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UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, 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, 2002                                           
|  |                                                                                             
|  | or                                                                                          
|  |                                                                                             
|o | 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 incorporation or organization)     |                                                                                    | (I.R.S. Employer Identification No.)
|                                                                   |                                                                                    |                                     
|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 | o
|--- | - | -- | -

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, 2002
|---------------------------- |  | ---------------------------------
|                             |  |                                  
|Common Stock, $.01 par value |  | 8,512,411 Shares                 

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CERADYNE, INC.

|                     | INDEX                                                                                       |  | PAGE NO.
|-------------------- | ------------------------------------------------------------------------------------------- |  | --------
|                     |                                                                                             |  |         
|                     |                                                                                             |  |         
|PART I.              | FINANCIAL INFORMATION                                                                       |  |         
|                     |                                                                                             |  |         
|Item 1.              | Financial Statements                                                                        |  |         
|                     |                                                                                             |  |         
|                     | Statement Regarding Financial Information                                                   |  | 3       
|                     |                                                                                             |  |         
|                     | Consolidated Balance Sheets  September 30, 2002 and December 31, 2001                      |  | 4-5     
|                     |                                                                                             |  |         
|                     | Consolidated Statements of Income  Three and Nine Months Ended September 30, 2002 and 2001 |  | 6       
|                     |                                                                                             |  |         
|                     | Consolidated Statements of Cash Flow  Nine Months Ended September 30, 2002 and 2001        |  | 7       
|                     |                                                                                             |  |         
|                     | Condensed Notes to Consolidated Financial Statements                                        |  | 8-15    
|                     |                                                                                             |  |         
|Item 2.              | Managements Discussion and Analysis of Financial Condition and Results of Operations       |  | 15-20   
|                     |                                                                                             |  |         
|Item 3.              | Quantitative and Qualitative Disclosures About Market Risk                                  |  | 20      
|                     |                                                                                             |  |         
|Item 4.              | Controls and Procedures                                                                     |  | 20      
|                     |                                                                                             |  |         
|PART II.             | OTHER INFORMATION                                                                           |  |         
|                     |                                                                                             |  |         
|Item 1.              | Legal Proceedings                                                                           |  | 21      
|                     |                                                                                             |  |         
|Items 2, 3, 4 and 5. | N/A                                                                                         |  | 21      
|                     |                                                                                             |  |         
|Item 6.              | Exhibits and Reports on Form 8-K                                                            |  | 21      
|                     |                                                                                             |  |         
|SIGNATURE            |                                                                                             |  | 22      
|                     |                                                                                             |  |         
|                     | Certification of Principal Executive Officer                                                |  | 23      
|                     | Certification of Principal Financial Officer                                                |  | 24      

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CERADYNE, INC.

FORM 10-Q FOR THE QUARTER
ENDED

September 30, 2002

|PART I. | FINANCIAL INFORMATION
|------- | ---------------------



|Item 1. | Financial Statements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | The Financial Statements included herein have been prepared by Ceradyne, Inc. (the Company), without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission.  Certain information normally included in the Financial Statements prepared in accordance with accounting principles generally accepted in the United States has been omitted pursuant to such rules and regulations. 
However, the Company believes the disclosures are adequate to make the information presented not misleading.  All adjustments have been made which are, in the opinion of management, necessary to a fair statement of the results of the interim
periods presented.  The Financial Statements should be read in conjunction with the 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, 2001, as filed with the Securities and Exchange Commission on March 27, 2002.

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

|                                                                                                                                                |                                                                                                                                                       | September 30, 2002 |        | December 31, 2001 |  
|----------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------ | ------ | ----------------- | -
|                                                                                                                                                |                                                                                                                                                       | (Unaudited)        |        |                   |  
|                                                                                                                                                |                                                                                                                                                       |                    |        |                   |  
|CURRENT ASSETS                                                                                                                                  |                                                                                                                                                       |                    |        |                   |  
|                                                                                                                                                | Cash and cash equivalents                                                                                                                             |                    | $      | 186               |  
|                                                                                                                                                | Accounts receivable, net of allowances for doubtful accounts of approximately $116 and $101 at September 30, 2002 and December 31, 2001, respectively |                    |        | 9,029             |  
|                                                                                                                                                | Other receivables                                                                                                                                     |                    |        | 259               |  
|                                                                                                                                                | Inventories                                                                                                                                           |                    |        | 17,114            |  
|                                                                                                                                                | Production tooling                                                                                                                                    |                    |        | 3,319             |  
|                                                                                                                                                | Prepaid expenses and other                                                                                                                            |                    |        | 2,424             |  
|                                                                                                                                                | Deferred tax asset                                                                                                                                    |                    |        | 793               |  
|                                                                                                                                                |                                                                                                                                                       |                    |        |                   |  
|                                                                                                                                                | TOTAL CURRENT ASSETS                                                                                                                                  |                    |        | 33,124            |  
|                                                                                                                                                |                                                                                                                                                       |                    |        |                   |  
|PROPERTY, PLANT & EQUIPMENT, at cost                                                                                                            |                                                                                                                                                       |                    |        |                   |  
|                                                                                                                                                | Land                                                                                                                                                  |                    |        | 422               |  
|                                                                                                                                                | Buildings and improvements                                                                                                                            |                    |        | 1,851             |  
|                                                                                                                                                | Machinery and equipment                                                                                                                               |                    |        | 34,841            |  
|                                                                                                                                                | Leasehold improvements                                                                                                                                |                    |        | 4,100             |  
|                                                                                                                                                | Office equipment                                                                                                                                      |                    |        | 3,445             |  
|                                                                                                                                                | Construction in progress                                                                                                                              |                    |        | 380               |  
|                                                                                                                                                |                                                                                                                                                       |                    |        |                   |  
|                                                                                                                                                |                                                                                                                                                       |                    | 45,039 |                   |  
|                                                                                                                                                | Less accumulated depreciation                                                                                                                         |                    |        | (26,084           | )
|                                                                                                                                                |                                                                                                                                                       |                    |        |                   |  
|                                                                                                                                                |                                                                                                                                                       |                    | 18,955 |                   |  
|                                                                                                                                                |                                                                                                                                                       |                    |        |                   |  
|COSTS IN EXCESS OF NET ASSETS ACQUIRED      net of accumulated amortization of $2,406 at September 30, 2002
and December 31, 2001, respectively |                                                                                                                                                       |                    | 1,511  |                   |  
|TOTAL ASSETS                                                                                                                                    |                                                                                                                                                       | $                  | 53,590 |                   | $
|                                                                                                                                                |                                                                                                                                                       |                    |        |                   |  

See accompanying condensed notes toConsolidated Financial
Statements.

