<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, 2000

      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 September 30, 2000
--------------------------------        ----------------------------------------

Common Stock, $.01 par value                          8,268,548 Shares

                              Page 1 of 18 Pages
<PAGE>

                                 CERADYNE, INC.

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

Item 1.      Financial Statements

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

             Consolidated Balance Sheets - September 30, 2000 and
             December 31, 1999..........................................     4-5

             Consolidated Statements of Income - Three and Nine months
             ended September 30, 2000 and 1999..........................       6

             Consolidated Statements of Cash Flow - Nine months ended
             September 30, 2000 and 1999................................       7

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

Item 2.      Management's Discussion and Analysis of Financial Condition
             & Results of Operations....................................   12-15

Item 3.      Quantitative and Qualitative Disclosures About Market
             Risk.......................................................   15-16

PART II.     OTHER INFORMATION

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

Items 2, 3,  N/A........................................................      16
  4 and 5

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

SIGNATURE..............................................................       18
</TABLE>

                                       2
<PAGE>

                                CERADYNE, INC.

                                   FORM 10-Q
                             FOR THE QUARTER ENDED

                              September 30, 2000



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. The Financial Statements should 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, 1999, as filed with the Securities and Exchange
          Commission on March 30, 2000.

                                       3
<PAGE>

<TABLE>
<CAPTION>
================================================================================================================
                                                CERADYNE, INC.
                                          CONSOLIDATED BALANCE SHEETS
                                                    ASSETS
                                            (Amounts in thousands)
----------------------------------------------------------------------------------------------------------------
                                                               September 30, 2000          December 31, 1999
                                                                  (Unaudited)
================================================================================================================
<S>                                                            <C>                         <C>
CURRENT ASSETS
----------------------------------------------------------------------------------------------------------------
  Cash and cash equivalents                                              $  4,238                   $  1,407
----------------------------------------------------------------------------------------------------------------
  Accounts receivable, net of allowances for doubtful                       7,655                      5,837
        accounts of approximately $106 and $39 at September
        30, 2000 and December 31, 1999, respectively.
----------------------------------------------------------------------------------------------------------------
  Other receivables                                                            76                         98
----------------------------------------------------------------------------------------------------------------
  Inventories                                                               8,552                      8,452
----------------------------------------------------------------------------------------------------------------
  Production tooling                                                        1,654                      1,343
----------------------------------------------------------------------------------------------------------------
  Prepaid expenses and other                                                  768                      1,147
                                                                         --------                   --------
----------------------------------------------------------------------------------------------------------------
  TOTAL CURRENT ASSETS                                                     22,943                     18,284
                                                                         --------                   --------
----------------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, at cost
----------------------------------------------------------------------------------------------------------------
  Land                                                                        422                        422
----------------------------------------------------------------------------------------------------------------
  Buildings and improvements                                                1,825                      1,825
----------------------------------------------------------------------------------------------------------------
  Machinery and equipment                                                  24,914                     23,462
----------------------------------------------------------------------------------------------------------------
  Leasehold improvements                                                    2,191                      1,870
----------------------------------------------------------------------------------------------------------------
  Office equipment                                                          2,937                      2,456
----------------------------------------------------------------------------------------------------------------
  Construction in progress                                                    152                        700
