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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C.
20549

FORM 10-Q

|x                                                                                  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 
|---------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------
|                                                                                   |                                                                                             
|                                                                                   | For the quarterly period ended March 31, 2003                                               
|                                                                                   |                                                                                             
|                                                                                   | or                                                                                          
|                                                                                   |                                                                                             
|                                                                                   | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
|                                                                                   |                                                                                             
|                                                                                   | For the transition period from _____________________to _____________________                
|                                                                                   |                                                                                             
|Commission File No. 000-13059                                                     
|                                                                                   |                                                                                             
|CERADYNE, INC.                                                                    
|                                                                                  
|(Exact name of Registrant as specified in its charter)                            
|                                                                                  
|Delaware                                                                           |                                                                                             
|                                                                                   |                                                                                             
|(State or other jurisdiction of incorporation or organization)                     |                                                                                             
|                                                                                   |                                                                                             
|3169 Redhill Avenue, Costa Mesa, CA                                                |                                                                                             
|                                                                                   |                                                                                             
|(Address of principal executive)                                                   |                                                                                             
|                                                                                   |                                                                                             
|Registrants telephone number, including area code  (714) 549-0421                
|                                                                                  
|N/A                                                                               
|                                                                                  
|(Former name, former address and former fiscal year, if changed since last report)
|                                                                                   |                                                                                             

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

|Yes x | No o
|----- | ----

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Exchange Act Rule 12b-2).

|Yes o | No x
|----- | ----

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

|Class                        |  | Outstanding at March 31, 2003
|---------------------------- |  | -----------------------------
|                             |  |                              
|Common Stock, $.01 par value |  | 8,577,734 Shares             

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CERADYNE, INC.

|INDEX                | PAGE NO.                                                                             
|-------------------- | -------------------------------------------------------------------------------------
|                     |                                                                                      
|PART I.              | FINANCIAL INFORMATION                                                                
|                     |                                                                                      
|Item 1.              | Financial Statements                                                                 
|                     |                                                                                      
|                     | Statement Regarding Financial Information                                            
|                     |                                                                                      
|                     | Consolidated Balance Sheets  March 31, 2003 and December 31, 2002                   
|                     |                                                                                      
|                     | Consolidated Statements of Income  Three Months Ended March 31, 2003 and 2002       
|                     |                                                                                      
|                     | Consolidated Statements of Cash Flows  Three Months Ended March 31, 2003 and 2002   
|                     |                                                                                      
|                     | Condensed Notes to Consolidated Financial Statements                                 
|                     |                                                                                      
|Item 2.              | Managements Discussion and Analysis of Financial Condition and Results of Operations
|                     |                                                                                      
|Item 3.              | Quantitative and Qualitative Disclosures About Market Risk                           
|                     |                                                                                      
|Item 4.              | Controls and Procedures                                                              
|                     |                                                                                      
|PART II.             | OTHER INFORMATION                                                                    
|                     |                                                                                      
|Item 1.              | Legal Proceedings                                                                    
|                     |                                                                                      
|Items 2, 3, 4 and 5. | N/A                                                                                  
|                     |                                                                                      
|Item 6.              | Exhibits and Reports on Form 8-K                                                     
|                     |                                                                                      
|SIGNATURE            | 19                                                                                   
|                     |                                                                                      
|                     | Certification of Principal Executive Officer                                         
|                     | Certification of Principal Financial Officer                                         
|                     |                                                                                      

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CERADYNE, INC.

FORM 10-Q FOR THE QUARTER ENDED

March 31, 2003

|PART I. | FINANCIAL INFORMATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Item 1. | Financial Statements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        | The Financial Statements included herein have been prepared by Ceradyne, Inc. (the Company), without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information normally included in the Financial Statements prepared in accordance with accounting principles generally accepted in the United States has been omitted pursuant to such rules and regulations. 
However, the Company believes the disclosures are adequate to make the information presented not misleading.  All adjustments have been made which are, in the opinion of management, necessary to a fair statement of the results of the interim
periods presented.  The Financial Statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in the Companys Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 on Form 10-K for the fiscal year ended December 31, 2002, as filed with the Securities and Exchange Commission on March 31, 2003.

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CERADYNE, INC.CONSOLIDATED BALANCE SHEETS ASSETS (Amounts in thousands)

|                                                                                                                                                 |  | March 31, 2003 (Unaudited) |         | December 31, 2002 |  
|------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------------------- | ------- | ----------------- | -
|                                                                                                                                                 |  |                            |         |                   |  
|CURRENT ASSETS                                                                                                                                   |  |                            |         |                   |  
|Cash and cash equivalents                                                                                                                        |  | $                          | 462     |                   | $
|Accounts receivable, net of allowances for doubtful accounts of approximately $94 and $111 at March 31, 2003 and
December 31, 2002, respectively |  |                            | 14,791  |                   |  
|Other receivables                                                                                                                                |  |                            | 267     |                   |  
|Inventories                                                                                                                                      |  |                            | 16,334  |                   |  
|Production tooling                                                                                                                               |  |                            | 3,333   |                   |  
|Prepaid expenses and other                                                                                                                       |  |                            | 2,068   |                   |  
|Deferred tax asset                                                                                                                               |  |                            | 548     |                   |  
|                                                                                                                                                 |  |                            |         |                   |  
|TOTAL CURRENT ASSETS                                                                                                                             |  |                            | 37,803  |                   |  
|                                                                                                                                                 |  |                            |         |                   |  
|PROPERTY, PLANT & EQUIPMENT, at cost                                                                                                             |  |                            |         |                   |  
|Land                                                                                                                                             |  |                            | 422     |                   |  
|Buildings and improvements                                                                                                                       |  |                            | 1,857   |                   |  
|Machinery and equipment                                                                                                                          |  |                            | 35,247  |                   |  
|Leasehold improvements                                                                                                                           |  |                            | 4,419   |                   |  
|Office equipment                                                                                                                                 |  |                            | 3,471   |                   |  
|Construction in progress                                                                                                                         |  |                            | 118     |                   |  
|                                                                                                                                                 |  |                            |         |                   |  
|                                                                                                                                                 |  |                            | 45,534  |                   |  
|Less accumulated depreciation and amortization                                                                                                   |  |                            | (26,973 | )                 |  
|                                                                                                                                                 |  |                            |         |                   |  
|                                                                                                                                                 |  |                            | 18,561  |                   |  
|                                                                                                                                                 |  |                            |         |                   |  
|COSTS IN EXCESS OF NET ASSETS ACQUIRED                                                                                                           |  |                            | 1,511   |                   |  
|                                                                                                                                                 |  |                            |         |                   |  
|TOTAL ASSETS                                                                                                                                     |  | $                          | 57,875  |                   | $
|                                                                                                                                                 |  |                            |         |                   |  

