<PAGE>

                                  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 September 30, 1999

                                      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                                    33-0055414
-------------------------------             ------------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)

3169 Redhill Avenue, Costa Mesa, CA                       92626
--------------------------------------------------------------------------------
(Address of principal executive)                        (Zip Code)

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 ___
                                ---
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 October 15, 1999
----------------------------                  -------------------------------
Common Stock, $.01 par value                           8,088,348 Shares

                               Page 1 of 17 Pages
<PAGE>

                                 CERADYNE, INC.

<TABLE>
<CAPTION>
               INDEX                                                                                   PAGE NO.
               -----                                                                                   --------
<S>                                                                                                    <C>
PART I.        FINANCIAL INFORMATION

Item 1.        Financial Statements

               Statement Regarding Financial Information.............................................         3

               Consolidated Balance Sheets -September 30, 1999
               and December 31, 1998.................................................................       4-5

               Consolidated Statements of Income -
               Three and Nine Months Ended September 30, 1999 and 1998 ..............................         6

               Consolidated Statements of Cash Flow -
               Nine Months Ended September 30, 1999 and 1998.........................................         7

               Condensed Notes to Consolidated Financial Statements .................................      8-11

Item 2.        Management's Discussion and Analysis of Financial Condition
               & Results of Operations ..............................................................     12-16

Item 3.        Quantitative and Qualitative Disclosures
               About Market Risk.....................................................................        16

PART II.       OTHER INFORMATION

Item 1.        Legal Proceedings ....................................................................        16

Items 2,       N/A...................................................................................        17
  3, 4 and 5

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

SIGNATURE............................................................................................        17
</TABLE>

                                       2
<PAGE>

                                 CERADYNE, INC.

                                    FORM 10-Q
                              FOR THE QUARTER ENDED

                               September 30, 1999



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 generally accepted accounting principles has been
          omitted pursuant to such rules and regulations. However, the Company
          believes the disclosures are adequate to make the information
          presented not misleading. It is suggested the Financial Statements be
          read in conjunction with the 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, 1998, as filed with the Securities and
          Exchange Commission on March 31, 1999.

                                       3
<PAGE>

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

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
                                                                           September 30, 1999        December 31, 1998
                                                                               (Unaudited)               (Audited)
======================================================================================================================
<S>                                                                        <C>                       <C>
CURRENT ASSETS
----------------------------------------------------------------------------------------------------------------------
     Cash & cash equivalents                                                     $ 1,539                  $ 2,870
----------------------------------------------------------------------------------------------------------------------
     Accounts receivable, net of allowances for                                    5,251                    4,381
     doubtful accounts of approximately $50 and $92
     at September 30, 1999 and December 31, 1998
----------------------------------------------------------------------------------------------------------------------
     Other receivables                                                               112                      167
----------------------------------------------------------------------------------------------------------------------
     Inventories                                                                   8,341                    7,520
----------------------------------------------------------------------------------------------------------------------
     Production tooling                                                            1,423                    1,104
----------------------------------------------------------------------------------------------------------------------
     Prepaid expenses and other                                                    1,035                      880
                                                                                 -------                  -------
----------------------------------------------------------------------------------------------------------------------
     TOTAL CURRENT ASSETS                                                         17,701                   16,922
                                                                                --------                  -------
----------------------------------------------------------------------------------------------------------------------
PROPERTY, PLANT & EQUIPMENT, at cost
----------------------------------------------------------------------------------------------------------------------
     Land                                                                            422                      422
----------------------------------------------------------------------------------------------------------------------
     Buildings & improvements                                                      1,825                    1,825
----------------------------------------------------------------------------------------------------------------------
     Machinery & equipment                                                        22,388                   20,664
----------------------------------------------------------------------------------------------------------------------
     Leasehold improvements                                                        1,835                    1,723
----------------------------------------------------------------------------------------------------------------------
     Office equipment                                                              2,379                    2,210
----------------------------------------------------------------------------------------------------------------------
     Construction in progress                                                        705                      103
                                                                                --------                  -------
----------------------------------------------------------------------------------------------------------------------
                                                                                  29,554                   26,947
----------------------------------------------------------------------------------------------------------------------
     Less accumulated depreciation & amortization                                (19,289)                 (18,090)
                                                                                --------                  -------
----------------------------------------------------------------------------------------------------------------------
                                                                                  10,265                    8,857
                                                                                --------                  -------
----------------------------------------------------------------------------------------------------------------------
COSTS IN EXCESS OF NET ASSETS ACQUIRED,                                            1,884                    2,009
     net of accumulated amortization of $2,033 and $1,908 at
     September 30, 1999 and December 31, 1998, respectively
----------------------------------------------------------------------------------------------------------------------
OTHER ASSETS, net of accumulated amortization                                      1,768                    1,705
                                                                                --------                  -------
     of $638 and $618 at September 30, 1999 and December 31,
     1998, respectively
----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS                                                                    $ 31,618                 $ 29,493
                                                                                ========                 ========
======================================================================================================================
</TABLE>

                       See accompanying condensed notes to
                       Consolidated Financial Statements.

