SECURITIES AND EXCHANGE COMMISSION
                        Washington, D.C. 20549

                              ----------

                              FORM 10-Q

    (Mark One)
 X  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

For the period ended       SEPTEMBER 30, 1998
                    -----------------------------------------------------------

                                OR

--- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

For the transition period from ---------------------- to ----------------------

                   Commission file number    1-8403
                                          -----------

                         ENERGY CONVERSION DEVICES, INC.
--------------------------------------------------------------------------------
              (Exact name of registrant as specified in its charter)

          DELAWARE                                    38-1749884
--------------------------------------------------------------------------------
(State or other jurisdiction of           (I.R.S. Employer Identification No.)
incorporation or organization)

    1675 WEST MAPLE ROAD, TROY, MICHIGAN                               48084
--------------------------------------------------------------------------------
(Address of principal executive offices)                            (Zip Code)

Registrant's telephone number, including area code      (248) 280-1900
                                                  -----------------------------

--------------------------------------------------------------------------------
(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

    As of November 13, 1998,  there were 219,913  shares of Class A Common Stock
and 12,559,293 shares of Common Stock outstanding.

                           Page 1 of 24 pages





                                    1

<PAGE>



                       PART I - FINANCIAL INFORMATION
                       ------------------------------

Item 1.  Financial Statements
------   --------------------

               ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

                    CONSOLIDATED STATEMENTS OF OPERATIONS
                    -------------------------------------
                                 (Unaudited)

                                                Three Months Ended September 30,
                                                --------------------------------
                                                      1998              1997
                                                      ----              ----
REVENUES
      Product sales                               $   966,555      $  2,574,497
      Royalties                                       615,336           338,000
      Revenues from product development agreements  3,773,347         2,790,065
      Revenues from license and other agreements       42,000            58,505
      Other                                           780,387           699,378
                                                  -----------      ------------
      TOTAL REVENUES                                6,177,625         6,460,445

EXPENSES
      Cost of product sales                         2,091,999         2,577,267
      Cost of revenues from product development
         agreements                                 4,031,337         2,773,852
      Product development and research              2,906,151         3,095,285
      Patent defense                                   67,845            71,395
      Patents                                         356,985           327,202
      Operating, general and administrative         1,157,368         2,087,998
                                                  -----------      ------------ 
      TOTAL EXPENSES                               10,611,685        10,932,999
                                                  -----------      ------------

      LOSS FROM OPERATIONS                         (4,434,060)       (4,472,554)

OTHER INCOME (EXPENSE):
      Equity in loss of joint venture              (1,089,000)           --
      Interest expense                               (166,917)          (44,996)
      Interest income                                 355,493           189,696
      Other nonoperating income - net                 110,489            30,788
                                                  -----------      ------------

      TOTAL OTHER INCOME (EXPENSE)                   (789,935)          175,488
                                                  -----------      ------------

      NET LOSS                                    $(5,223,995)     $ (4,297,066)
                                                  ===========      ============

      BASIC NET LOSS PER SHARE                    $      (.41)     $       (.40)
                                                  ===========      ============

         DILUTED NET LOSS PER SHARE               $      (.41)     $       (.40)
                                                  ===========      ============






See notes to consolidated financial statements.

                                      2

<PAGE>



                ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

                         CONSOLIDATED BALANCE SHEETS
                         ---------------------------

                                   ASSETS
                                   ------

                                                     September 30,   June 30,
                                                        1998            1998
                                                    -----------     -----------
                                                    (Unaudited)     (Audited)
CURRENT ASSETS
   Cash, including cash equivalents of
    $21,926,000 as of September 30, 1998 and
    $25,780,000 as of June 30, 1998                 $21,931,190     $25,786,112
   Accounts receivable (net of allowance for
    uncollectible accounts of approximately
    $291,000 at September 30, 1998 and
    $315,000 at June 30, 1998)                        8,326,798       8,666,952
   Amounts due from related parties                   1,279,389       1,491,115
   Inventories                                        1,251,661       1,074,097
   Prepaid expenses and other current assets            225,333         374,590
                                                    -----------     -----------

    TOTAL CURRENT ASSETS                             33,014,371      37,392,866

PROPERTY, PLANT AND EQUIPMENT
   Land and land improvements                           312,588         312,588
   Buildings and improvements                         3,666,411       3,666,411
   Machinery and other equipment (including
        construction in progress of approximately
        $888,000 at September 30, 1998 and
        $785,000 at June 30, 1998)                   17,078,662      16,870,261
   Capitalized lease equipment                        5,383,672       5,383,672
                                                    -----------     -----------
                                                     26,441,333      26,232,932

Less accumulated depreciation and amortization      (18,004,579)    (17,641,505)
                                                    ------------    ------------
    TOTAL PROPERTY, PLANT AND EQUIPMENT               8,436,754       8,591,427

Investments in EV Global and Unique Mobility          1,662,000       1,953,000

JOINT VENTURES
   United Solar                                       1,026,914       2,115,914
   GM Ovonic                                             --               --
   Sovlux                                                --               --

OTHER ASSETS                                          1,305,547       1,307,609
                                                    -----------     -----------

TOTAL ASSETS                                        $45,445,586     $51,360,816
                                                    ===========     ===========



See notes to consolidated financial statements.
 