See accompanying condensed notes to Consolidated Financial
Statements

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CERADYNE, INC. CONSOLIDATED BALANCE SHEETS LIABILITIES AND SHAREHOLDERS EQUITY (Amounts in thousands, except share data)

|                                                                                                                                                                        |  | March 31, 2003 (Unaudited) |        | December 31, 2002 |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------- | ------ | ----------------- | -
|                                                                                                                                                                        |  |                            |        |                   |  
|CURRENT LIABILITIES                                                                                                                                                     |  |                            |        |                   |  
|Bank line of credit                                                                                                                                                     |  | $                          | 1,500  |                   | $
|Current portion of long-term debt                                                                                                                                       |  |                            | 100    |                   |  
|Accounts payable                                                                                                                                                        |  |                            | 6,926  |                   |  
|Accrued expenses:                                                                                                                                                       |  |                            |        |                   |  
|Payroll and payroll related                                                                                                                                             |  |                            | 1,884  |                   |  
|Other                                                                                                                                                                   |  |                            | 453    |                   |  
|Deferred revenue                                                                                                                                                        |  |                            | 159    |                   |  
|Warranty reserve                                                                                                                                                        |  |                            | 181    |                   |  
|                                                                                                                                                                        |  |                            |        |                   |  
|TOTAL CURRENT LIABILITIES                                                                                                                                               |  |                            | 11,203 |                   |  
|                                                                                                                                                                        |  |                            |        |                   |  
|LONG-TERM DEBT, NET OF CURRENT PORTION                                                                                                                                  |  |                            | 33     |                   |  
|DEFERRED TAX LIABILITY                                                                                                                                                  |  |                            | 1,794  |                   |  
|SHAREHOLDERS EQUITY                                                                                                                                                    |  |                            |        |                   |  
|Common stock, $.01 par value, Authorized - 12,000,000 shares, Outstanding - 8,577,734 shares and 8,521,034 shares at March 31, 2003
and December 31, 2002, respectively |  |                            | 40,289 |                   |  
|                                                                                                                                                                        |  |                            |        |                   |  
|Retained Earnings                                                                                                                                                       |  |                            | 4,556  |                   |  
|                                                                                                                                                                        |  |                            |        |                   |  
|TOTAL SHAREHOLDERS EQUITY                                                                                                                                              |  |                            | 44,845 |                   |  
|                                                                                                                                                                        |  |                            |        |                   |  
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                              |  | $                          | 57,875 |                   | $
|                                                                                                                                                                        |  |                            |        |                   |  

See accompanying condensed notes to Consolidated Financial
Statements

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CERADYNE, INC.CONSOLIDATED STATEMENTS OF INCOME (Amounts in thousands, except share data)

|                                         |  | THREE MONTHS  ENDED  March 31 |       
|---------------------------------------- |  | ----------------------------- | ------
|                                         |  |                               |       
|                                         |  | 2003                          |       
|                                         |  |                               |       
|                                         |  | (Unaudited)                   |       
|NET SALES                                |  | $                             | 19,182
|COST OF PRODUCT SALES                    |  |                               | 14,265
|                                         |  |                               |       
|Gross profit                             |  |                               | 4,917 
|                                         |  |                               |       
|OPERATING EXPENSES                       |  |                               |       
|Selling                                  |  |                               | 506   
|General and administrative               |  |                               | 1,636 
|Research and development                 |  |                               | 471   
|                                         |  |                               |       
|                                         |  |                               | 2,613 
|                                         |  |                               |       
|Income from operations                   |  |                               | 2,304 
|                                         |  |                               |       
|OTHER INCOME (EXPENSE):                  |  |                               |       
|Royalty income                           |  |                               | 30    
|Interest income                          |  |                               | 3     
|Interest expense                         |  |                               | (10   
|Miscellaneous                            |  |                               | (1    
|                                         |  |                               | 22    
|Income before provision for income taxes |  |                               | 2,326 
|PROVISION FOR INCOME TAXES               |  |                               | 814   
|                                         |  |                               |       
|NET INCOME                               |  | $                             | 1,512 
|                                         |  |                               |       
|BASIC INCOME PER SHARE                   |  | $                             | 0.18  
|                                         |  |                               |       
|DILUTED INCOME PER SHARE                 |  | $                             | 0.17  
|                                         |  |                               |       