                                       4
<PAGE>

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
                                                 CERADYNE, INC.
                                          CONSOLIDATED BALANCE SHEETS
                                     LIABILITIES AND SHAREHOLDERS' EQUITY
                                  (Amounts in thousands, except share data)
--------------------------------------------------------------------------------------------------------------
                                                                   September 30, 1999        December 31, 1998
                                                                       (Unaudited)               (Audited)
--------------------------------------------------------------------------------------------------------------
<S>                                                                <C>                       <C>
CURRENT LIABILITIES
--------------------------------------------------------------------------------------------------------------
     Current portion of long-term debt                             $              100        $             ---
--------------------------------------------------------------------------------------------------------------
     Accounts payable                                                           1,791                    1,084
--------------------------------------------------------------------------------------------------------------
     Accrued expenses:
--------------------------------------------------------------------------------------------------------------
          Payroll and payroll related                                             569                      553
--------------------------------------------------------------------------------------------------------------
          Other                                                                   286                      234
                                                                   ------------------        -----------------
--------------------------------------------------------------------------------------------------------------
     TOTAL CURRENT LIABILITIES                                                  2,746                    1,871
                                                                   ------------------        -----------------
--------------------------------------------------------------------------------------------------------------
LONG TERM DEBT, NET OF CURRENT PORTION                                            383                      ---
                                                                   ------------------        -----------------
--------------------------------------------------------------------------------------------------------------
DEFERRED REVENUE                                                                   67                      270
                                                                   ------------------        -----------------
--------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
--------------------------------------------------------------------------------------------------------------
     Common stock, $.01 par value,
     Authorized - 12,000,000
     shares, Outstanding - 8,088,048 shares
     and 8,054,838 shares at September 30, 1999
     and December 31, 1998, respectively.                                      37,843                   37,718
--------------------------------------------------------------------------------------------------------------
     Accumulated deficit                                                       (9,421)                 (10,366)
                                                                   ------------------        -----------------
--------------------------------------------------------------------------------------------------------------
     TOTAL SHAREHOLDERS' EQUITY                                                28,422                   27,352
                                                                   ------------------        -----------------
--------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY                           $           31,618        $          29,493
                                                                   ==================        =================
--------------------------------------------------------------------------------------------------------------
</TABLE>
                       See accompanying condensed notes to
                       Consolidated Financial Statements.

                                       5
<PAGE>

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
                                             CERADYNE, INC.
                                    CONSOLIDATED STATEMENTS OF INCOME
                              (Amounts in thousands, except per share data)

--------------------------------------------------------------------------------------------------------------
                                                      THREE MONTHS                        NINE MONTHS
                                                         ENDED                               ENDED
                                                      September 30,                       September 30,
--------------------------------------------------------------------------------------------------------------
                                              1999               1998             1999                1998
--------------------------------------------------------------------------------------------------------------
                                                      (Unaudited)                         (Unaudited)
--------------------------------------------------------------------------------------------------------------
<S>                                           <C>                <C>              <C>                 <C>
   NET SALES                                  $ 7,810            $ 6,290          $ 21,446            $ 19,975
--------------------------------------------------------------------------------------------------------------
   COST OF PRODUCT SALES                        6,034              5,129            16,803              15,888
                                              -------            -------           -------            --------
--------------------------------------------------------------------------------------------------------------
        Gross Profit                            1,776              1,161             4,643               4,087
                                              -------            -------           -------            --------
--------------------------------------------------------------------------------------------------------------
   OPERATING EXPENSES
--------------------------------------------------------------------------------------------------------------
        General & Administration                  866                776             2,531               2,141
--------------------------------------------------------------------------------------------------------------
        Selling                                   395                350             1,075               1,128
--------------------------------------------------------------------------------------------------------------
        Research & Development                    113                 87               429                 243
                                              -------            -------           -------            --------
--------------------------------------------------------------------------------------------------------------
                                                1,374              1,213             4,035               3,512
                                              -------            -------           -------            --------
--------------------------------------------------------------------------------------------------------------
        Income (loss) from
         operations                               402                (52)              608                 575
                                              -------            -------           -------            --------
--------------------------------------------------------------------------------------------------------------
   OTHER (INCOME) EXPENSE:
--------------------------------------------------------------------------------------------------------------
   Other (income)                                (110)               (96)             (279)               (286)
--------------------------------------------------------------------------------------------------------------
   Interest expense                                 6                ---                 6                ----
                                              -------            -------           -------            --------
--------------------------------------------------------------------------------------------------------------

