testing and production of its products, and associated overhead
         costs. The Company also has the option of obtaining by assigning or
         selling rights to certain of its technologies or products.

                                YEAR 2000 UPDATE

                  The Company has determined that the Year 2000 Issue will have
         an immaterial effect on the Company. The Year 2000 Issue is the result
         of computer programs being written using two digits rather than four
         to define the applicable year. Any of the Company's computer programs
         that have date-sensitive software may recognize a date using "00" as
         the year 1900 rather than the year 2000. This could result in a system
         failure or miscalculations causing disruptions of operations,
         including, among other things, a temporary inability to process
         transactions, send invoices, or engage in similar normal business
         activities.

                  Based on a recent assessment, the Company determined that it
         would be required to modify or replace portions of its software so
         that its computer systems will properly utilize dates beyond December
         31, 1999. All of this software is prepackaged software that was
         purchased from outside vendors. The company upgraded its software
         during the period ended September 30, 1999 and its internal systems
         are now Year 2000 compliant. If such upgrades were not installed on a
         timely basis, the Year 2000 Issue could have had a material impact on
         the operations of the Company.

                  The Company has determined that it is not vulnerable to a
         third party's failure to remediate its own Year 2000 Issues since it
         has no significant suppliers or large customers. The Company has also
         determined that it has no exposure to contingencies related to the
         Year 2000 Issue for the products it has sold. The Company is ensuring
         that all products currently under development by the Company will be
         Year 2000 compliant prior to the sale of such products.

                  This assessment is based on the present circumstances of the
         Company in which the Company has virtually no customers and no
         significant suppliers. In this scenario, the Company's Year 2000 risk
         is virtually non-existent. If the Company's business plan is
         successful and it is able to develop and sell products, the Company
         may become subject to Year 2000 risk related to third parties. The
         Company intends to assess the risk associated with third party
         remediation of Year 2000 Issues at the time that it enters into any
         significant contracts or relationships with third parties and to
         develop a contingency plan at that time, if necessary.


                                      14
<PAGE>   15

                           PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

         On May 20, 1996, Semi-Alloys Company ("Plaintiff"), a former customer
of Plasmatron Coatings and Systems, Inc. ("Plasmatron"), a wholly-owned
subsidiary of the Company, filed a complaint with the Supreme Court of the
State of New York, County of Westchester. The complaint names Plasmatron, the
Company and Westchester Fire Insurance Company as defendants. Plaintiff claims
a breach of contract related to $1 million of coating equipment delivered by
Plasmatron in 1993, prior to the Company's ownership of Plasmatron. The
Plaintiff claims the equipment does not perform as required under the contract.
Plaintiff seeks to recover compensatory, consequential and incidental damages.
The amount of this claim is to be determined at trial. A trial date had
tentatively been set for August 1999. In June 1999, that trial date was
postponed and has not been rescheduled at the present time. At this time, the
outcome can not be predicted with any certainty and the potential liability, if
any, is unknown. The Company believes it has meritorious defenses and intends
to continue to vigorously defend this action.

         On April 30, 1998, Universal Bonding Company, managing general agent
for Westchester Fire Insurance Company filed a complaint with the Superior
Court of New Jersey, Atlantic county. The Complaint named Richland Glass
Company, Inc., Robert Williams, Joan Williams, Bawa Singh, Narinder Singh,
Gaylord Evey and Doris Evey, all guarantors under the bond, as defendants. All
defendants were former owners, or associated with former owners, of Plasmatron.
Defendant Gaylord Evey filed an answer with the court naming Plasmatron, the
Company, Nicholas Rettino, and the Rettino Insurance agency as third party
defendants and asking for indemnification by the third party defendants. A
separate indemnification claim filed by Richland Glass against the same third
party defendants was consolidated with this case. The amount of this claim is
to be determined at trial; however, any potential amounts due by either the
Company or its subsidiary are dependent upon the finding of liability against
the bonding company in the New York case. No trial date has been set in the New
Jersey case.

         On August 18, 1998, KDF Electronic & Vacuum Services, Inc., a vendor
of Diamond Tech One, Inc. ("DTO"), filed a complaint in the United Sates
District Court for the Southern District of New York against the Company for
unpaid debts of its subsidiary, Diamond Tech One, Inc. The Company was served
with notice of this suit on October 14, 1998. The Company settled the suit in
April 1999 by paying a portion of the amount owed by Diamond Tech One, Inc. in
exchange for a complete release from all further liability.


                                      15
<PAGE>   16

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS

         On July 26, 1999 the Company held its 1999 Annual Meeting of
Shareholders. The following items were presented to a vote of the holders (the
"Shareholders") of the Company's issued and outstanding Common Stock and Series
G Preferred Stock:

         (1)      The Shareholders elected David R. Sincox and Dr. Zvi Yaniv to
                  the Company's Board of Directors as Class I Directors, whose
                  terms expire at the Company's 2000 Annual Meeting of
                  Shareholders.