See accompanying condensed notes to Consolidated Financial
Statements

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CERADYNE, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands)

|                                                                                            |                   | THREE MONTHS ENDED  MARCH 31, |                  
|------------------------------------------------------------------------------------------- | ----------------- | ----------------------------- | -----------------
|                                                                                            |                   |                              
|                                                                                            | 2003  (Unaudited) |                               | 2002  (Unaudited)
|                                                                                            |                   |                               |                  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                       |                   |                               |                  
|Net Income                                                                                  |                   | $                             | 1,512            
|ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES: |                   |                               |                  
|Depreciation and amortization                                                               |                   |                               | 819              
|Deferred income taxes                                                                       |                   |                               | 809              
|Change in operating assets and liabilities:                                                 |                   |                               |                  
|Accounts receivable, net                                                                    |                   |                               | (3,192           
|Other receivables                                                                           |                   |                               | 4                
|Inventories                                                                                 |                   |                               | (227             
|Production tooling                                                                          |                   |                               | (94              
|Prepaid expenses and other                                                                  |                   |                               | 132              
|Accounts payable                                                                            |                   |                               | 1,485            
|Accrued expenses                                                                            |                   |                               | 723              
|Warranty reserve                                                                            |                   |                               | (415             
|Deferred revenue                                                                            |                   |                               | (54              
|                                                                                            |                   |                               |                  
|NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES                                         |                   |                               | 1,502            
|                                                                                            |                   |                               |                  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                       |                   |                               |                  
|Purchases of property, plant and equipment                                                  |                   |                               | (720             
|                                                                                            |                   |                               |                  
|NET CASH USED IN INVESTING ACTIVITIES:                                                      |                   |                               | (720             
|                                                                                            |                   |                               |                  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                       |                   |                               |                  
|Proceeds from issuance of common stock                                                      |                   |                               | 245              
|Payments on long-term debt                                                                  |                   |                               | (25              
|Net proceeds from (reduction in) bank line of credit                                        |                   |                               | (890             
|                                                                                            |                   |                               |                  
|NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                                         |                   |                               | (670             
|                                                                                            |                   |                               |                  
|DECREASE IN CASH AND CASH EQUIVALENTS                                                       |                   |                               | 112              
|                                                                                            |                   |                               |                  
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                              |                   |                               | 350              
|                                                                                            |                   |                               |                  
|CASH AND CASH EQUIVALENTS, END OF PERIOD                                                    |                   | $                             | 462              
|                                                                                            |                   |                               |                  
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                                          |                   |                               |                  
|Interest paid                                                                               |                   | $                             | 10               
|                                                                                            |                   |                               |                  
|Income taxes paid                                                                           |                   | $                             | 12               
|                                                                                            |                   |                               |                  

See accompanying condensed notes to Consolidated Financial
Statements

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CERADYNE, INC.CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2003 (Unaudited)

|1. | Basis of Presentation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.  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 of normal recurring adjustments) considered necessary for a fair presentation have been included.  Operating results for the three-month period ended March 31, 2003 are not necessarily
indicative of the results that may be expected for the year ended December 31, 2003.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | The balance sheet at December 31, 2002 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | For further information, refer to the Consolidated Financial Statements and Notes to Financial Statements included in Ceradynes Annual Report on Form 10-K for the year
ended December 31, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|2. | Inventories                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Inventories are valued at the lower of cost (first in, first out) or market.  Inventory costs include the cost of material, labor and manufacturing overhead.  The
following is a summary of the inventory components as of March 31, 2003 and December 31, 2002 (in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                              



|                  |  | MARCH 31,2003 |        | DECEMBER 31, 2002 |  
|----------------- |  | ------------- | ------ | ----------------- | -
|                  |  |               |        |                   |  
|Raw Materials     |  | $             | 9,308  |                   | $
|Work-In-Process   |  |               | 6,067  |                   |  
|Finished Goods    |  |               | 959    |                   |  
|                  |  |               |        |                   |  
|Total Inventories |  | $             | 16,334 |                   | $
|                  |  |               |        |                   |  

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|3. | Recent Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | In April 2002, the FASB issued SFAS No. 145, Rescission of SFAS Nos. 4, 44 and 64, Amendment of SFAS No. 13, and Technical Corrections.  The significant items from SFAS 145
that are relevant to the Company are the provisions regarding extinguishment of debt.  The provisions of this statement are applicable for financial statements issued on or subsequent to May 15, 2002.  The adoption of this statement does
not have a significant impact on the Companys consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal.  This statement addresses financial accounting and reporting for costs
associated with exit or disposal activities and nullifies EITF Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).  The
provisions of this statement are effective for exit or disposal activities initiated after December 31, 2002.  The adoption of this statement does not have a significant impact on the Companys consolidated financial statements.                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | In November 2002, the FASB issued Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others (Interpretation).  This Interpretation elaborates on the existing disclosure requirements for most guarantees, including loan guarantees such as standby letters of credit.  It also requires that at the time a company
issues a guarantee, the company must recognize an initial liability for the fair market value of the obligations it assumes under that guarantee and must disclose that information in its interim and annual financial statements.  The initial
recognition and measurement provisions of the Interpretation apply on a prospective basis to guarantees issued or modified after December 31, 2002.  The adoption of this statement does not have an impact on the Companys consolidated
financial statements.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | On December 31, 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation Transition and Disclosure, which amends SFAS No. 123. SFAS No. 148 requires more
prominent and frequent disclosures about the effects of stock-based compensation, which the Company adopted in the year ended December 31, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|4. | Net Income Per Share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | Basic net income per share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding.  Diluted net
income per share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding plus the effect of any dilutive stock options and common stock warrants using the treasury stock
method.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