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

|                                           |                                                                                                                                                                            | September 30, 2002 |        | December 31, 2001 |  
|------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------ | ------ | ----------------- | -
|                                           |                                                                                                                                                                            | (Unaudited)        |        |                   |  
|                                           |                                                                                                                                                                            |                    |        |                   |  
|CURRENT LIABILITIES                        |                                                                                                                                                                            |                    |        |                   |  
|                                           | Bank line of credit                                                                                                                                                        |                    | $      | 2,232             |  
|                                           | Current portion of long-term debt                                                                                                                                          |                    |        | 100               |  
|                                           | Accounts payable                                                                                                                                                           |                    |        | 5,385             |  
|                                           | Accrued expenses:                                                                                                                                                          |                    |        |                   |  
|                                           | Payroll and payroll related                                                                                                                                                |                    |        | 1,500             |  
|                                           | Other                                                                                                                                                                      |                    |        | 818               |  
|                                           | Warranty reserve                                                                                                                                                           |                    |        | 650               |  
|                                           |                                                                                                                                                                            |                    |        |                   |  
|                                           | TOTAL CURRENT LIABILITIES                                                                                                                                                  |                    |        | 10,685            |  
|                                           |                                                                                                                                                                            |                    |        |                   |  
|LONG-TERM DEBT, NET OF CURRENT PORTION     |                                                                                                                                                                            |                    | 83     |                   |  
|DEFERRED REVENUE                           |                                                                                                                                                                            |                    | 67     |                   |  
|DEFERRED TAX LIABILITY                     |                                                                                                                                                                            |                    | 609    |                   |  
|SHAREHOLDERS EQUITY                       |                                                                                                                                                                            |                    |        |                   |  
|                                           | Common stock, $.01 par value, Authorized - 12,000,000 shares, Outstanding - 8,512,411 shares and 8,402,705 shares at September 30,
2002 and December 31, 2001 respectively |                    |        | 40,039            |  
|                                           | Retained Earnings                                                                                                                                                          |                    |        | 2,107             |  
|                                           |                                                                                                                                                                            |                    |        |                   |  
|                                           | TOTAL SHAREHOLDERS EQUITY                                                                                                                                                 |                    |        | 42,146            |  
|                                           |                                                                                                                                                                            |                    |        |                   |  
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |                                                                                                                                                                            | $                  | 53,590 |                   | $
|                                           |                                                                                                                                                                            |                    |        |                   |  
|                                           |                                                                                                                                                                            |                    |        |                   |  

See accompanying condensed notes toConsolidated Financial Statements.

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

|                           |                                          | THREE MONTHS ENDED September 30, |        | NINE MONTHS ENDED September 30, |  
|-------------------------- | ---------------------------------------- | -------------------------------- | ------ | ------------------------------- | -
|                           |                                          |                                  |        |                                 |  
|                           |                                          | 2002                             |        | 2001                            |  
|                           |                                          |                                  |        |                                 |  
|                           |                                          | (Unaudited)                      |        | (Unaudited)                     |  
|NET SALES                  |                                          | $                                | 14,300 |                                 | $
|COST OF PRODUCT SALES      |                                          |                                  | 11,058 |                                 |  
|                           |                                          |                                  |        |                                 |  
|                           | Gross profit                             |                                  |        | 3,242                           |  
|                           |                                          |                                  |        |                                 |  
|COST OF PRODUCT SALES      |                                          |                                  |        |                                 |  
|                           | Selling                                  |                                  |        | 514                             |  
|                           | General and administrative               |                                  |        | 1,233                           |  
|                           | Research and development                 |                                  |        | 506                             |  
|                           |                                          |                                  |        |                                 |  
|                           |                                          |                                  | 2,253  |                                 |  
|                           |                                          |                                  |        |                                 |  
|                           | Income from operations                   |                                  |        | 989                             |  
|                           |                                          |                                  |        |                                 |  
|OTHER INCOME (EXPENSE):    |                                          |                                  |        |                                 |  
|                           | Royalty income                           |                                  |        | 55                              |  
|                           | Interest income                          |                                  |        | 3                               |  
|                           | Interest expense                         |                                  |        | (31                             | )
|                           | Miscellaneous                            |                                  |        | 2                               |  
|                           |                                          |                                  |        |                                 |  
|                           |                                          |                                  | 29     |                                 |  
|                           |                                          |                                  |        |                                 |  
|                           | Income before provision for income taxes |                                  |        | 1,018                           |  
|                           |                                          |                                  |        |                                 |  
|PROVISION FOR INCOME TAXES |                                          |                                  | 356    |                                 |  
|                           |                                          |                                  |        |                                 |  
|NET INCOME                 |                                          | $                                | 662    |                                 | $
|                           |                                          |                                  |        |                                 |  
|BASIC INCOME PER SHARE     |                                          | $                                | 0.08   |                                 | $
|                           |                                          |                                  |        |                                 |  
|DILUTED INCOME PER SHARE   |                                          | $                                | 0.08   |                                 | $
|                           |                                          |                                  |        |                                 |  

See accompanying condensed notes toConsolidated Financial
Statements.