                                                                         --------                   --------
----------------------------------------------------------------------------------------------------------------
                                                                           32,441                     30,735
----------------------------------------------------------------------------------------------------------------
  Less accumulated depreciation and amortization                          (21,205)                   (19,733)
                                                                         --------                   --------
----------------------------------------------------------------------------------------------------------------
                                                                           11,236                     11,002
                                                                         --------                   --------
----------------------------------------------------------------------------------------------------------------
COSTS IN EXCESS OF NET ASSETS ACQUIRED,                                     1,721                      1,846
  net of accumulated amortization of $2,196 and $2,071 at
   September 30, 2000 and December 31, 1999, respectively.
----------------------------------------------------------------------------------------------------------------
OTHER ASSETS, net of accumulated amortization                               1,741                      1,761
  of $665 and $645 at September 30, 2000 and                             --------                   --------
  December 31, 1999, respectively.
----------------------------------------------------------------------------------------------------------------
TOTAL ASSETS                                                             $ 37,641                   $ 32,893
                                                                         ========                   ========
================================================================================================================
</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, 2000           December 31, 1999
                                                                           (Unaudited)
========================================================================================================================
<S>                                                                    <C>                          <C>
CURRENT LIABILITIES
------------------------------------------------------------------------------------------------------------------------
  Current maturities of long-term debt                                            $   100                     $   100
------------------------------------------------------------------------------------------------------------------------
  Accounts payable                                                                  2,139                       2,214
------------------------------------------------------------------------------------------------------------------------
  Accrued expenses:
------------------------------------------------------------------------------------------------------------------------
       Payroll and payroll related                                                    915                         665
------------------------------------------------------------------------------------------------------------------------
       Other                                                                          342                         149
                                                                                  -------                     -------
------------------------------------------------------------------------------------------------------------------------
  Total current liabilities                                                         3,496                       3,128
                                                                                  -------                     -------
------------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT, NET OF CURRENT MATURITIES                                             283                         358
                                                                                  -------                     -------
------------------------------------------------------------------------------------------------------------------------
DEFERRED REVENUE                                                                       67                         270
                                                                                                              -------
------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
------------------------------------------------------------------------------------------------------------------------
  Common stock, $.01 par value,
  Authorized - 12,000,000 shares,
  Outstanding - 8,268,548 shares
  and 8,095,848 shares at September 30, 2000
  and December 31, 1999, respectively.                                             38,655                      37,900
------------------------------------------------------------------------------------------------------------------------
  Accumulated deficit                                                              (4,860)                     (8,763)
                                                                                    -----                       -----
------------------------------------------------------------------------------------------------------------------------
  TOTAL STOCKHOLDERS' EQUITY                                                       33,795                      29,137
                                                                                  -------                     -------
------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                        $37,641                     $32,893
                                                                                  =======                     =======
=========================================================================================================================
</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,