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| | The following is a summary of the number of shares entering into the computation of net income per common and common equivalent share:
| | --------------------------------------------------------------------------------------------------------------------------------------



|                                                 |  | THREE MONTHS ENDED  MARCH 31 |          
|------------------------------------------------ |  | ---------------------------- | ---------
|                                                 |  |                              |          
|                                                 |  | 2003                         |          
|                                                 |  |                              |          
|Weighted average number of shares outstanding    |  |                              | 8,553,474
|Dilutive stock options and common stock warrants |  |                              | 368,853  
|                                                 |  |                              |          
|Number of shares used in diluted computations    |  |                              | 8,922,327
|                                                 |  |                              |          



|5. | Long Term Debt
|-- | --------------



|Capital equipment loan bearing interest at 8.18% APR. Payable in monthly installments of $8,333, expiring July
2004. |  | $ | 133,000  |  
|-------------------------------------------------------------------------------------------------------------------- |  | - | -------- | -
|Less: current portion                                                                                                |  |   | (100,000 | )
|                                                                                                                     |  |   |          |  
|Long term debt                                                                                                       |  | $ | 33,000   |  
|                                                                                                                     |  |   |          |  



|   | In addition to the capital equipment loan, the Company also has a bank line of credit. The Company may borrow up to $7,500,000 with interest on borrowings charged at one-half
percentage point below the banks prime rate. The banks prime rate was 4.25 percent at March 31, 2003.  The bank line of credit had an outstanding balance at March 31, 2003 of approximately $1,500,000.  Pursuant to the bank line
of credit, the Company is subject to certain covenants, which include, among other things, the maintenance of tangible net worth, quick assets to current liabilities ratio, and total liabilities to tangible net worth ratio.  At March 31, 2003,
the Company was in compliance with these covenants. The line of credit is collateralized by substantially all of the Companys assets and is payable on demand.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|6. | Stock-Based Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | The Company applies the provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, in accounting for
stock-based compensation; therefore, no compensation expense has been recognized for its fixed stock option plans as options are granted at fair market value based upon the closing price on the date of grant.  The Company has adopted the
disclosure requirements for SFAS No. 123, Accounting for Stock-Based Compensation.  On December 31, 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure, which amends SFAS No.
123.  SFAS No. 148 requires more prominent and frequent disclosures about the effects of stock-based compensation, which the Company applied in the year ended December 31, 2002.              

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| | Accordingly, if compensation expense for the Companys stock options had been recognized, based upon the fair value of awards granted, the Companys net income and
earnings per share would have been reduced to the following pro forma amounts:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                                                                                                                |  | THREE MONTHS ENDED  MARCH 31, |          
|----------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------- | ---------
|                                                                                                                                                |  |                               |          
|                                                                                                                                                |  | 2003                          |          
|                                                                                                                                                |  |                               |          
|Net income, as reported                                                                                                                         |  | $                             | 1,512,000
|Deduct: Total stock-based employee compensation expense determined under the fair value based method for all awards, net of related
tax effects |  |                               | (60,000  
|                                                                                                                                                |  |                               |          
|Pro forma net income                                                                                                                            |  | $                             | 1,452,000
|                                                                                                                                                |  |                               |          
|Net income per share:                                                                                                                           |  |                               |          
|Basic- as reported                                                                                                                              |  | $                             | 0.18     
|                                                                                                                                                |  |                               |          
|Basic- pro forma                                                                                                                                |  | $                             | 0.17     
|                                                                                                                                                |  |                               |          
|Diluted - as reported                                                                                                                           |  | $                             | 0.17     
|                                                                                                                                                |  |                               |          
|Dilued - pro forma                                                                                                                              |  | $                             | 0.16     
|                                                                                                                                                |  |                               |          
|Weighted average shares outstanding:                                                                                                            |  |                               |          
|Basic                                                                                                                                           |  |                               | 8,553,474
|Diluted                                                                                                                                         |  |                               | 8,922,327



|   | The pro forma amounts were estimated using the Black-Scholes option-pricing model.  There were no options granted during the first quarter ended March 31, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|7. | Disclosure About Segments of an Enterprise and Related Information                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | The Company serves its markets and manages its business through three divisions, each of which has its own manufacturing facilities and administrative and selling
functions.  The Companys Advanced Ceramic Operations, located in Costa Mesa and Irvine, California, primarily produces armor and orthodontic products, diesel automotive engine parts, components for semiconductor equipment, and houses the
Companys sintered reaction bonded silicon nitride (SRBSN) research and development activities.  The Companys cathode development and production are handled through its Semicon Associates division located in Lexington,
Kentucky.  Fused silica products, including missile radomes, are produced at the Companys Thermo Materials division located in Scottdale, Georgia.