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

|                                                                                            |                                             | NINE MONTHS ENDED SEPTEMBER 30, |       
|------------------------------------------------------------------------------------------- | ------------------------------------------- | ------------------------------- | ------
|                                                                                            |                                             |                                 |       
|                                                                                            |                                             | 2002                            |       
|                                                                                            |                                             | (Unaudited)                     |       
|                                                                                            |                                             |                                 |       
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                       |                                             |                                 |       
|                                                                                            | Net Income                                  |                                 | $     
|ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES: |                                             |                                 |       
|                                                                                            | Depreciation and amortization               |                                 |       
|                                                                                            | Deferred income taxes                       |                                 |       
|                                                                                            | Gain on equipment disposal                  |                                 |       
|                                                                                            | Change in operating assets and liabilities: |                                 |       
|                                                                                            | Accounts receivable, net                    |                                 |       
|                                                                                            | Other receivables                           |                                 |       
|                                                                                            | Inventories                                 |                                 |       
|                                                                                            | Production tooling                          |                                 |       
|                                                                                            | Prepaid expenses and other                  |                                 |       
|                                                                                            | Accounts payable                            |                                 |       
|                                                                                            | Accrued expenses                            |                                 |       
|                                                                                            | Warranty reserve                            |                                 |       
|                                                                                            | Deferred revenue                            |                                 |       
|                                                                                            |                                             |                                 |       
|NET CASH PROVIDED BY OPERATING ACTIVITIES                                                   |                                             |                                 | 1,329 
|                                                                                            |                                             |                                 |       
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                       |                                             |                                 |       
|                                                                                            | Purchases of property, plant and equipment  |                                 |       
|                                                                                            |                                             |                                 |       
|                                                                                            | Proceeds from sale of equipment             |                                 |       
|                                                                                            |                                             |                                 |       
|NET CASH USED IN INVESTING ACTIVITIES:                                                      |                                             |                                 | (5,058
|                                                                                            |                                             |                                 |       
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                       |                                             |                                 |       
|                                                                                            | Proceeds from issuance of common stock      |                                 |       
|                                                                                            | Payments on long-term debt                  |                                 |       
|                                                                                            | Net proceeds from bank line of credit       |                                 |       
|                                                                                            |                                             |                                 |       
|NET CASH PROVIDED BY FINANCING ACTIVITIES                                                   |                                             |                                 | 2,898 
|                                                                                            |                                             |                                 |       
|DECREASE IN CASH AND CASH EQUIVALENTS                                                       |                                             |                                 | (831  
|                                                                                            |                                             |                                 |       
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                              |                                             |                                 | 1,017 
|                                                                                            |                                             |                                 |       
|CASH AND CASH EQUIVALENTS, END OF PERIOD                                                    |                                             | $                               | 186   
|                                                                                            |                                             |                                 |       
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                                          |                                             |                                 |       
|Interest paid                                                                               |                                             | $                               | 63    
|                                                                                            |                                             |                                 |       
|Income taxes paid                                                                           |                                             | $                               | 14    
|                                                                                            |                                             |                                 |       
|                                                                                            |                                             |                                 |       

See accompanying condensed notes to Consolidated Financial Statements

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CERADYNE, INC.CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2002 (Unaudited)

|1. | Basis of Presentation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with
the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.  In the opinion
of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.  Operating results for the three-month period ended September 30, 2002 are not necessarily indicative of
the results that may be expected for the year ended December 31, 2002.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | The balance sheet at December 31, 2001 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | For further information, refer to the Consolidated Financial Statements and Notes to Financial Statements included in Ceradynes Annual Report on Form 10-K for the year ended
December 31, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|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, 2002 and December 31, 2001 (in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                           



|                  |  | SEPTEMBER 30, 2002 |        | DECEMBER 31, 2002 |  
|----------------- |  | ------------------ | ------ | ----------------- | -
|                  |  |                    |        |                   |  
|Raw Materials     |  | $                  | 9,743  |                   | $
|Work-In-Process   |  |                    | 6,522  |                   |  
|Finished Goods    |  |                    | 849    |                   |  
|                  |  |                    |        |                   |  
|Total Inventories |  | $                  | 17,114 |                   | $
|                  |  |                    |        |                   |  

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|3. | Recent Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | In June 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible Assets.  SFAS 142 addresses financial accounting and reporting for acquired goodwill and
other intangible assets and supersedes APB Opinion No. 17, Intangible Assets.  This pronouncement addresses, among other things, how goodwill and other intangible assets should be accounted for after they have been initially
recognized in the financial statements.  Goodwill would no longer be amortized but would be assessed at least annually for impairment using a fair value methodology.  The Company adopted this statement for all goodwill and other intangible
assets acquired after June 30, 2001 and for all existing goodwill and other intangible assets beginning January 1, 2002.  Upon adoption of this standard on January 1, 2002 the Company ceased recording amortization of goodwill, which resulted in
an increase to gross income of $50,000 for the third quarter 2002 and $150,000 for the nine month period ended September 30, 2002.  The effect on earnings per share, both basic and diluted as reported, is an increase of two cents per share for
the nine months ended September 30, 2002 as compared to the prior year and one cent per share for the three months ended September 30, 2002.  Other than ceasing the amortization of goodwill, the Company does not anticipate that the adoption of
SFAS 142 will have a significant effect on the financial position or the results of operations, as the Companys review at the end of the third quarter ended September 30, 2002 of the financial statements denoted no impairment of existing
goodwill.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|4. | Net Income Per Share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | Basic net income per share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding.  Diluted net income
per share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding plus the effect of any dilutive stock options and common stock warrants using the treasury stock
method.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | The following is a summary of the number of shares entering into the computation of net income per common and common equivalent share:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       



|                                                 |  | THREE MONTHS ENDED SEPTEMBER 30 |           | NINE MONTHS ENDED SEPTEMBER 30 | 
|------------------------------------------------ |  | ------------------------------- | --------- | ------------------------------ | 
|                                                 |  |                                 |           |                                | 
|                                                 |  | 2002                            |           | 2001                           | 
|                                                 |  |                                 |           |                                | 
|Weighted average number of shares outstanding    |  |                                 | 8,512,411 |                                | 
|Dilutive stock options and common stock warrants |  |                                 | 256,201   |                                | 
|                                                 |  |                                 |           |                                | 
|Number of shares used in diluted computations    |  |                                 | 8,768,612 |                                | 
|                                                 |  |                                 |           |                                | 