-----------------------------------------------------------------------------------------
                                                 2000       1999         2000      1999
=========================================================================================
                                                   (Unaudited)             (Unaudited)
-----------------------------------------------------------------------------------------
<S>                                           <C>         <C>         <C>       <C>
NET SALES                                     $11,493     $7,810      $34,340   $21,446
-----------------------------------------------------------------------------------------
COST OF PRODUCT SALES                           8,263      6,034       25,061    16,803
                                               ------      -----       ------    ------
-----------------------------------------------------------------------------------------
  Gross profit                                  3,230      1,776        9,279     4,643
                                                -----      -----        -----     -----
-----------------------------------------------------------------------------------------
OPERATING EXPENSES
-----------------------------------------------------------------------------------------
  Research and development                        330        113          949       429
-----------------------------------------------------------------------------------------
  Selling                                         444        395        1,197     1,075
-----------------------------------------------------------------------------------------
  General and administrative                    1,142        866        3,371     2,531
                                                -----        ---        -----     -----
-----------------------------------------------------------------------------------------
                                                1,916      1,374        5,517     4,035
                                                -----      -----        -----     -----
-----------------------------------------------------------------------------------------
  Income from operations                        1,314        402        3,762       608
                                                -----        ---        -----       ---
-----------------------------------------------------------------------------------------
OTHER (INCOME) EXPENSE:
-----------------------------------------------------------------------------------------
  Other (income)                                 (132)      (110)        (247)     (279)
-----------------------------------------------------------------------------------------
  Interest expense                                  8          6           26         6
                                                    -          -           --         -
-----------------------------------------------------------------------------------------
                                                 (124)      (104)        (221)     (273)
-----------------------------------------------------------------------------------------
  Income before provision                       1,438        506        3,983       881
  (benefit) for income taxes
-----------------------------------------------------------------------------------------
PROVISION (BENEFIT) FOR INCOME TAXES               29         10           80       (64)
                                                   --         --           --        --
-----------------------------------------------------------------------------------------
NET INCOME                                    $ 1,409     $  496      $ 3,903   $   945
                                                =====        ===        =====       ===
-----------------------------------------------------------------------------------------
BASIC INCOME PER SHARE                        $  0.17     $ 0.06      $  0.48   $  0.12
                                                 ====       ====         ====      ====
-----------------------------------------------------------------------------------------
DILUTED INCOME PER SHARE                      $  0.17     $ 0.06      $  0.47   $  0.12
                                                 ====       ====         ====      ====
=========================================================================================
</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,
--------------------------------------------------------------------------------------------------------------------
                                                                                            2000           1999
                                                                                        (Unaudited)     (Unaudited)
====================================================================================================================
<S>                                                                                     <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
--------------------------------------------------------------------------------------------------------------------
  Net income                                                                                $ 3,903         $   945
--------------------------------------------------------------------------------------------------------------------
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
--------------------------------------------------------------------------------------------------------------------
  Depreciation and amortization                                                               1,617           1,344
--------------------------------------------------------------------------------------------------------------------
CHANGES IN OPERATING ASSETS AND LIABILITIES:
--------------------------------------------------------------------------------------------------------------------
  Increase in accounts receivable, net                                                       (1,818)           (870)
--------------------------------------------------------------------------------------------------------------------
  Decrease in other receivables                                                                  22              55
--------------------------------------------------------------------------------------------------------------------
  Increase in inventories                                                                      (100)           (821)
--------------------------------------------------------------------------------------------------------------------
  Increase in production tooling                                                               (311)           (319)
--------------------------------------------------------------------------------------------------------------------
  Decrease (increase) in prepaid expenses and other assets                                      379            (238)
--------------------------------------------------------------------------------------------------------------------
  (Decrease) increase in accounts payable                                                       (75)            707
--------------------------------------------------------------------------------------------------------------------
  Increase in accrued expenses                                                                  443              68
--------------------------------------------------------------------------------------------------------------------
  Decrease in deferred revenue                                                                 (203)           (203)
                                                                                                ---             ---
--------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES                                                     3,857             668
                                                                                              -----             ---
--------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
--------------------------------------------------------------------------------------------------------------------
  Purchases of property, plant and equipment                                                 (1,706)         (2,607)
                                                                                              -----           -----
--------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES                                                        (1,706)         (2,607)
                                                                                              -----           -----
--------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
--------------------------------------------------------------------------------------------------------------------
  Proceeds from issuance of common stock                                                        755             125
--------------------------------------------------------------------------------------------------------------------
      Payments on long-term debt                                                                (75)            483
                                                                                                 --             ---
--------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES                                                       680             608
                                                                                                ---             ---
--------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents                                              2,831          (1,331)
                                                                                              -----
--------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, beginning of period                                                1,407           2,870
                                                                                              -----           -----
--------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period                                                    $ 4,238         $ 1,539
                                                                                              =====           =====
--------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
--------------------------------------------------------------------------------------------------------------------
  Interest paid                                                                             $    26         $     6
===================================================================================================================
  Income taxes paid                                                                         $    51         $     2
===================================================================================================================
</TABLE>