                                                 (104)               (96)             (273)               (286)
                                              -------            -------           -------            --------
--------------------------------------------------------------------------------------------------------------
        Income before provision
        (benefit) for income taxes                506                 44               881                 861
--------------------------------------------------------------------------------------------------------------
   PROVISION (BENEFIT) FOR
   INCOME TAXES                                    10                ---               (64)                 10
                                              -------            -------           -------            --------
--------------------------------------------------------------------------------------------------------------
   NET INCOME                                 $   496            $    44          $    945            $    851
                                              =======            =======          ========            ========
--------------------------------------------------------------------------------------------------------------
   BASIC & DILUTED INCOME
   PER SHARE                                  $   .06            $   .01          $    .12            $    .11
                                              =======            =======          ========            ========
--------------------------------------------------------------------------------------------------------------
</TABLE>

                      See accompanying condensed notes to
                      Consolidated Financial Statements.

                                       6
<PAGE>

<TABLE>
<CAPTION>
==================================================================================================================

                                 CERADYNE, INC.
                       CONSOLIDATED STATEMENTS OF CASH FLOWS                               NINE MONTHS ENDED
                               (Amounts in thousands)                                         SEPTEMBER 30,
------------------------------------------------------------------------------------------------------------------
                                                                                          1999             1998
                                                                                       (Unaudited)     (Unaudited)
==================================================================================================================
<S>                                                                                    <C>             <C>
 CASH FLOWS FROM OPERATING ACTIVITIES:
------------------------------------------------------------------------------------------------------------------
      Net Income                                                                        $   945          $   851
------------------------------------------------------------------------------------------------------------------
 ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH
 PROVIDED FROM (USED IN) OPERATING ACTIVITIES:
------------------------------------------------------------------------------------------------------------------
      Depreciation and amortization                                                       1,344            1,093
------------------------------------------------------------------------------------------------------------------
      (Increase) decrease in accounts receivable, net                                      (870)             286
------------------------------------------------------------------------------------------------------------------
      (Increase) decrease in other receivables                                               55             (129)
------------------------------------------------------------------------------------------------------------------
      Increase in inventories                                                              (821)            (533)
------------------------------------------------------------------------------------------------------------------
      Increase in production tooling                                                       (319)            (128)
------------------------------------------------------------------------------------------------------------------
      Increase in prepaid expenses & other assets                                          (238)            (279)
------------------------------------------------------------------------------------------------------------------
      Increase in accounts payable                                                          707              110
------------------------------------------------------------------------------------------------------------------
      Increase (decrease) in accrued expenses                                                68             (135)
------------------------------------------------------------------------------------------------------------------
      Increase (decrease) in deferred revenue                                              (203)              75
                                                                                        -------          -------
------------------------------------------------------------------------------------------------------------------
 NET CASH PROVIDED BY OPERATING ACTIVITIES                                                  668            1,211
                                                                                        -------          -------
------------------------------------------------------------------------------------------------------------------
 CASH FLOWS FROM INVESTING ACTIVITIES:
------------------------------------------------------------------------------------------------------------------
      Purchases of property, plant & equipment                                           (2,607)          (1,300)
                                                                                        -------          -------
------------------------------------------------------------------------------------------------------------------
 NET CASH USED IN INVESTING ACTIVITIES                                                   (2,607)          (1,300)
                                                                                        -------          -------
------------------------------------------------------------------------------------------------------------------
  CASH FLOWS FROM FINANCING ACTIVITIES:
------------------------------------------------------------------------------------------------------------------
       Issuance of common stock                                                             125              276
------------------------------------------------------------------------------------------------------------------
        Net borrowings on long-term debt                                                    483               --
                                                                                        -------          -------
------------------------------------------------------------------------------------------------------------------
  Net cash provided by financing activities                                                 608              276
                                                                                        -------          -------
------------------------------------------------------------------------------------------------------------------
  Increase (decrease) in cash and cash equivalents                                       (1,331)             187
                                                                                        -------          -------
------------------------------------------------------------------------------------------------------------------
  Cash & cash equivalents, beginning of period                                            2,870            3,569
                                                                                        -------          -------
------------------------------------------------------------------------------------------------------------------
  Cash & cash equivalents, end of period                                                $ 1,539          $ 3,756
                                                                                        =======          =======
------------------------------------------------------------------------------------------------------------------
  SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
------------------------------------------------------------------------------------------------------------------
  Interest paid                                                                         $     6          $    --
------------------------------------------------------------------------------------------------------------------
  Income taxes paid                                                                     $     2          $    --
                                                                                        -------          -------
==================================================================================================================
</TABLE>

                      See accompanying condensed notes to
                      Consolidated Financial Statements.