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



|Capital equipment loan bearing interest at 8.18% APR. Payable in monthly installments of $8,333, expiring July 2004. |  | $ | 183,000  |  
|-------------------------------------------------------------------------------------------------------------------- |  | - | -------- | -
|Less: current portion                                                                                                |  |   | (100,000 | )
|                                                                                                                     |  |   |          |  
|Long term debt                                                                                                       |  | $ | 83,000   |  
|                                                                                                                     |  |   |          |  



|   | In addition to the capital equipment loan, the Company also has a bank line of credit. The Company may borrow up to $7,500,000 with interest on borrowings charged at the banks
prime rate (4.75 percent at September 30, 2002).  The bank line of credit had an outstanding balance at September 30, 2002 of approximately $2,232,000.  Pursuant to the bank line of credit, the Company is subject to certain covenants,
which include, among other things, the maintenance of tangible net worth, quick assets to current liabilities ratio, and total liabilities to tangible net worth ratio.  At September 30, 2002, the Company was in compliance with these covenants.
The lender was granted a security interest in substantially all of the Companys assets.  
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|6. | Disclosure About Segments of an Enterprise and Related Information                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | The Company serves its markets and manages its business through three divisions, each of which has its own manufacturing facilities and administrative and selling functions. 
The Companys Advanced Ceramic Operations, located in Costa Mesa and Irvine, California, primarily produces armor and orthodontic products, components for semiconductor equipment, and houses the Companys sintering and reaction bonding of
silicon nitride (SRBSN) research and development activities.  The Companys cathode development and production are handled through its Semicon Associates division located in Lexington, Kentucky.  Fused silica products, including
missile radomes, are produced at the Companys Thermo Materials division located in Scottdale, Georgia.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | Ceradynes manufacturing structure is summarized in the following table:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

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|FACILITY LOCATION                 |  | PRODUCTS                                              
|--------------------------------- |  | ------------------------------------------------------
|                                  |  |                                                       
|Advanced Ceramic Operations       |  |    Semiconductor Equipment Components                
|Costa Mesa and Irvine, California |  |    Lightweight ceramic armor                         
|Approximately 126,000 square feet |  |    Orthodontic ceramic brackets                      
|                                  |  |    Ceralloy® 147 SRBSN wear parts                    
|                                  |  |    Precision ceramics                                
|                                  |  |    Ceralloy® 147 SRBSN diesel/automotive engine parts
|                                  |  |    Research and Development                          
|                                  |  |                                                       
|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           

Ceradyne,
Inc. Segment Disclosures (Amounts in thousands)

Three Months Ended September 30,

|                                                 |  | Advanced Ceramic Ops |        | Semicon Associates |   | Thermo Materials |  | TOTAL |      
|------------------------------------------------ |  | -------------------- | ------ | ------------------ | - | ---------------- |  | ----- | -----
|                                                 |  |                      |        |                    |   |                  |  |       |      
|                                                 |  | 2002                 |        | 2001               |   | 2002             |  | 2001  |      
|                                                 |  |                      |        |                    |   |                  |  |       |      
|Revenue from External Customers                  |  | $                    | 10,469 |                    | $ | 6,555            |  | $     | 1,493
|                                                 |  |                      |        |                    |   |                  |  |       |      
|Depreciation and Amortization                    |  | $                    | 532    |                    | $ | 385              |  | $     | 113  
|                                                 |  |                      |        |                    |   |                  |  |       |      
|Segment Income before Provision for Income Taxes |  | $                    | 943    |                    | $ | 767              |  | $     | 130  
|                                                 |  |                      |        |                    |   |                  |  |       |      
|Segment Assets                                   |  | $                    | 40,096 |                    | $ | 30,879           |  | $     | 6,384
|                                                 |  |                      |        |                    |   |                  |  |       |      
|Expenditures for PP&E                            |  | $                    | 823    |                    | $ | 1,903            |  | $     | 154  
|                                                 |  |                      |        |                    |   |                  |  |       |      

The following is revenue by product line for Advanced Ceramic Operations for the quarter ended
September 30:

|              |  | 2002 |        | 2001 |  
|------------- |  | ---- | ------ | ---- | -
|              |  |      |        |      |  
|Semiconductor |  | $    | 452    |      | $
|Armor         |  |      | 4,512  |      |  
|Orthodontics  |  |      | 1,791  |      |  
|Other         |  |      | 3,714  |      |  
|              |  |      |        |      |  
|              |  | $    | 10,469 |      | $
|              |  |      |        |      |  

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Ceradyne, Inc. Segment Disclosures (Amounts in thousands)

Nine Months Ended September 30,

|                                                 |  | Advanced Ceramic Ops |        | Semicon  Associates |   | Thermo Materials |  | TOTAL |      
|------------------------------------------------ |  | -------------------- | ------ | ------------------- | - | ---------------- |  | ----- | -----
|                                                 |  |                      |        |                     |   |                  |  |       |      
|                                                 |  | 2002                 |        | 2001                |   | 2002             |  | 2001  |      
|                                                 |  |                      |        |                     |   |                  |  |       |      
|Revenue from External Customers                  |  | $                    | 33,261 |                     | $ | 22,711           |  | $     | 4,580
|                                                 |  |                      |        |                     |   |                  |  |       |      
|Depreciation and Amortization                    |  | $                    | 1,416  |                     | $ | 1,195            |  | $     | 338  
|                                                 |  |                      |        |                     |   |                  |  |       |      
|Segment Income before Provision for Income Taxes |  | $                    | 2,765  |                     | $ | 3,301            |  | $     | 295  
|                                                 |  |                      |        |                     |   |                  |  |       |      
|Expenditures for PP&E                            |  | $                    | 4,320  |                     | $ | 4,002            |  | $     | 197  
|                                                 |  |                      |        |                     |   |                  |  |       |      