                      See accompanying condensed notes to
                      consolidated financial statements.

                                       7
<PAGE>

                                CERADYNE, INC.
             CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                              SEPTEMBER 30, 2000
                                  (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, 2000 and December 31, 1999 (in thousands):

                                SEPTEMBER 30, 2000        DECEMBER 31, 1999
     ===========================================================================
     Raw Materials                    $4,209                    $4,454
     ---------------------------------------------------------------------------
     Work-in-Process                   3,329                     3,198
     ---------------------------------------------------------------------------
     Finished Goods                    1,014                       800
     ---------------------------------------------------------------------------
     Total Inventories                $8,552                    $8,452
                                      ======                    ======
     ===========================================================================

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,
     --------------------------------------------------------------------------------------------
                                                          2000       1999       2000       1999
     ============================================================================================
     <S>                                             <C>        <C>        <C>        <C>
     Weighted average number of shares outstanding   8,260,110  8,080,000  8,187,258  8,064,000
     --------------------------------------------------------------------------------------------

     Dilutive stock options and common stock           208,390    147,000    189,072     99,000
      warrants                                         -------    -------    -------     ------
     --------------------------------------------------------------------------------------------
     Number of shares used in diluted computations   8,468,500  8,227,000  8,376,330  8,163,000
                                                     =========  =========  =========  =========
     ============================================================================================
</TABLE>

                                       8
<PAGE>

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

     ===========================================================
      Capital equipment loan bearing                $ 383,000
      interest at 8.18% APR. Payable in
      monthly installments of $8,333,
      expiring August 2004.
     -----------------------------------------------------------
     Less Current Portion                            (100,000)
                                                      -------
     -----------------------------------------------------------
     Long-Term Debt                                 $ 283,000
     ===========================================================


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
                            (Amounts in thousands)

                       Three Months Ended September 30,

<TABLE>
<CAPTION>
                  Advanced Ceramic Ops  Semicon   Associates   Thermo Materials         Total
--------------------------------------------------------------------------------------------------
                     2000      1999        2000      1999       2000      1999     2000       1999
--------------------------------------------------------------------------------------------------
<S>               <C>       <C>          <C>       <C>        <C>       <C>     <C>        <C>
Revenue from      $ 7,991   $ 4,519      $1,741    $1,650     $1,761    $1,641  $11,493    $ 7,810
External          -------   -------      ------    ------     ------    ------  -------    -------
Customers

Depreciation      $   388   $   334      $  104    $   89     $   85    $   49  $   577    $   472
and               -------   -------      ------    ------     ------    ------  -------    -------
Amortization

Segment Income    $   962   $   266      $  222    $  136     $  254    $  104  $ 1,438    $   506
before            -------   -------      ------    ------     ------    ------  -------    -------
provision
(benefit) for
income  taxes

Segment Assets    $27,107   $21,630      $6,057    $6,160     $4,477    $3,828  $37,641    $31,618
                  -------   -------      ------    ------     ------    ------  -------    -------

Expenditures      $   359   $   630      $  157    $   60     $  193    $   98  $   709    $   788
for PP&E          -------   -------      ------    ------     ------    ------  -------    -------
--------------------------------------------------------------------------------------------------
</TABLE>


                        Nine Months Ended September 30,
<TABLE>
<CAPTION>
                  Advanced Ceramic Ops  Semicon   Associates   Thermo Materials         Total
--------------------------------------------------------------------------------------------------
                     2000      1999        2000      1999       2000      1999     2000       1999
--------------------------------------------------------------------------------------------------
<S>               <C>       <C>          <C>       <C>        <C>       <C>     <C>        <C>
Revenue from      $23,541   $12,072      $5,481    $4,855     $5,318    $4,519  $34,340    $21,446
External          -------   -------      ------    ------     ------    ------  -------    -------
Customers

Depreciation      $ 1,157   $   919      $  247    $  253     $  213    $  172  $ 1,617    $ 1,344
and               -------   -------      ------    ------     ------    ------  -------    -------
Amortization

Segment Income    $ 2,539   $   272      $  841    $  368     $  603    $  241  $ 3,983    $   881
before            -------   -------      ------    ------     ------    ------  -------    -------
provision
(benefit) for
income taxes

Expenditures      $   946   $ 1,901      $  313    $  284     $  447    $  422  $ 1,706    $ 2,607
for PP&E          -------   -------      ------    ------     ------    ------  -------    -------
                ----------------------------------------------------------------------------------
</TABLE>