                                       7
<PAGE>

                                CERADYNE, INC.
             CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                              SEPTEMBER 30, 1999
                                  (Unaudited)

1.       Basis of Presentation
         ---------------------

         The consolidated financial statements include the financial statements
         of Ceradyne, Inc. (the Company) and its divisions. All material
         intercompany accounts and transactions have been eliminated.

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 September 30, 1999 and December 31, 1998 (in
         thousands):

<TABLE>
<CAPTION>
         ====================================================================================================
                                                      SEPTEMBER 30, 1999                  DECEMBER 31, 1998
         ====================================================================================================
         <S>                                          <C>                                 <C>
         Raw Materials                                      $4,169                              $4,098
         ----------------------------------------------------------------------------------------------------
         Work-in-Process                                     3,691                               2,413
         ----------------------------------------------------------------------------------------------------
         Finished Goods                                        481                               1,009
         ----------------------------------------------------------------------------------------------------
         Total Inventories                                  $8,341                              $7,520
                                                            ======                              ======
         ====================================================================================================
</TABLE>

3.       Net Income Per Share
         --------------------

         The Company accounts for net income per share in accordance with SFAS
         No. 128 "Earnings Per Share". Basic net income per share is computed by
         dividing income available to common stockholders by the weighted
         average number of common shares outstanding. Diluted net income per
         share is computed by dividing 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. The table below reconciles the weighted
         shares outstanding in the computation of basic net income per share to
         diluted net income per share.

<TABLE>
<CAPTION>
         ========================================================================================================================
                                                              THREE MONTHS ENDED                     NINE MONTHS ENDED
                                                                 SEPTEMBER 30,                         SEPTEMBER 30,
         ------------------------------------------------------------------------------------------------------------------------
                                                         1999                1998                   1999             1998
         ========================================================================================================================
         <S>                                          <C>                 <C>                   <C>                <C>
         Weighted average number of                   8,080,000           8,029,000             8,064,000          7,991,000
         shares outstanding
         ------------------------------------------------------------------------------------------------------------------------
         Dilutive stock options and                     147,000              48,000                99,000             77,000
         common stock warrants                        ---------           ---------             ---------          ---------
         ------------------------------------------------------------------------------------------------------------------------
         Number of shares used in                     8,227,000           8,077,000             8,163,000          8,068,000
         diluted computations                         =========           =========             =========          =========
         ========================================================================================================================
</TABLE>

                                       8
<PAGE>

4.       Long Term Debt
         --------------

         -----------------------------------------------------------
         Capital Equipment loan bearing                  $483,000
         interest at 8.18% APR. Payable in
         monthly installments of $8,333,
         expiring August 2004.
         -----------------------------------------------------------
         Less Current Portion                            (100,000)
                                                          -------
         -----------------------------------------------------------
         Long Term Debt                                  $383,000
         -----------------------------------------------------------


5.       Disclosure About Segments of Enterprise and Related Information
         ---------------------------------------------------------------

         In June 1997, the Financial Accounting Standards Board (FASB) issued
         Statement of Financial Accounting Standards (SFAS) No. 131,
         "Disclosures About Segments of an Enterprise and Related Information".
         SFAS No. 131 establishes standards for the way that public business
         enterprises report information about operating segments. The Company
         adopted No. 131 in fiscal 1998, as required.

         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, California, primarily produces armor
         and orthodontic products, components for semiconductor equipment, and
         houses the Company's 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.
         Ceradyne's manufacturing structure is summarized in the following
         table:


<TABLE>
<CAPTION>
        ===============================================================================================================
                FACILITY LOCATION                                          PRODUCTS
        <S>                                                   <C>
         Advanced Ceramic Operations                          . Semiconductor Equipment Components
         Costa Mesa, California                               . Lightweight ceramic armor
         Approximately 74,000 square feet                     . Orthodontic ceramic brackets
                                                              . Ceralloy(R) 147 SRBSN wear parts
                                                              . Precision ceramics
                                                              . Ceralloy(R) 147 SRBSN diesel/automotive engine parts
        ---------------------------------------------------------------------------------------------------------------
         Semicon Associates                                   . Microwave ceramic-impregnated dispenser cathodes
         Lexington, Kentucky                                  . Ion laser ceramic-impregnated dispenser cathodes
         Approximately 35,000 square feet                     . Samarium cobalt magnets