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##### Table of Contents

Ceradynes manufacturing structure is summarized in the following table:

|FACILITY LOCATION                                                                                 |   | PRODUCTS                                          
|------------------------------------------------------------------------------------------------- | - | --------------------------------------------------
|                                                                                                  |   |                                                   
|Advanced Ceramic Operations  Costa Mesa and Irvine, California  Approximately 126,000 square feet |   |                                                  
|                                                                                                  |  | Orthodontic ceramic brackets                      
|                                                                                                  |  | Ceralloy® 147 SRBSN wear parts                    
|                                                                                                  |  | Precision ceramics                                
|                                                                                                  |  | Ceralloy® 147 SRBSN diesel/automotive engine parts
|                                                                                                  |  | Semiconductor Equipment Components                
|                                                                                                  |  | Research and Development                          
|                                                                                                  |   |                                                   
|Semicon Associates  Lexington, Kentucky  Approximately 35,000 square feet                         |   |                                                  
|                                                                                                  |  | Ion laser ceramic-impregnated dispenser cathodes  
|                                                                                                  |  | Samarium cobalt magnets                           
|                                                                                                  |   |                                                   
|Thermo Materials  Scottdale, Georgia  Approximately 85,000 square feet                            |   |                                                  
|                                                                                                  |  | Metallurgical tooling (fused silica ceramics)     
|                                                                                                  |  | Missile radomes (fused silica ceramics)           
|                                                                                                  |  | Castable and other fused silica product           

|                                                 |  | Advanced Ceramic Ops |        | Semicon  Associates |   | Thermo Materials |  | TOTAL |      
|------------------------------------------------ |  | -------------------- | ------ | ------------------- | - | ---------------- |  | ----- | -----
|                                                 |  |                      |        |                     |   |                  |  |       |      
|                                                 |  | 2003                 |        | 2002                |   | 2003             |  | 2002  |      
|                                                 |  |                      |        |                     |   |                  |  |       |      
|Revenue from External Customers                  |  | $                    | 14,418 |                     | $ | 11,523           |  | $     | 1,736
|                                                 |  |                      |        |                     |   |                  |  |       |      
|Depreciation and Amortization                    |  | $                    | 586    |                     | $ | 444              |  | $     | 117  
|                                                 |  |                      |        |                     |   |                  |  |       |      
|Segment Income before Provision for Income Taxes |  | $                    | 2,052  |                     | $ | 961              |  | $     | 173  
|                                                 |  |                      |        |                     |   |                  |  |       |      
|Segment Assets                                   |  | $                    | 44,209 |                     | $ | 39,180           |  | $     | 6,181
|                                                 |  |                      |        |                     |   |                  |  |       |      
|Expenditures for PP&E                            |  | $                    | 545    |                     | $ | 1,911            |  | $     | 67   
|                                                 |  |                      |        |                     |   |                  |  |       |      

The following is revenue by product line for Advanced Ceramic Operations for the quarter ended
March 31:

|             |  | 2003 |        | 2002 |  
|------------ |  | ---- | ------ | ---- | -
|             |  |      |        |      |  
|Armor        |  | $    | 9,602  |      | $
|Automotive   |  |      | 882    |      |  
|Orthodontics |  |      | 2,044  |      |  
|Other        |  |      | 1,890  |      |  
|             |  |      |        |      |  
|             |  | $    | 14,418 |      | $
|             |  |      |        |      |  

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##### Table of Contents

Segment Disclosures for Net Sales by Area

Three Months Ended March 31,

|                         |  | Advanced Ceramic Ops | Semicon  Associates | Thermo Materials | TOTAL
|------------------------ |  | -------------------- | ------------------- | ---------------- | -----
|                         |  |                      |                     |                  |      
|                         |  | 2003                 | 2002                | 2003             | 2002 
|                         |  |                      |                     |                  |      
|U.S. Net Sales (in %)    |  |                      | 73%                 |                  | 75%  
|Foreign Net Sales (in %) |  |                      | 2%                  |                  | 4%   
|                         |  |                      |                     |                  |      
|Total Net Sales (in %)   |  |                      | 75%                 |                  | 79%  
|                         |  |                      |                     |                  |      



|8. | Legal Proceedings                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | From time to time, the Company is involved in legal proceedings incidental to its business.  The Company believes that  pending actions, individually and in the
aggregate, will not have a material adverse effect on its financial condition, results of operations or cash flows, and that adequate provision has been made for the resolution of such actions and proceedings.                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|9. | Commitments and Contingencies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | The U.S. Government Defense Logistics Agency (DLA) notified the Company on March 27, 2002, that 3 lots of Ceradynes small arms protective inserts (SAPI) for light weight
ceramic armor shipped in January 2002 failed to pass ballistics reverification tests by the Governments designated independent commercial testing laboratory.  During the period of December 2001 through March 27, 2002, the
Company had shipped approximately $5.1 million under its existing contract with the DLA.  Subsequent to March 27, 2002, the DLA directed the independent testing laboratory to perform reverification testing and $3.4 million of the
shipments were not in testing compliance.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | When notified of these issues on March 27, 2002, the Company voluntarily stopped producing its original SAPI design and actively worked with the Government to understand the
quality and testing issues and to resolve the status and disposition of the SAPI plates in question.  The Company completed the development of a modified design for its ceramic SAPI armor plates.  Independently performed tests by the
Governments designated testing laboratory of the modified design have been successful and the first article (initial production parts) of this modified design was approved in June 2002.                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | On August 7, 2002, the Company signed an amendment to the contract with the Government regarding certain of the SAPI plates shipped in December 2001 and the first quarter
2002.  The amendment requires that the Company correct or replace at its expense all supplies of the product that did not meet the original contractual requirements. The warranty items are to be delivered over the period from October 2002
through June 2003.  The Company estimated the cost to rework and upgrade the SAPI plates at approximately $650,000 and set up a warranty                                                                                                                           