                                       10
<PAGE>

                    Segment Statement for Net Sales by Area

                       Three Months Ended September 30,

<TABLE>
<CAPTION>
               Advanced Ceramic Ops  Semicon Associates Thermo Materials       Total
---------------------------------------------------------------------------------------
                  2000   1999          2000   1999       2000   1999      2000   1999
---------------------------------------------------------------------------------------
<S>               <C>    <C>           <C>    <C>        <C>    <C>       <C>    <C>
U.S. Net Sales     67%    54%           12%    18%        10%    16%       89%    88%

Western Europe      2%     3%            3%     1%        --      1%        5%     5%
Net Sales

Asia Net Sales      1%     1%            1%     1%         2%     3%        4%     5%

Israel Net         --     --            --     --         --     --        --     --
Sales

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

Other              --     --            --     --         --     --        --     --
                 ----   ----          ----   ----       ----   ----      ----   ----

Total Net Sales    70%    58%           16%    21%        14%    21%      100%   100%
                 ====   ====          ====   ====       ====   ====      ====   ====
               ------------------------------------------------------------------------

<CAPTION>

                        Nine Months Ended September 30,

               Advanced Ceramic Ops  Semicon Associates Thermo Materials       Total
---------------------------------------------------------------------------------------
                  2000   1999          2000   1999       2000   1999      2000   1999
---------------------------------------------------------------------------------------
<S>               <C>    <C>           <C>    <C>        <C>    <C>       <C>    <C>

U.S. Net Sales     64%    52%           13%    19%        12%    17%       89%    88%

Western Europe      3%     3%            2%     2%         1%     2%        6%     7%
Net Sales

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

Israel Net         --     --            --     --         --     --        --     --
Sales

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

Other              --     --            --     --         --     --        --     --
                 ----   ----          ----   ----       ----   ----      ----   ----

Total Net Sales    68%    56%           16%    23%        16%    21%      100%   100%
                 ====   ====          ====   ====       ====   ====      ====   ====
               ------------------------------------------------------------------------
</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, 1999, 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 Quarter and Nine Months Ended September 30,
        ---------------------------------------------------------------------
        2000
        ----

        Reference is made to the Company's Annual Report on Form 10-K for the
        fiscal year ended December 31, 1999, 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 quarter ended September 30, 2000 were $11.5
        ---------
        million, which represents a 47% or a $3.7 million increase over the
        corresponding quarter of the prior year. For the nine months ended
        September 30, 2000, net sales were $34.3 million, and this represents a
        60% or $12.9 million increase from the prior year's nine months.

        The increase in sales as stated above was primarily attributable to the
        Company's Advanced Ceramic Operations in Costa Mesa, California for both
        the third quarter and nine months compared with the like periods one
        year ago. The increase for the third quarter was $3.5 million, and for
        the nine month period was $11.5 million over the year ago periods,
        respectively. The major increase was in armor products due to increasing
        demand for protective body armor for both the quarter and nine month
        periods. The industrial/automotive products denoted strong increases in
        sales for both the quarter and nine months, mainly due to demand for
        ceramic cam rollers for diesel engines. Additionally, orthodontic
        products contributed to the increase over the prior nine month period
        due to the increased demand by orthodontists for the Clarity orthodontic
        brackets; however, the sales volume for the third quarter was
        approximately the same as the prior year quarter.

        The Company's Semicon Associates Division in Lexington, Kentucky, posted
        a sales increase for the quarter of $.1 million and a nine month
        increase of $.6 million as compared to the prior year periods. The
        increases were due to an increase in demand by the Company's customers
        for dispenser cathodes, which are used in microwave tubes for radar and
        satellite communications. In addition, sales increases were due to
        modest price increases.