        ---------------------------------------------------------------------------------------------------------------
         Thermo Materials                                     . Glass tempering rolls (fused silica ceramics)
         Scottdale, Georgia                                   . Metallurgical tooling (fused silica ceramics)
         Approximately 85,000 square feet                     . Missile radomes (fused silica ceramics)
                                                              . Castable and other fused silica product
        ===============================================================================================================
</TABLE>

                                       9
<PAGE>

                                Ceradyne, Inc.
                              Segment Disclosures
            for the Three Months Ended September 30, 1999 and 1998
               and Nine Months Ended September 30, 1999 and 1998
                            (Amounts in thousands)

                       Three Months Ended September 30,

<TABLE>
<CAPTION>
                 Advanced Ceramic Ops        Semicon  Associates       Thermo Materials           TOTAL
---------------------------------------------------------------------------------------------------------------
                  1999          1998          1999       1998        1999        1998         1999        1998
---------------------------------------------------------------------------------------------------------------
  <S>              <C>         <C>          <C>        <C>        <C>         <C>          <C>         <C>
  Revenue from     $  4,519    $  3,313     $ 1,650    $ 1,384    $ 1,641     $ 1,593      $  7,810    $  6,290
                   --------    --------     -------     ------    -------     -------      --------    --------
  External
  Customers

  Depreciation     $    334    $    259     $    89    $    73    $    49     $    55      $    472    $    387
                   --------    --------     -------    -------  ---------     -------      --------    --------
  and
  Amortization

  Segment          $    266    $    (51)    $   136    $  (181)   $   104     $   276      $    506    $     44
                   --------    --------     -------    -------    -------     -------      --------    --------
  Income (loss)
  before
  Provision
  (benefit) for
  Income
  Taxes

  Segment          $ 21,630    $ 20,746     $ 6,160    $ 6,443    $ 3,828     $ 3,274      $ 31,618    $ 30,463
                   --------    --------     -------    -------    -------     -------      --------    --------
  Assets
  Expenditures     $    630    $    332     $    60    $   100    $    98     $     8      $    788    $    440
                   --------    --------     -------    -------    -------     -------      --------    --------
  for PP&E
                   --------------------------------------------------------------------------------------------
</TABLE>

                        Nine Months Ended September 30,

<TABLE>
<CAPTION>
                  Advanced Ceramic Ops      Semicon  Associates       Thermo Materials            TOTAL
---------------------------------------------------------------------------------------------------------------
                   1999        1998         1999        1998        1999        1998         1999        1998
---------------------------------------------------------------------------------------------------------------
  <S>              <C>         <C>          <C>         <C>         <C>         <C>          <C>         <C>
  Revenue from     $12,072     $ 10,917     $ 4,855     $  4,332    $ 4,519     $4,726       $21,446     $ 19,975
                   -------     --------     -------     --------    -------     ------       -------     --------
  External
  Customers

  Depreciation     $   919     $    711     $   253     $    217    $   172     $  165       $ 1,344     $  1,093
                   -------     --------     -------     --------    -------     ------       -------     --------
  and
  Amortization

  Segment Income   $   272     $    653     $   368     $   (204)   $   241     $  412       $   881     $    861
                   -------     --------     -------     --------    -------     ------       -------     --------
  (loss) before
  Provision
  (benefit) for
  Income Taxes

  Expenditures     $ 1,901     $  1,029     $   284     $    265    $   422     $    6       $ 2,607     $  1,300
                   -------     --------     -------     --------    -------     ------       -------     --------
  for PP&E
                   ----------------------------------------------------------------------------------------------

</TABLE>

                                       10
<PAGE>

                   Segment Disclosures for Net Sales by Area
            for the Three Months Ended September 30, 1999 and 1998
               and Nine Months Ended September 30, 1999 and 1998


                       Three Months Ended September 30,

<TABLE>
<CAPTION>
                 Advanced Ceramic Ops    Semicon Associates         Thermo Materials                   TOTAL
-------------------------------------------------------------------------------------------------------------------------
                    1999         1998       1999          1998       1999         1998       1999          1998
-------------------------------------------------------------------------------------------------------------------------
  <S>               <C>          <C>        <C>           <C>        <C>          <C>        <C>           <C>
  U.S. Net Sales     54%          42%         18%          19%        16%          21%          88%          82%

  Western             3%           5%          1%           -          1%           4%           5%           9%
  Europe Net
  Sales

  Asia Net Sales      1%           1%          1%           2%         3%           -            5%           3%

  Israel Net          -            5%          -            -          -            -                         5%
  Sales

  Canada Net          -            -           1%           -          1%           1%           2%           1%
                   ----         ----        ----         ----       ----         ----         ----         ----
  Sales