13



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##### Table of Contents

| | reserve in that amount, recorded in the second quarter ended June 30, 2002 against cost of goods sold. As of March 31, 2003, the balance of the reserve was $181,000 after
warranty charges to date of $469,000.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                 
| | Changes in the product warranty accrual for the three months ended March 31, 2003 was as follows:                                                                                                               



|Warranty accrual, December 31, 2002 |  | $ | 596,000 | 
|----------------------------------- |  | - | ------- | 
|Warranty expenditures               |  |   | 415,000 | 
|                                    |  |   |         | 
|Warranty accrual, March 31, 2003    |  | $ | 181,000 | 
|                                    |  |   |         | 



|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        | Preliminary Note Regarding Forward-Looking Statements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        | This Quarterly Report on Form 10-Q contains statements which may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of
1933 and Section 21E of the Securities and Exchange Act of 1934.  One generally can identify forward-looking statements by the use of forward-looking terminology such as believes, may, will,
expects, intends, estimates, anticipates, plans, seeks, or continues, or the negative thereof or variations thereon or similar terminology.  Forward-looking
statements regarding future events and the future performance of the Company involve risks and uncertainties that could cause actual results to differ materially.  These risks and uncertainties are described in Note 9,  Commitments
and Contingencies, of Condensed Notes to Consolidated Financial Statements on pages 13  and 14 of this report, and in the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2002, as filed with the Securities
and Exchange Commission, under Item 1-Business, including the section therein entitled Risk Factors, and Item 7-Managements Discussion and Analysis of Financial Condition and Result of Operations.
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        | Results of Operations for the Three Months Ended March 31, 2003                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        | Reference is made to the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2002, for an analysis and detailed discussion of the Companys
financial condition and results of operations for the period covered by that report.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        | Net Sales.  Net sales for the three months ended March 31, 2003 were $19.2 million. This represents an increase of 31%, or $4.5 million, from the corresponding
quarter of the prior year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        | Advanced Ceramic Operations in Costa Mesa, California, had net sales for the quarter of $14.4 million representing an increase of $2.9 million, or 25% over the comparable prior
year quarter. The primary reason for this improvement was an increase of $2.9 million in sales of ceramic armor for defense customers, compared to the first quarter of 2002, due to orders received in the second and fourth quarters of 2002 from the
U.S. Department of Defense for lightweight body armor for military personnel.  Other individual product line sales were essentially flat for the first quarter of 2003 when compared to last years first quarter period. Bookings for the
first                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

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##### Table of Contents

| | quarter ended March 31, 2003 were $24.6 million representing an increase of $13.4 million or 119% over the same period last year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | The Companys Semicon Associates division in Lexington, Kentucky, posted sales of $1.7 million for the quarter, which was a $245,000 increase as compared to the year-ago
quarter.  The sales increase reflects higher shipments of Microwave Cathodes during the current quarter versus the year-ago period.  In the first quarter ended March 31, 2003, bookings of incoming orders totaled $1.5 million, which were
80% higher than the year-ago period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | The Companys Thermo Materials division in Scottdale, Georgia, posted sales of $3.0 million for the quarter, which was a $1.4 million increase as compared to the year-ago
quarter.  The increases were mainly due to the completion of defense contracts and increases in shipments of ceramic crucibles.  Bookings during the first quarter ended March 31, 2003 were 40% higher compared to last years first
quarter period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | Gross Profit.  The Companys gross profit was $4.9 million, or 26% of sales, for the first quarter ended March 31, 2003, compared to $2.9 million, or 20% of
sales in the prior year period.  Gross profit for the first quarter of 2003 was 70% higher than the prior year period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | The Companys Advanced Ceramic Operations in Costa Mesa, California, posted gross profit of $4.0 million or 28% of sales for the quarter ended March 31, 2003, compared to
gross profit of $2.4 million or 21% of sales for the year ago quarter.  This amounted to a 68% increase in gross profit when comparing the two quarters.  These results were due to several factors. During the final two quarters of 2002, the
Company implemented lean manufacturing techniques and Demand Flow® Technology (DFT) to focus on increasing the Companys gross profit. These systems are designed to reduce work-in-process inventory, decrease queue times and increase yields
and efficiencies. Implementation of these techniques and systems in the production of body armor has been successful where gross margins increased from 16% in the prior year first quarter to 28% for the first quarter of this year. The Company will
continue to consider these systems for implementation into other product lines. Other factors contributing to the increase in gross profits included improved labor utilization, better training of personnel, increased workflow, changes in the design
of products and an improved sales mix.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | During the fourth quarter of 2002, the Company completed its move into a 41,000 square foot manufacturing facility in Irvine, California. During the first quarter of 2003, this
additional space allowed the Company to increase manufacturing flow, achieve economies of scale, create production efficiencies and support to meet the increased demand for personal armor and diesel engine components.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | The first quarter of 2003 did not experience the same factors that negatively affected gross margins during the first quarter of last year. Last years gross profit for the
first quarter was adversely impacted because the Company experienced a surge in orders with short delivery times which did not allow it enough time to prepare for the increased demands placed upon its personnel, facilities and manufacturing
techniques and capabilities. After installing new systems and manufacturing techniques in the second half of 2002, the Company was better prepared during the first quarter of this year to benefit from higher production and shipment levels from an                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