                                       12
<PAGE>

     Additionally, the Company's Thermo Materials Division in Scottdale,
     Georgia, posted a sales increase for the quarter of $.1 million, and a nine
     month increase of $.8 million as compared to the prior year periods. The
     increases were attributable to increased demand from a major customer
     because of their low supply of fused silica inventory. Also contributing
     was an increase in demand from existing and new customers for the fused
     silica product line that the Company acquired from Harbison Walker
     Refractories Company in 1998.

     International sales have been, and are expected to continue to be, an
     important part of the Company's business, representing 11% of total sales
     for the third quarter of 2000, which was 12% for the comparable period of
     the prior year.  For the nine months of 2000, international sales were 11%
     of total sales versus 12% for the prior year.

     Gross Profit.  The Company's gross profit was $3.2 million or 28% of sales
     ------------
     for the third quarter ended September 30, 2000, compared to $1.8 million or
     23% of sales for the prior year's third quarter. For the nine months ended
     September 30, 2000, gross profit was $9.3 million or 27% of sales, compared
     to $4.6 million or 22% of sales in the nine months of 1999.

     The Company's Advanced Ceramic Operations posted gross profit of $2.3
     million compared to $1.2 million, or a 92% increase over the year ago
     quarter.  For the nine month period gross profit was $6.4 million compared
     to $2.8 million, or a 129% increase  over the year ago period.  The
     favorable results for both periods were mainly due to higher volume and
     higher capacity utilization resulting in economies of scale.

     Semicon Associates in Lexington, Kentucky, posted gross profit of $.4
     million compared to $.3 million, or a 33% increase over the year ago
     quarter.  For the nine month period, gross profit was $1.5 million compared
     to $.9 million, or a 67% increase over the year ago period.  The increase
     for both periods is attributed to higher volume and greater capacity
     utilization.  Additionally, price increases and improvement in production
     yields were contributing factors.

     Thermo Materials in Scottdale, Georgia, posted gross profit of $.5 million
     compared to $.3 million, or a 67% increase over the year ago quarter.  For
     the nine month period, gross profit was $1.4 million compared to $.9
     million, or a 56% increase over the year ago period.  The favorable
     increases in both periods were attributable to volume and the product mix
     of larger quantities yielding better manufacturing efficiencies than in the
     prior year periods.

     Research and Development Expenses.  Ceradyne's engineering and research
     ---------------------------------
     efforts consist primarily of ongoing Application Engineering in response to
     customer requirements, and to the Research and Development Department's
     focus on new materials technology.  All of these efforts are directed to
     the creation of new products, the modification of existing products to fit
     specific customer needs, or the development of enhanced ceramic process
     technology.

                                       13
<PAGE>

     Cost associated with Application Engineering and the Research and
     Development Departments are expensed as incurred.  Expenses for the third
     quarter ended September 30, 2000 and 1999 for the Research and Development
     Department were $330,000 and $113,000, respectively, and for the nine
     months period ended September 30, 2000 and 1999 were $949,000 and $429,000,
     respectively.  The increases for the current year periods related to
     salaries, travel, outside services, materials and small tools.  Expenses
     for the third quarter ended September 30, 2000 and 1999 for the Application
     Engineering Department were $94,000 and $68,000, respectively, and for the
     nine months period ended September 30, 2000 and 1999 were $264,000 and
     $208,000, respectively, and are included in cost of product sales.  The
     increases for the current year periods were mainly attributable to an
     additional engineer and other salary increases.

     Selling Expenses.  Selling expenses were $444,000 for the quarter, and
     ----------------
     $1,197,000 for the nine months ended September 30, 2000.  The above
     compares to prior year amounts of $395,000 for the quarter, and $1,075,000
     for the nine months ended September 30, 1999.  Travel, salaries, product
     literature, commissions, and the addition of a direct salesperson in the
     United Kingdom contributed to the increase in the three and nine month
     periods over the prior year periods.