  Total Net          58%          53%         21%          21%        21%          26%         100%         100%
                   ====         ====        ====         ====       ====         ====         ====         ====
  Sales
                  ---------------------------------------------------------------------------------------------
</TABLE>



                        Nine Months Ended September 30,
<TABLE>
<CAPTION>

               Advanced Ceramic Ops    Semicon Associates         Thermo Materials                   TOTAL
---------------------------------------------------------------------------------------------------------------
                  1999         1998       1999          1998       1999         1998       1999          1998
----------------------------------------------------------------------------------------------------------------
<S>               <C>          <C>        <C>           <C>        <C>          <C>        <C>           <C>
U.S. Net Sales     52%          48%         19%          17%        17%          19%        88%          84%

Western             3%           4%          2%           3%         2%           2%         7%           9%
Europe Net
Sales

Asia Net Sales      1%           1%          1%           2%         2%           1%         4%           4%

Israel Net          -            2%          -            -          -                                    2%
Sales                                                                             -          -

Canada Net          -            -           1%           -          -            1%                      1%
                  ----        ----        ----         ----       ----         ----       ----         ----
Sales

Total Net          56%          55%         23%          22%        21%          23%       100%         100%
                  =====        =====      ======       ======      =====       ======     ======     ========
Sales
                --------------------------------------------------------------------------------------------
</TABLE>

                                       11
<PAGE>

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. 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 the Company's Annual
         Report on Form 10-K for the fiscal year ended December 31, 1998, as
         filed with the Securities and Exchange Commission, under "Item
         1-Business", including the section therein entitled "Certain Factors
         That May Affect the Company's Business and Future Results", and "Item
         7-Management's Discussion and Analysis of Financial Condition and
         Result of Operations".

         Results of Operations for the Three and Nine Months Ended September 30,
         -----------------------------------------------------------------------
         1999
         ----

         Reference is made to the Company's Annual Report on Form 10-K for the
         fiscal year ended December 31, 1998, 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 September 30, 1999 were
         ---------
         $7.8 million, which represents a 24% or a $1.5 million increase over
         the corresponding quarter of the prior year. For the nine months ended
         September 30, 1999, net sales were $21.4 million, and this represents
         an increase of $1.5 million from the prior year's nine months.

         The increase in sales was primarily attributable to the Company's
         Advanced Ceramic Operations in Costa Mesa, California. This increase
         was approximately $1.2 million over the corresponding third quarter and
         nine month periods of the prior year. Contributing to the increase was
         the increased demand by orthodontists for the "Clarity" orthodontic
         brackets. Armor products also contributed to the increases over the
         prior periods due to increasing demand for helicopter wing panels and
         armor vests. Additionally, sale of structural ceramics for
         semiconductor equipment increased over both prior year periods because
         of the continued improvement in the semiconductor industry from the
         prior year. However, the above sales increases were slightly offset in
         both the quarter and nine months periods of the prior year due to
         reduced demand for wear resistant components used on capital equipment
         machinery and oil exploration ceramic components.

         Additionally, the Company's Semicon Associates Division in Lexington,
         Kentucky, posted a sales increase for the quarter of $.3 million, and a
         nine month increase of $.5 million as compared to the prior year
         periods. The increases were mainly due to price increases and, to a
         lesser degree, the introduction of extended cathode assemblies.

                                       12
<PAGE>

         The Company's Thermo Materials Division in Scottdale, Georgia posted no
         change in sales for the quarter-to-quarter comparison, and a $.2
         million decrease for the nine month comparison. The decrease was due to
         a major customer's delay of placing orders for the glass making
         industry during the current nine months period.

         International sales have been, and are expected to continue to be, an
         important part of the Company's business, representing 12% of total
         sales for the third quarter of 1999, down from 18% for the comparable
         period of the prior year. For the nine months of 1999, international
         sales were 12% of total sales versus 16% for the prior year. The
         decrease for the quarter was attributable to lower demand for wear
         resistant components. The decrease in international sales in the first
         nine months of 1999 reflects a combination of lower demand for wear
         resistant components during 1999 and a one-time shipment of ceramic
         components for the microwave tube business in last year's first
         quarter.

         Gross Profit. The Company's gross profit was $1.8 million or 23% of
         ------------
         sales for the third quarter ended September 30, 1999, compared to $1.2
         million or 18% of sales for the prior year's third quarter. For the
         nine months ended September 30, 1999, gross profit was $4.6 million or
         22% of sales, compared to $4.1 million or 20% of sales in the first
         nine months of 1998.