The following is revenue by product line for Advanced Ceramic Operations for the nine months
September 30:

|              |  | 2002 |        | 2001 |  
|------------- |  | ---- | ------ | ---- | -
|              |  |      |        |      |  
|Semiconductor |  | $    | 982    |      | $
|Armor         |  |      | 16,979 |      |  
|Orthodontics  |  |      | 5,682  |      |  
|Other         |  |      | 9,618  |      |  
|              |  |      |        |      |  
|              |  | $    | 33,261 |      | $
|              |  |      |        |      |  

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Segment Disclosures for Net Sales by Area

Three
Months Ended September 30,

|                         |  | Advanced Ceramic Ops |    | Semicon Associates |  | Thermo Materials |   | TOTAL |   
|------------------------ |  | -------------------- | -- | ------------------ |  | ---------------- | - | ----- | --
|                         |  |                      |    |                    |  |                  |   |       |   
|                         |  | 2002                 |    | 2001               |  | 2002             |   | 2001  |   
|                         |  |                      |    |                    |  |                  |   |       |   
|U.S. Net Sales           |  |                      | 70 | %                  |  | 57               | % |       | 9 
|Western Europe Net Sales |  |                      | 2  | %                  |  | 6                | % |       | 1 
|Asia Net Sales           |  |                      | 1  | %                  |  | 0                | % |       | 0 
|Israel Net Sales         |  |                      | 0  | %                  |  | 1                | % |       | 0 
|Canada Net Sales         |  |                      | 0  | %                  |  | 0                | % |       | 0 
|Other                    |  |                      | 0  | %                  |  | 0                | % |       | 0 
|                         |  |                      |    |                    |  |                  |   |       |   
|Total Net Sales          |  |                      | 73 | %                  |  | 64               | % |       | 10
|                         |  |                      |    |                    |  |                  |   |       |   

Nine Months Ended September 30,

|                         |  | Advanced Ceramic Ops |    | Semicon Associates |  | Thermo Materials |   | TOTAL |   
|------------------------ |  | -------------------- | -- | ------------------ |  | ---------------- | - | ----- | --
|                         |  |                      |    |                    |  |                  |   |       |   
|                         |  | 2002                 |    | 2001               |  | 2002             |   | 2001  |   
|                         |  |                      |    |                    |  |                  |   |       |   
|U.S. Net Sales           |  |                      | 73 | %                  |  | 58               | % |       | 9 
|Western Europe Net Sales |  |                      | 2  | %                  |  | 5                | % |       | 1 
|Asia Net Sales           |  |                      | 1  | %                  |  | 1                | % |       | 1 
|Israel Net Sales         |  |                      | 0  | %                  |  | 3                | % |       | 0 
|Canada Net Sales         |  |                      | 0  | %                  |  | 1                | % |       | 0 
|Other                    |  |                      | 0  | %                  |  | 0                | % |       | 0 
|                         |  |                      |    |                    |  |                  |   |       |   
|Total Net Sales          |  |                      | 76 | %                  |  | 68               | % |       | 11
|                         |  |                      |    |                    |  |                  |   |       |   

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|7. | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | On December 21, 2001, the Company was served with a complaint filed by the Companys insurance carrier in the Superior Court of California in Santa Ana, California.  The
complaint sought a declaration that the Company was obligated to reimburse the insurance carrier for defense expenses that the insurance carrier has or will pay on behalf of the Companys prior lessor.  The lessor was sued by an employee
of the Company alleging he contracted chronic beryllium disease while employed at the lessors facility in the 1980s.  In August 2002, the Companys insurance carrier settled the underlying action on behalf of the lessor and the
employees action was dismissed against the lessor.  Additionally, the Company and the insurance carrier entered into a settlement agreement whereby the Company agreed to pay a total of $12,000 of the defense costs incurred by the former
lessor, and the insurance carrier agreed to pay the balance of the defense costs incurred by the former lessor. Under the settlement agreement, the Company also agreed that the insurance carrier will not be obligated, under specific insurance
policies previously issued by the carrier to the Company, to pay the costs of defense which the Company is contractually obligated to pay relating to any future claim by the Companys former lessor for indemnification from the
Company. The settlement agreement does not, however, release the insurance carrier from any claims for the liability component of any future claim by the former lessor for indemnity from the Company. Neither the Company nor the insurance carrier
admitted any allegations or contentions of the other. The Company is not aware of any other claims for which the Companys former lessor may seek indemnification from the Company.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|8. | Commitments and Contingencies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | The U.S. Government Defense Logistics Agency (DLA) notified the Company on March 27, 2002, that 3 lots of Ceradynes small arms protective inserts (SAPI) for light weight
ceramic armor shipped in January 2002 failed to pass ballistics reverification tests by the Governments designated independent commercial testing laboratory.  During the period of December 2001 through March 27, 2002, the
Company had shipped approximately $5.1 million under its existing contract with the DLA.  Subsequent to March 27, 2002, the DLA directed the independent testing laboratory to perform reverification testing and $3.4 million of the
shipments were not in testing compliance.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | Since first being notified of these issues on March 27, 2002, the Company voluntarily stopped producing its original SAPI design and has been actively working with the Government to
understand the quality and testing issues and to resolve the status and disposition of the SAPI plates in question.  The Company has completed the development of a modified design for its ceramic SAPI armor plates.  Independently performed
tests by the Governments designated testing laboratory of the modified design have been successful and the first article (initial production parts) of this modified design was approved in June 2002.  In July 2002, the Company
received a $5.3 million delivery order from the U.S. Army for its newly                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