     General and Administrative Expenses.  General and Administrative expenses
     -----------------------------------
     were $1,142,000 for the quarter, and $3,371,000 for the nine months ended
     September 30, 2000.  The above compares to prior year amounts of $866,000
     for the quarter and $2,531,000 for the nine months ended September 30,
     1999.  The statements below account for both the quarter and nine months'
     increase over the year ago periods.  Approximately fifty percent of the
     increase was attributable to employee profit sharing, which was charged to
     general and administrative expense.  Profit sharing was resumed in fiscal
     2000 because of the increased profitability of the Company.  The other
     increases involved two additional personnel at the Thermo Materials
     division, investor relations consulting fees, salary increases, and fringe
     benefits.

     Other Income.  Other income for the quarters ended September 30, 2000 and
     ------------
     1999 was $132,000 and $110,000, respectively.  For the nine months ended
     September 30, 2000 and 1999, other income was $247,000 and $279,000,
     respectively.  The increase for the current third quarter over the prior
     year ago quarter was mainly due to interest income from increases in cash
     accounts.  The decrease for the nine month period from the year ago period
     is the result of a royalty income reduction.  The Company, along with its
     partner 3M, has introduced new orthodontic brackets called Clarity and this
     effort has resulted in a reduction of competitors who had paid the Company
     royalties.  Thus, the company has increased its share of this market.

     Interest Expense.  Interest expense for the quarter ended September 30,
     ----------------
     2000 was $8,000 as compared to $6,000 in the prior year period.  For the
     nine months ended September 30, 2000 interest expense was $26,000 compared
     to $6,000 in the year ago period.  The increase was caused by entering into
     a capital equipment loan during the third quarter of the prior year.

                                       14
<PAGE>

        Income Taxes. The Company recorded a $29,000 provision for taxes for the
        ------------
        quarter ended September 30, 2000 resulting in a provision of $80,000 for
        the nine months that ended September 30, 2000. The Company has available
        net operating loss carry forward of approximately $6.7 million as of
        September 30, 2000 for federal income tax purposes. It is anticipated
        that the Company will utilize all of the net operating loss carry
        forward for Federal income tax purposes during fiscal year 2001.

        Net Income. Reflecting all of the matters discussed above, net income
        ----------
        was $1,409,000 (or $0.17 per share basic and diluted) for the quarter
        ended September 30, 2000, and $3,903,000 (or $0.48 per share basic and
        0.47 diluted) for the nine months ended September 30, 2000.

        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, 2000. As of September 30, 2000 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,
        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 September 30, 2000.

        The Company utilized 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 carrying value of the debt instrument or
        the Company's earnings or cash flow. 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

                                       15
<PAGE>

         type and remaining maturity.

         As of September 30, 2000, the Company's debt consisted of a $383,000
         capital equipment loan at a fixed interest rate of 8.18% due June 28,
         2004. The carrying amount is a reasonable estimate of fair value as the
         rate of interest paid on the note approximates the current rate
         available for financing with similar terms and maturities.


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.

         From October 1995 through December 1999, the Company, along with
         others, was served with seven different complaints that were filed by
         ten former employees of one of the Company's customers, and seven
         spouses. The complaints, filed in the United States District Court,
         Eastern District of Tennessee, allege that the customers' employees
         contracted chronic beryllium disease as a result of their exposure to
         beryllium-containing products sold by Ceradyne and others. The total of
         all the above complaints seeks compensatory damages in the amount of
         $53 million and punitive damages in the amount of $120 million.

         Also, in September 2000, the Company was served with a cross complaint
         from the Company's lessor who received a complaint from an employee of
         the Company alleging he contacted chronic beryllium disease. The
         complaint seeks legal expense reimbursement from the Company. This
         complaint was filed in the Superior Court of the State of California in
         Santa Ana, California.

         The Company believes that all above 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.

Item 2.  N/A

Item 3.  N/A

Item 4.  NA

Item 5.  N/A

                                       16
<PAGE>

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

 (a)     Exhibits:

         27 Financial Data Schedule


 (b)     Reports on Form 8-K:

         None

                                       17
<PAGE>

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 13, 2000

                                       18