         All of the major product lines at the Company's Advanced Ceramic
         Operations in Costa Mesa, California, except for wear resistant
         components, had an increase in gross profit for the quarter and nine
         months periods as compared to the prior year periods. This result was
         due to higher volume and higher capacity utilization resulting in
         favorable cost absorption. Hence, the favorable variances for the third
         quarter and nine month periods as compared to the prior year periods
         were $.6 million and $.2 million, respectively, for Advanced Ceramic
         Operations.

         Gross profit for Semicon Associates in Lexington, Kentucky had a
         favorable variance over the comparable prior year periods of $.2
         million and $.5 million for the third quarter and nine months,
         respectively. The increase in the gross margin can be attributed to
         slightly higher production yields and price increases.

         Gross profit for Thermo Materials in Scottdale, Georgia posted an
         unfavorable variance of $.2 million for the third quarter and nine
         months periods as compared to the prior year periods. The primary
         reason for the decrease was the inefficiencies in producing a greater
         mix of components with smaller quantities than the prior year periods.


         Research and Development Expenses. Expenses for the third quarters
         ---------------------------------
         ended September 30, 1999 and 1998 for the Research and Development
         Department were $113,000 and $87,000 respectively, and for the nine
         months period ended September 30, 1999 and 1998 were $429,000 and
         $243,000 respectively. This was

                                       13
<PAGE>

         a new department set up in 1998, and the increases for the current year
         periods related to salaries, travel, outside services, materials and
         small tools.

         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. The costs associated with application
         engineering are generally expensed as incurred and are included in cost
         of product sales. Expenses for the third quarters ended September 30,
         1999 and 1998 for the Application Engineering Department were $62,000
         and $208,000 respectively and for the nine months period ended
         September 30, 1999 and 1998 were $208,000 and $279,000 respectively.
         The decreases for both current year periods were attributable to
         organizational changes.

         Selling Expenses. Selling expenses were $395,000 for the quarter, and
         ----------------
         $1,075,000 for the nine months ended September 30, 1999. The above
         compares to prior year amounts of $350,000 for the quarter, and
         $1,128,000 for the nine months ended September 30, 1998. Recruiting,
         travel and product literature expense contributed to the $45,000
         increase over the prior year third quarter. The nine months decrease of
         $53,000 over the prior year period was caused by lower commissions and
         reclassification of personnel.

         General and Administrative Expenses. General Administrative expenses
         -----------------------------------
         were $866,000 for the quarter, and $2,531,000 for the nine months ended
         September 30, 1999. The above compares to prior year amounts of
         $776,000 for the quarter and $2,141,000 for the nine months ended
         September 30, 1998.

         The increase of $90,000 for the third quarter of 1999 as compared to
         the prior year third quarter was primarily caused by reimbursement of
         legal expenses last year due to a legal matter. The increase of
         $390,000 for the nine months period over the same prior year period was
         primarily caused by last year's payment of $354,000 resulting from the
         settlement of a customer dispute relating to the sale/purchase of
         cathode pellets and spider cathodes.

         Other Income. Other income for the quarters ended September 30, 1999
         ------------
         and 1998 was $110,000 and $96,000 respectively. For the nine months
         ended September 30, 1999 and 1998, other income was $273,000 and
         $286,000 respectively. The increase of $14,000 was caused by
         miscellaneous income offset by a decrease of interest income due to
         lower cash balances in the current quarter. The decrease of $13,000 for
         the nine month comparison was primarily the result of a reduction of
         interest income due to lower cash balances in the current year.

         Interest Expense. Interest expense was $6,000 for the quarter and nine
         ----------------
         month periods as compared to none in the prior year periods. The
         increase was caused by entering into a capital equipment loan in the
         current quarter.

         Income Taxes. The Company recorded a $10,000 provision for taxes for
         ------------
         the quarter ended September 30, 1999. For the nine months period, the
         Company has recorded

                                       14
<PAGE>

         a net benefit due to a refund of Federal and State taxes. The Company
         has available net operating loss carry forwards of approximately $11.1
         million as of September 30, 1999 for Federal income tax purposes.

         Net Income.  Reflecting all of the matters discussed above, net income
         ----------
         was $496,000 (or $.06 per share basic and diluted) for the quarter
         ended September 30, 1999, and $945,000 (or $.12 per share basic and
         diluted) for the nine months ended September 30, 1999.

         Year 2000 Disclosure. Many currently installed computer systems and
         --------------------
         software products are coded to accept only two digit entries in the
         date code field. These date code fields will need to accept four digit
         entries to distinguish 21st century dates from 20th century dates. This
         inability to recognize or properly treat the Year 2000 may cause the
         Company's systems and applications to process critical financial and
         operational information incorrectly. The Company continues to assess
         the impact of the Year 2000 issue on its reporting systems and
         operations.