15



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##### Table of Contents

| | increasing backlog of orders. These changes led to greater operating leverage, production efficiencies and better absorption of manufacturing overhead costs that resulted in
higher gross profits.                                                                                                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | Semicon Associates in Lexington, Kentucky, posted first quarter gross profit of $377,000 compared to $245,000, or a 54% increase over the year ago quarter.  The $132,000
increase is attributed to higher gross profits from microwave cathodes caused by increased levels of production and shipments and improved capacity utilization compared to the prior year period.                                                                                                                            
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | Thermo Materials in Scottdale, Georgia, posted 2003 first quarter gross profit of $496,000 compared to $236,000, or a 110% increase from the year ago quarter. The increase in
gross profit in first quarter of 2003 was due to the completion of defense contracts and to more efficient manufacturing methods resulting in less scrap and rework.  During the current quarter, completion of defense contracts added $218,000 in
gross margins, while ceramic castables and rolls contributed $183,000
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | Selling Expenses.  Selling expenses were $0.5 million for the first quarter of 2003, a figure comparable to the amount in the same period last year.                                                                                                                                                                                                                                                                                                                                                    
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | General and Administrative Expenses.  General and Administrative expenses for the quarters ended March 31, 2003 and 2002 were $1.6 million and $1.1 million,
respectively. Contributing to this increase were salary and benefit increases and increases in bonus amounts due to higher profits compared to the prior year period.                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | Research and Development.  The Companys research and development efforts consist primarily of ongoing application engineering in response to customer
requirements, and the research and development of new materials technology and products.  These efforts are directed to the creation of new products, the modification of existing products to fit specific customer needs, and the development of
enhanced ceramic process technology.                                                          
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | Expenses for the first quarters ended March 31, 2003 and 2002 for Research and Development were essentially unchanged at $0.5 million.                                                                                                                                                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | In addition, the Company historically has and continues to engage in application engineering to improve and reduce the cost of production and to develop new products.
 These costs are expensed as incurred.                                                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | Other Income.  Other income was $22,000 for the quarter ended March 31, 2003 compared to $70,000 for the same period of the prior year.  The major cause for the
decrease was a $25,000 reduction in royalty income and a decrease in miscellaneous income of $23,000.                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | Interest Expense.  Interest expense was $10,000 for the quarter as compared to $12,000 in the year-ago quarter. The decrease was due to lower levels of borrowings
and lower interest rates.                                                                                                                                                                                                                                                                                                            
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | Income Taxes.  The provision for income taxes of 35% for the quarter ended March 31, 2003 remained the same as the first quarter in 2002.                                                                                                                                                                                                                                                                                                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | Net Income.  Reflecting all of the matters discussed above, net income was $1.5                                                                                                                                                                                                                                                                                                                                                                                                                         

16



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##### Table of Contents

|        | million (or $0.18 per share basic and $0.17 diluted) for the quarter ended March 31, 2003 compared to $0.6 million (or $0.07 per share basic and diluted) for the quarter ended
March 31, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        | Liquidity and Capital Resources                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        | The Company generally meets its operating and capital requirements for cash flow from operating activities and borrowings under its credit facilities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        | On May 16, 2002, the Company increased from $4.0 million to $7.5 million its revolving credit facility with Comerica Bank.  As of March 31, 2003, the Company borrowed $1.5
million to meet operating needs.  Pursuant to the loan, the Company is subject to certain covenants, which include, among other things, the maintenance of minimum net worth, minimum ratio of quick assets to current liabilities, and maximum
ratio of total liabilities to net worth. As of March 31, 2003, the Company was in compliance with these covenants.  The line of credit is collateralized by substantially all of the Companys assets and is payable on demand. The bank line
of credit interest rate is charged at one-half percentage point below the banks prime rate. The banks prime rate was 4.25% as of March 31, 2003.                                                                                                           
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        | Under a separate credit facility with Comerica Bank, the Company entered into a $500,000 capital equipment loan agreement during the third quarter of 1999.  The term of the
loan is for 60 months with a prepayment penalty, and as of March 31, 2003, this loan balance is $133,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        | The Companys net cash position increased by $112,000 during the three months ended March 31, 2003, compared to a decrease of $872,000 during the three months ended March
31, 2002.  For the first quarter ended March 31, 2003, cash flow provided by operating activities amounted to $1.5 million, which was offset by $0.7 million of capital expenditures and a reduction of $0.9 million outstanding under the
Companys bank line of credit.  Additionally, during the first quarter in 2003, the Company generated cash in the amount of $245,000 from the issuance of common stock due to the exercise of stock options.  During the first quarter
ended March 31, 2002, cash used in operating activities amounted to $0.9 million. During the quarter ended March 31, 2002, capital expenditures amounted to $2.2 million and the amount of borrowings outstanding under the bank line of credit increased
by $2.0 million.
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        | Management believes that current cash and cash equivalents on hand, as well as cash generated from operations and the ability to borrow under the existing credit facilities,
will be sufficient to finance anticipated capital and operating requirements for at least the next 12 months.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|Item 3. | Quantitative and Qualitative Disclosures About Market Risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        | The Company is exposed to market risks related to fluctuations in interest rates on its debt.  Currently, the Company does not utilize interest rate swaps, forward or
option contracts on foreign currencies or commodities, or other types of derivative financial instruments.  The purpose of the following analysis is to provide a framework to understand the Companys sensitivity to hypothetical changes in
interest rates as of March 31, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