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|        | designed, robust small arms protective inserts (SAPI) Design II.  Shipments began in July 2002 and are expected to be complete during the fourth quarter of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        | On August 7, 2002, the Company signed an amendment to the contract with the Government regarding certain of the SAPI plates shipped in December 2001, and the first quarter
2002.  The amendment requires that the Company correct or replace at its expense all supplies of the product that did not meet the original contractual requirements. The warranty items are to be delivered over the period from October 2002
through June 2003.  The Company estimates the cost to rework and upgrade the SAPI plates at approximately $650,000 and set up a warranty reserve in that amount, recorded in the second quarter ended June 30, 2002 against cost of goods
sold.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        | Preliminary Note Regarding Forward-Looking Statements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        | This Quarterly Report on Form 10-Q contains statements which may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities and Exchange Act of 1934.  One generally can identify forward-looking statements by the use of forward-looking terminology such as believes, may, will, expects,
intends, estimates, anticipates, plans, seeks, or continues, or the negative thereof or variations thereon or similar terminology.  Forward-looking statements regarding
future events and the future performance of the Company involve risks and uncertainties that could cause actual results to differ materially.  These risks and uncertainties are described in Note 8,  Commitments and
Contingencies, of Condensed Notes to Consolidated Financial Statements at page 14 of this report, and in the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2001, as filed with the Securities and Exchange
Commission, under Item 1-Business, including the section therein entitled Risk Factors, and Item 7-Managements Discussion and Analysis of Financial Condition and Result of Operations.
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        | Results of Operations for the Three and Nine Months Ended September 30, 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        | Reference is made to the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2001, 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, 2002 were $14.3 million. This represents an increase of 40%, or $4.1 million, from the corresponding
quarter of the prior year.  For the nine months ended September 30, 2002, net sales were $43.6 million, an increase of 31%, or $10.3 million from the prior years nine months.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        | Advanced Ceramic Operations in Costa Mesa, California, had net sales for the quarter of $10.5 million representing an increase of $3.9 million, or 60% over the comparable prior year
quarter. The primary reason for this improvement was an increase of $2.2 million in sales of ceramic armor for defense customers, compared to the third quarter of 2001, due to orders received in the fourth quarter of 2001, and first and second
quarters of 2002 from the U.S. Department of Defense for lightweight                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

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| | body armor for military personnel.  Also, net sales of automotive ceramic products during the quarter ended September 30, 2002 increased by $2.0 million over the year-ago
quarter due to increasing demand by diesel truck manufacturers for ceramic components for diesel engines to decrease their warranty cost. Net sales of semiconductor components during the quarter ended September 30, 2002 increased by $265,000. These
increases were partially offset by a $.1 million decrease in sales for ceramic orthodontic brackets due to the Companys customer, 3M Unitek, reducing its inventory supply, as well as a decrease of $.6 million in sales of industrial wear
products due to weakness in that market. Sales of all other product lines increased by $.1 million in the aggregate compared to last years third quarter period.                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | For the nine month period, sales at the Companys Advanced Ceramic Operations were $33.3 million, representing an increase of $10.6 million, or 46%, over the comparable prior
year period.  The primary reasons for the improvement were an increase of $8.7 million in ceramic armor for defense customers, and a $4.4 million increase in ceramic components for diesel engines due to the same reasons stated above under the
quarter-to-quarter comparison.  The major offsets were a $1.6 million decrease in sales of industrial wear products and a decrease in sales of $.5 million of semiconductor components due to the weakness of those markets. Sales of ceramic
orthodontic brackets decreased $.3 million for the same reason stated above under the quarter-to-quarter comparison.  Sales of all other product lines decreased by $.1 million in the aggregate compared with last years comparable period
due to general weaknesses in these lines.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | The Company believes that the rapid growth in sales of ceramic components for diesel engine components has been due, in part, to an effort by diesel truck manufacturers to sell as
many diesel trucks as possible prior to October 1, 2002, when new, stricter federal environmental regulations become effective.  As a result, customers have reduced their orders and the Company expects that sales of ceramic components for
diesel engines will decline approximately 50% in the fourth quarter of 2002 when compared to the third quarter ended September 30, 2002.                                                                                                                                                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | The Companys Semicon Associates division in Lexington, Kentucky, posted a sales decrease of $.2 million for the third quarter, and a nine month decrease of $1.1 million as
compared to the prior year periods.  The sales decrease reflects lower bookings of incoming orders in the second quarter of 2002 versus the year-ago period.  In the third quarter ended September 30, 2002, bookings of incoming orders
totaled $2.9 million which were 120% higher than the second quarter of 2002, and 5% higher than the year-ago period.  The trend for the fourth quarters sales is anticipated to be lower than the previous year due to cutbacks in the
communication industries.                                                                                                                                                                                                                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | The Companys Thermo Materials division in Scottdale, Georgia, posted a sales increase for the quarter of $.4 million to $2.3 million, and a nine month increase of $.9 million
to $5.8 million as compared to the prior year periods.  The increases in both periods were mainly due to incoming sales orders for fused silica ceramic for the tempered glass making industry.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | International sales have been, and are expected to continue to be an important part of the Companys business.  International sales for the third quarter 2002
decreased                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