         (2)      The Shareholders elected Philip C. Shaffer and Nicholas
                  Martin, Jr. to the Company's Board of Directors as Class II
                  Directors, whose terms expire at the Company's 2001 Annual
                  Meeting of Shareholders.

         (3)      The Shareholders elected Marc W. Eller and Ronald J. Berman
                  to the Company's Board of Directors as Class III Directors,
                  whose terms expire at the Company's 2001 Annual Meeting of
                  Shareholders.

         (4)      The Shareholders ratified the appointment of Wallace Sanders
                  & Company as the Company's independent auditors for the 1999
                  fiscal year.

         The number of votes cast for each of the above is summarized in the
table below. (Pursuant to the Company's Amended and Restated Articles of
Incorporation, the holders of the Company's Series G Preferred Stock cast votes
equivalent to the number of shares of the Company's Common Stock into which the
shares of Series G Preferred Stock were convertible as of June 8, 1999. All
numbers in the table below represent shares of Common Stock or the voting
equivalent thereof):

<TABLE>
<CAPTION>

                                                                                                   Broker
Item Submitted to Shareholders                  For           Against           Abstain           Non-Votes            Total
                                            ----------        -------           -------           ---------          ----------

<S>                                         <C>               <C>               <C>               <C>                <C>
Election of David R. Sincox                 45,859,692        155,261              0                  0              46,014,953
Election of Dr. Zvi Yaniv                   45,860,192        154,761              0                  0              46,014,953
Election of Philip C. Shaffer               45,859,692        155,261              0                  0              46,014,953
Election of Nicholas Martin, Jr.            45,847,442        167,511              0                  0              46,014,953
Election of Marc W. Eller                   45,860,192        154,761              0                  0              46,014,953
Election of Ronald J. Berman                45,860,192        154,761              0                  0              46,014,953
Ratification of Wallace Sanders &
     Company as auditors                    45,900,113         46,699           68,141                0              46,014,953
</TABLE>


                                      16
<PAGE>   17

ITEM 5. OTHER INFORMATION

CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

         Certain statements in this report are forward-looking statements
concerning the future operations of the Company. The Company is including the
following cautionary statement in this Quarterly Report on Form 10-QSB to make
applicable and take advantage of the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995 for any forward-looking statement made
by, or on behalf of, the Company. The factors identified in this cautionary
statement are important factors (but not necessarily all important factors)
that could cause actual results to differ materially from those expressed in
any forward-looking statement made by, or on behalf of, the Company.

         Where any such forward-looking statement includes a statement of the
assumptions or basis underlying such forward-looking statement, the Company
cautions that, while it believes such assumptions or basis to be reasonable and
makes them in good faith, assumed facts or basis almost always vary from actual
results, and the differences between assumed facts or basis and actual results
can be material, depending upon the circumstances. Where in any forward-looking
statement, the Company or its management expresses an expectation or belief as
to future results, such expectation or belief is expressed in good faith and
believed to have a reasonable basis, but there can be no assurance that the
statement or expectation or belief will result or be achieved or accomplished.

         Important factors that could cause the Company's actual results to
differ from results in forward-looking statements are incorporated herein by
reference from pages ii-vii of the Company's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1998. The Company undertakes no obligation
to publicly update any forward-looking statements, whether as a result of new
information, future events, or otherwise. You are advised, however, to consult
any further disclaimers the Company may make on related subjects in our 10-QSB,
8-K, and 10KSB reports to the SEC.


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

         (a)      Exhibits: See Index to Exhibits on page 19 for a descriptive
response to this item.

         (b)      Reports on Form 8-K:

                  (1) Current Report on Form 8-K (Item 2) dated as of September
         3, 1999.


                                      17
<PAGE>   18

                                   SIGNATURES


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.

<TABLE>
<S>                                             <C>
                                                SI DIAMOND TECHNOLOGY, INC.
                                                (Registrant)



Date:    November 5, 1999                                          /s/ Marc W. Eller
                                                ----------------------------------------------------
                                                Marc W. Eller
                                                Chairman and Chief Executive Officer
                                                (Principal Executive Officer)



Date:    November 5, 1999                                        /s/ Douglas P. Baker
                                                ----------------------------------------------------
                                                Douglas P. Baker
                                                Chief Financial Officer
                                                (Principal Financial Officer and Principal Accounting
                                                Officer)
</TABLE>


                                      18
<PAGE>   19

                               INDEX TO EXHIBITS


The following documents are filed as part of this Report:

<TABLE>
<CAPTION>
   Exhibit
   -------

   <S>            <C>
       11         Computation of (Loss) Per Common Share

       13         Forward-Looking Statements and Important Factors Affecting
                  Future Results (pages ii - vii of the Company's Annual Report
                  on Form 10-KSB for the fiscal year ended December 31, 1998,
                  incorporated by reference into the Quarterly Report on Form
                  10-QSB for the fiscal quarter ended September 30, 1999).

       27         Financial Data Schedule (for SEC use only)
</TABLE>


                                      19