17



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|         | The Company utilized fixed rate debt financing during 1999 primarily for the purpose of acquiring manufacturing equipment.  For fixed rate debt, changes in interest rates
generally affect the fair market value of the debt instrument, but not the Companys earnings or cash flows.  The Company does not have an obligation to prepay fixed rate debt prior to maturity, and as a result, interest rate risk and
changes in fair market value should not have a significant impact on the fixed rate debt until the Company would be required to refinance such debt.  The fair market value estimates for debt securities are based on discounting future cash flows
utilizing current rates offered to the Company for debt of the same type and remaining maturity.
|-------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|         | As of March 31, 2003, the Companys debt consisted of a $133,000 capital equipment loan at a fixed interest rate of 8.18% due July 28, 2004, and a bank line of credit of
$1,500,000 for operating requirements.  The bank line of credit interest rate is charged at one half-percentage point below the banks prime rate. The banks prime rate was 4.25% as of March 31, 2003.  The carrying amount is a
reasonable estimate of fair value as the rate of interest paid on the note and revolving credit facility approximates the current rate available for financing with similar terms and maturities.                                                                                                                                                             
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|Item 4.  | Controls and Procedures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|         | Within the 90 days preceding the date of this quarterly report on Form 10-Q, the Companys Chief Executive Officer and Chief Financial Officer evaluated the Companys
disclosure controls and procedures to assess whether they are effective in ensuring that information which is required to be disclosed in this report is, in fact, properly and accurately recorded, processed, summarized and reported in a timely
basis.  Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have each concluded that those controls and procedures were effective in making known to them and other management employees the material information
needed to prepare and make timely decisions regarding disclosures required in this report.      
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|         | The Chief Executive Officer and Chief Financial Officer did not find, during their evaluation, any significant deficiencies or material weaknesses that would require corrective
actions to be taken with respect to the Companys internal controls. There have been no significant changes in the Companys internal controls or in other factors since the date of their evaluation that could significantly affect those
internal controls.                                                                                                                                                                                                                                                                                                                            
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|PART II. | OTHER INFORMATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|Item 1.  | Legal Proceedings                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|         | From time to time, the Company is involved in legal proceedings incidental to its business.  The Company believes that  pending actions, individually and in the
aggregate, will not have a material adverse effect on its financial condition, results of operations or cash flows, and that adequate provision has been made for the resolution of such actions and proceedings.                                                                                                                                                                                                                                                                                                                                                                                         

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|Item 2. | N/A                                                                                                                                                                                                  
|------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |                                                                                                                                                                                                      
|Item 3. | N/A                                                                                                                                                                                                  
|        |                                                                                                                                                                                                      
|Item 4. | N/A                                                                                                                                                                                                  
|        |                                                                                                                                                                                                      
|Item 5. | N/A                                                                                                                                                                                                  
|        |                                                                                                                                                                                                      
|Item 6. | Exhibits and Reports on Form 8-K                                                                                                                                                                     
|        |                                                                                                                                                                                                      
|(a)     | Exhibits:                                                                                                                                                                                            
|        |                                                                                                                                                                                                      
|        | 99.1                                                                                                                                                                                                 
|        | 99.2                                                                                                                                                                                                 
|        |                                                                                                                                                                                                      
|(b)     | Reports on Form 8-K:                                                                                                                                                                                 
|        |                                                                                                                                                                                                      
|        | On April 11, 2003, the Registrant filed a report on Form 8-K to furnish information pursuant to Item 12 relating to the Registrants results of operations for
the three months ended March 31, 2003.
|        |                                                                                                                                                                                                      

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.

|CERADYNE, INC. |                                                                                                           
|-------------- | ----------------------------------------------------------------------------------------------------------
|               |                                                                                                           
|By:            | /s/ JERROLD J. PELLIZZON                                                                                  
|               |                                                                                                           
|               | Jerrold J. Pellizzon  Vice President  Chief Financial Officer (Principal Financial and Accounting Officer)
|               |                                                                                                           
|Dated:         | May 14, 2003                                                                                              

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##### Table of Contents

Certification of Principal Executive Officer

I, Joel P. Moskowitz, Chief Executive Officer of Ceradyne, Inc., certify
that:

1.   I have reviewed this quarterly report on Form 10-Q of Ceradyne, Inc.;

2.   Based on my knowledge, this
quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the
period covered by this quarterly report;

3.   Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.   The
registrants other certifying officer and I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

|a. | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is  made known to
us by others within those entities, particularly during the period in which this quarterly report is being prepared;
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                 
|b. | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the
Evaluation Date); and                                                                                                   
|   |                                                                                                                                                                                                                                                                                                 
|c. | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation
Date;                                                                                                                         

5.   The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the
audit committee of registrants board of directors (or persons performing the equivalent function):

|a. | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report
financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                               
|b. | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and                                                                                                                                        

6.   The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Dated: May 14, 2003

| | /s/ JOEL P. MOSKOWITZ                      | 
| | ------------------------------------------ | 
| |                                            | 
| | Joel P. Moskowitz  Chief Executive Officer | 

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##### Table of Contents

Certification of Principal Financial Officer

I, Jerrold J. Pellizzon, Chief Financial Officer of Ceradyne, Inc., certify
that:

1.   I have reviewed this quarterly report on Form 10-Q of Ceradyne, Inc.;

2.   Based on my knowledge, this
quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the
period covered by this quarterly report;

3.   Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.   The
registrants other certifying officer and I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

|a. | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is  made known to
us by others within those entities, particularly during the period in which this quarterly report is being prepared;
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                 
|b. | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the
Evaluation Date); and                                                                                                   
|   |                                                                                                                                                                                                                                                                                                 
|c. | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation
Date;                                                                                                                         

5.   The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the
audit committee of registrants board of directors (or persons performing the equivalent function):

|a. | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report
financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                               
|b. | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and                                                                                                                                        

6.   The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Dated: May 14, 2003

| | /s/ JERROLD J. PELLIZZON                      | 
| | --------------------------------------------- | 
| |                                               | 
| | Jerrold J. Pellizzon  Chief Financial Officer | 

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Index to Exhibits

|Exhibit |  | Description                                                                                                            
|------- |  | -----------------------------------------------------------------------------------------------------------------------
|        |  |                                                                                                                        
|99.1    |  | Certification of Periodic Report by Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|        |  |                                                                                                                        
|99.2    |  | Certification of Periodic Report by Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

22