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| | by $.1 million to $1.7 million or 12% of total sales from $1.8 million, or 19% of sales in the corresponding period of the prior year. For the nine month period ended September 30,
2002, international sales decreased by $1.2 million to $5.1 million or 12% of total sales, from $6.3 million, or 19% of total sales in the corresponding period of the prior year. The main reasons for the decline in international sales was a large
shipment of product to Israel in the prior years second quarter that did not reoccur in the current years period, and to increases in domestic sales in both the third quarter and first nine months of 2002, compared to the corresponding
periods of 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | Gross Profit.  The Companys gross profit was $3.2 million, or 23% of sales, for the third quarter ended September 30, 2002, compared to $2.8 million, or 28% of
sales, for the prior years third quarter.  For the nine months ended September 30, 2002, gross profit was $9.1 million, or 21% of sales, compared to $9.9 million, or 30% of sales, in the first nine months of 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | The Companys Advanced Ceramic Operations in Costa Mesa, California, posted gross profit of $2.6 million for the quarter ended September 30, 2002, compared to $2.1 million, or a
23% increase over the year ago quarter.  For the nine months ended September 30, 2002, gross profit was $7.5 million compared to $7.4 million, or an 1% increase over the year ago period.  The results were mainly due to the increased
shipments of armor products for both the third quarter and nine month periods ended September 30, 2002 as compared to the year-ago periods. However, the increase in gross profit was offset by the warranty provision for SAPI plates that was recorded
in the second quarter 2002. The Company entered into warranty discussions with the Government regarding certain of the small arms protective inserts (SAPI) plates shipped in December 2001 and first quarter 2002 (see Commitments and Contingencies,
Note 8 on page 14).  As a result of those discussions, the Company in August 2002 signed an amendment to the contract with the Government regarding certain of the SAPI plates shipped in December 2001, and first quarter 2002.  The amendment
requires that the Company correct or replace at its expense all supplies of the product that did not meet the original contractual requirements. The amendment calls for the Government to return individual lots over a period of time for reworking and
upgrading to incorporate certain improved features of the recently government-approved SAPI design II. The Company estimates the cost to rework and upgrade the SAPI plates at approximately $650,000 and set up a warranty reserve in that amount,
recorded in the second quarter ended June 30, 2002 against cost of goods sold.  Also, the Company recently leased a new facility containing approximately 41,000 square feet, most of which will be used for manufacturing, and it will take several
quarters to fully utilize the cost of this additional capacity and realize the same level of economies of scale as were achieved in 2001. In late June 2002, the product group for ceramic orthodontic brackets moved into the new facility and in
October 2002, the automotive product group was moved. The armor products group is planned to move in the first quarter of 2003.  Currently, the Company is experiencing poorer product yields and other manufacturing inefficiencies (as compared to
the year-ago periods) as production capacities are being significantly increased to meet rising demand for ceramic armor for defense customers and diesel engine components.  Consequently, gross profit margin percentages have decreased in the
first nine months of 2002 as compared to 2001, but are expected to improve gradually thereafter if the mix of product remains relatively the same.

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| | Semicon Associates in Lexington, Kentucky, posted third quarter gross profit of $327,000 compared to $614,000, or a 47% decrease over the year ago quarter.  For the nine month
period, gross profit was $.8 million compared to $1.9 million, or a 58% decrease over the year ago period.  The decreases for both the third quarter and nine month periods are attributed to a decline in revenue volume and to less capacity
utilization resulting in higher cost of sales.  The Company expects the trend of gross profit as a percent of sales to be lower for the fourth quarter 2002 because of the lower sales volume, and the lag time to decrease fixed and variable costs
quickly.                                                                                                                                                                                                           
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | Thermo Materials in Scottdale, Georgia, posted third quarter gross profit of $323,000 compared to $76,000, or a 325% increase from the year ago quarter.  For the nine month
period, gross profit was at $785,000 compared to $603,000, or a 30% increase over the year ago period. The increase in gross profit in both the third quarter and nine month periods was due to more efficient manufacturing methods resulting in less
scrap and rework.                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | Selling Expenses.  Selling expenses were $.5 million for the quarter, and $1.5 million for the nine months ended September 30, 2002, which are essentially unchanged from
the comparable periods of last year.  Salary and benefit increases were offset by lower commission expenses than in the prior year periods.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | General and Administrative Expenses.  General and Administrative expenses for the third quarters ended September 30, 2002 and 2001 were $1.2 million for both periods. For
the nine month periods ended September 30, 2002 and 2001 they were $3.5 million and $3.7 million, respectively.  Salary and benefit increases were offset by a decrease of bonus amounts because of a reduction in profit compared to the prior year
period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | Research and Development.  The Companys research and development efforts consist primarily of ongoing application engineering in response to customer requirements,
and the research and development of new materials technology and products.  These efforts are directed to the creation of new products, the modification of existing products to fit specific customer needs, and the development of enhanced
ceramic process technology.                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | Expenses for the third quarters ended September 30, 2002 and 2001 for Research and Development were $.5 million and $.3 million, respectively, and for the nine month periods ended
September 30, 2002 and 2001 were $1.5 million and $.8 million, respectively.  The expenses over the prior year periods are related to increases in research and development in ceramic technology, and for the new design of personnel armor plates
for the U.S. Army.  The expenses for both years are related to wages for engineering, technicians and production personnel, materials, outside services, small tools and travel.  In addition, approximately $.2 million for the third quarter
and $.7 million for the nine month period are costs related to research and development that are included in cost of sales due to Small Business Innovation Research (SBIR) grants, which are recorded as sales.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | In addition, the Company historically has and continues to engage in application engineering to improve and reduce the cost of production and to develop new products.  These
costs are expensed as incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | Other Income.  Other income was $60,000 for the quarter and $176,000 for the nine                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

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##### Table of Contents

| | months ended September 30, 2002.  The above compares to prior year amounts of $81,000 for the quarter and $328,000 for the nine month period.  The major cause for the
decrease in both the quarter and nine month period was a reduction in interest income due to less cash reserves and lower interest rates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | Interest Expense.  Interest expense was $31,000 for the quarter as compared to $6,000 in the year-ago quarter.  For the nine month period, interest expense was
$64,000 compared to $20,000 in the year-ago period.  The increases were due to increased cash borrowings.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | Income Taxes.  The provision for income taxes for the quarter and the nine months ended September 30, 2002 was 35% compared to a 25% rate in the year ago periods. The
lower tax rate in 2001 was the result of the Companys complete recognition for financial statement purposes of all net operating loss carryforwards in 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | Net Income.  Reflecting all of the matters discussed above, net income was $.7 million (or $0.08 per share basic and diluted) for the quarter ended September 30, 2002,
and $1.7 million (or $0.21 basic and $.20 diluted) for the nine months ended September 30, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | Liquidity and Capital Resources                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | The Company generally meets its operating and capital requirements for cash flow from operating activities and borrowings under its credit facilities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | On May 16, 2002, the Company increased from $4.0 million to $7.5 million its revolving credit facility with Comerica Bank.  As of September 30, 2002, the Company borrowed $2.2
million for operating needs.  The credit line was increased to fund the present and future growth of the Company. Under a separate credit facility with Comerica Bank, the Company entered into a $500,000 capital equipment loan agreement during
the third quarter of 1999.  The term of the loan is for 60 months with a prepayment penalty, and as of September 30, 2002, this loan balance is $183,000.                                                                                                                                                                                                                                                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | The Companys net cash position decreased by $.8 million during the nine months ended September 30, 2002, compared to a decrease of $4.6 million in the nine months ended
September 30, 2001.  An important component of this change was the Companys investment of $5.1 million in purchase of machinery, equipment and leasehold improvements in both the current year and in the prior year comparable period, to
continue to expand production capacity primarily at the Companys Advanced Ceramic Operations in Costa Mesa and Irvine, California.  Another major factor was the current nine months net income of $1.7 million compared to the year-ago
period of $3.1 million in net income.  The above was partially offset by net borrowings from the credit line of $2.2 million in the current period as compared to none in the prior year.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | Management believes that current cash and cash equivalents on hand, as well as cash generated from operations and the ability to borrow under the existing credit facilities, will be
sufficient to finance anticipated capital and operating requirements for at least the next 12 months.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