         A new software system which is Year 2000 compliant was installed at the
         Corporate Headquarters and its Advanced Ceramic Operations located in
         Costa Mesa, California in 1996. The Company expects to complete the
         conversion of its internal accounting system at its Kentucky and
         Georgia divisions to such upgraded software in 1999. The costs
         associated with these conversions are approximately $150,000. As of
         June 30, 1999, the conversion plan was complete at the Kentucky
         location. The conversion plan at the Georgia location is estimated to
         be complete by December 1, 1999. The Company is taking steps to ensure
         that all of its customers, suppliers, associates and affiliates will be
         in compliance with the Year 2000 issue. This process includes a
         questionnaire confirming the status of compliance with the Year 2000
         criteria set forth by the Company. The criteria that the Company will
         use to determine compliance with the Year 2000 is the accurate
         processing of date/time information from, into, and between the 20th
         and 21st centuries, and the years 1999 and 2000, including leap year
         calculations that will affect the processing of information,
         scheduling, manufacturing, and the quality of all products. Also, the
         Company's contingency plan to minimize the risks associated with non
         Year 2000 readiness is to be manually prepared to complete transactions
         that may not be Year 2000 compliant.

         The Company is exposed to the following worst case Year 2000 scenario:
         That several of the Company's customers and suppliers may experience
         Year 2000 non-compliance issues that affect the Company. However, as
         the Company does have a wide customer base, and no sole source
         suppliers, it believes the non-compliance issue to be minimal. However,
         there can be no assurance that certain of the Company's internal
         computer systems or networks or those of its key vendors and customers
         will not be adversely affected by such Year 2000 issues, which could
         have a material adverse effect on the Company's business, operating
         results or financial condition.

                                       15
<PAGE>

         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.

         In November, 1997 the Company entered into a revolving credit agreement
         with Comerica Bank. The credit facility amount remains at $4,000,000 as
         of quarter ended September 30, 1999 and no collateral is required of
         the Company. As of September 30, 1999 there had been no borrowing under
         this credit facility. 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 no prepayment penalty.

         Management believes that its 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
         ----------------------------------------------------------

         SEC Regulation S-K, Rule 3-05 requires expanded disclosure related to
         market risk. The Company does have assets in cash and cash equivalents,
         and changes in interest rates would affect earnings on these assets. As
         of September 30, 1999, the Company had $1.5 million in a money market
         account based upon U.S. Treasury Bonds. The interest on this amount has
         earned 5.40% APR for the quarter and nine months ended September 30,
         1999, and this interest has been recorded in the Company's financial
         statements as part of other income in the amount of $24,000 for the
         quarter and $81,000 for the nine months ended September 30, 1999. If
         the interest rate were to decrease by 10% to 4.86% APR, the effect on
         other income and cash flow would result in decreases of approximately
         $2,000 for the quarter and $3,000 for the nine month period.


PART II. OTHER INFORMATION

Item 1.  Legal Proceedings
         -----------------

         The Company is, from time to time, involved in various legal and other
         proceedings that relate to the ordinary course of operating its
         business, including, but not limited to, employment-related actions and
         workers' compensation claims.

         In October 1995, February 1997, August 1997 and February 1999, the
         Company, along with others, was served with four different complaints
         that were filed by seven former employees of one of the Company's
         customers, and their spouses. The complaints, filed in the United
         States District Court, Eastern District of Tennessee,

                                       16
<PAGE>

         allege that the husbands contracted chronic beryllium disease as a
         result of their exposure to beryllium-containing products sold by
         Ceradyne. One complaint seeks compensatory damages in the amount of
         $3.0 million for the husbands, $1.0 million for the spouses, and
         punitive damages in the amount of $5.0 million. The other three
         complaints each seek compensatory damages in the amount of $5.0 million
         for the husbands, $1.0 million for the spouses, and punitive damages in
         the amount of $10.0 million. The Company believes that the plaintiffs'
         claims are without merit and that the resolution of these matters will
         not have a material adverse effect on the financial condition or
         operations of the Company. Defense of these cases has been tendered to
         the Company's insurance carriers, some of which are providing a defense
         subject to a reservation of rights. There can be no assurances,
         however, that these claims will be covered by insurance, or that, if
         covered, the amount of insurance will be sufficient to cover any
         potential judgments.

Items 2, 3, 4 and 5.  N/A


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

(a)      Exhibits:

         27 Financial Data Schedule


(b)      Reports on Form 8-K:

         None


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/ Howard F. George
         --------------------
         Howard F. George
         Vice President
         Chief Financial Officer
         (Principal Financial and Accounting Officer)



Dated:    November 12, 1999

                                       17