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|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, 2002.                                                                                                                                                                                                                                                                                                             
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | The Company utilized fixed rate debt financing during 1999 primarily for the purpose of acquiring manufacturing equipment.  For fixed rate debt, changes in interest rates
generally affect the fair market value of the debt instrument, but not the Companys earnings or cash flows.  The Company does not have an obligation to prepay fixed rate debt prior to maturity, and as a result, interest rate risk and
changes in fair market value should not have a significant impact on the fixed rate debt until the Company would be required to refinance such debt.  The fair market value estimates for debt securities are based on discounting future cash flows
utilizing current rates offered to the Company for debt of the same type and remaining maturity.
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | As of September 30, 2002, the Companys debt consisted of a $183,000 capital equipment loan at a fixed interest rate of 8.18% due July 28, 2004, and a bank line of credit of
$2,232,000 for operating requirements.  The bank line of credit interest rate is at prime (4.75% as of September 30, 2002).  The carrying amount is a reasonable estimate of fair value as the rate of interest paid on the note and revolving
credit facility approximates the current rate available for financing with similar terms and maturities.                                                                                                                                                                                                                                      
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|Item 4. | Controls and Procedures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | Within the 90 days preceding the date of this quarterly report on Form 10-Q, the Companys Chief Executive Officer and Chief Financial Officer evaluated the Companys
disclosure controls and procedures to assess whether they are effective in ensuring that information which is required to be disclosed in this report is, in fact, properly and accurately recorded, processed, summarized and reported in a timely
basis.  Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have each concluded that those controls and producers were effective in making known to them and other management employees the material information
needed to prepare and make timely decisions regarding disclosures required in this report.       
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | The Chief Executive Officer and Chief Financial Officer did not find, during their evaluation, any significant deficiencies or material weaknesses that would require corrective
actions to be taken with respect to the Companys internal controls. There have been no significant changes in the Companys internal controls or in other factors since the date of their evaluation that could significantly affect those
internal controls.                                                                                                                                                                                                                                                                                                                            

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|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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|         | On December 21, 2001, the Company was served with a complaint filed by the Companys insurance carrier in the Superior Court of California in Santa Ana,
California.  The complaint sought a declaration that the Company was obligated to reimburse the insurance carrier for defense expenses that the insurance carrier has or will pay on behalf of the Companys prior lessor.  The lessor was
sued by an employee of the Company alleging he contracted chronic beryllium disease while employed at the lessors facility in the 1980s.  In August 2002, the Companys insurance carrier settled the underlying action on behalf
of the lessor and the employees action was dismissed against the lessor.  Additionally, the Company and the insurance carrier entered into a settlement agreement whereby the Company agreed to pay a total of $12,000 of the defense costs
incurred by the former lessor, and the insurance carrier agreed to pay the balance of the defense costs incurred by the former lessor. Under the settlement agreement, the Company also agreed that the insurance carrier will not be obligated, under
specific insurance policies previously issued by the carrier to the Company, to pay the costs of defense which the Company is contractually obligated to pay relating to any future claim by the Companys former lessor for
indemnification from the Company. The settlement agreement does not, however, release the insurance carrier from any claims for the liability component of any future claim by the former lessor for indemnity from the Company. Neither the Company nor
the insurance carrier admitted any allegations or contentions of the other. The Company is not aware of any other claims for which the Companys former lessor may seek indemnification from the Company.
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|Item 2.  | N/A                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
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|Item 3.  | N/A                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|Item 4.  | N/A                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|Item 5.  | N/A                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|Item 6.  | Exhibits and Reports on Form 8-K                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
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|         | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
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|         | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.

|CERADYNE, INC. |                                                                                                         
|-------------- | --------------------------------------------------------------------------------------------------------
|               |                                                                                                         
|               |                                                                                                         
|By:            | /S/ JERROLD J. PELLIZZON                                                                                
|               |                                                                                                         
|               | Jerrold J. Pellizzon Vice President Chief Financial Officer (Principal Financial and Accounting Officer)
|               |                                                                                                         
|              
|Dated:         | November 13, 2002                                                                                       

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Certification of Principal Executive Officer

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

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

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

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

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

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

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

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

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

|Dated: November 13, 2002                  | 
|----------------------------------------- | 
|                                          | 
|                                          | 
|/s/ JOEL P. MOSKOWITZ                     | 
|                                          | 
|Joel P. Moskowitz Chief Executive Officer | 

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Certification of Principal Financial Officer

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

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

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

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

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

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

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

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

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

|Dated: November 13, 2002                     | 
|-------------------------------------------- | 
|                                             | 
|                                             | 
|/s/ JERROLD J. PELLIZZON                     | 
|                                             | 
|Jerrold J. Pellizzon Chief Financial Officer | 

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##### Table of Contents

Index to Exhibits

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

25