                                     3

<PAGE>



                 ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

                           CONSOLIDATED BALANCE SHEETS
                           ---------------------------
                      LIABILITIES AND STOCKHOLDERS' EQUITY
                      ------------------------------------

                                                     September 30,   June 30,
                                                        1998            1998
                                                     -------------  -----------
                                                      (Unaudited)    (Audited)
CURRENT LIABILITIES
   Accounts payable and accrued expenses             $ 4,063,427    $ 4,443,189
   Salaries, wages and amounts withheld
    from employees                                     1,750,121      1,413,217
   Deferred revenues under business
    agreements                                           374,727        417,082
   Current installments on capitalized lease
    obligations                                        1,315,932      1,319,220
                                                     -----------    -----------

      TOTAL CURRENT LIABILITIES                        7,504,207      7,592,708

CAPITALIZED LEASE OBLIGATIONS                          3,660,430      3,967,496

DEFERRED GAIN                                          1,440,927      1,551,146

NON-REFUNDABLE ADVANCE ROYALTIES                       3,425,251      3,434,120
                                                     -----------    -----------
      TOTAL LIABILITIES                               16,030,815     16,545,470

STOCKHOLDERS' EQUITY
   Capital Stock
    Class A Convertible Common Stock,
    par value $0.01 per share:
      Authorized - 500,000 shares
      Issued & outstanding - 219,913 shares                2,199          2,199
    Common Stock, par value $0.01 per share:
      Authorized - 20,000,000 shares
      Issued and outstanding - 12,668,345 
      shares at September 30, 1998 and
      12,639,817 shares at June 30, 1998                 126,683        126,398
   Additional paid-in capital                        227,434,108    227,092,920
   Accumulated deficit                              (196,974,358)  (191,750,363)
   Treasury stock at cost - 73,000 shares
    at September 30, 1998 and 42,000 shares
    at June 30, 1998                                    (835,861)      (608,808)
   Accumulated Other Comprehensive Loss                 (338,000)       (47,000)
                                                     ------------   ------------

TOTAL STOCKHOLDERS' EQUITY                            29,414,771     34,815,346
                                                     -----------    -----------

TOTAL LIABILITIES & STOCKHOLDERS' EQUITY             $45,445,586    $51,360,816
                                                     ===========    ===========

See notes to consolidated financial statements.

                                         4

<PAGE>



                 ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

                                                           Three Months Ended
                                                             September 30,
                                                       -------------------------
                                                         1998          1997
                                                         ----          ---- 
OPERATING ACTIVITIES:
     Net loss                                        $ (5,223,995)  $(4,297,066)
     Adjustments to reconcile net (loss) to net
      cash used in operating activities:
        Depreciation and amortization                    363,074        505,899
        Equity in loss of United Solar                 1,089,000          --
        Creditable royalties                              (8,869)       (17,000)
        Options issued to executive for 
         services rendered                               113,250        113,250
        Amortization of deferred gain                   (110,218)       (11,499)
     Changes in working capital:
        Accounts receivable and amounts
         due from related parties                        551,880     (1,626,751)
        Inventories                                     (177,564)        44,947
        Prepaid expenses and other current assets        151,319        (92,422)
        Accounts payable and accrued expenses            (42,861)        (7,589)
        Deferred revenues under business agreements      (42,355)      (250,261)
                                                     -------------  ------------
NET CASH USED IN OPERATIONS                           (3,337,339)    (5,638,492)

INVESTING ACTIVITIES:
     Purchases of capital equipment (net)               (208,400)      (151,680)
     Purchase of investments                               --        (2,692,653)
     Sales of investments                                  --         1,945,227
                                                     -------------  ------------

NET CASH USED IN INVESTING ACTIVITIES                   (208,400)      (899,106)

FINANCING ACTIVITIES:
     Purchase of treasury stock                         (227,053)         --
     Principal payments under short-term and
       long-term debt obligations and capitalized
       lease obligations                                (310,354)      (350,021)
     Proceeds from sale of stock upon
       exercise of stock options and warrants            228,224         47,963
                                                     -------------  ------------

NET CASH USED IN FINANCING ACTIVITIES                   (309,183)      (302,058)
NET DECREASE IN CASH AND CASH
     EQUIVALENTS                                       (3,854,922)   (6,839,656)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD       25,786,112    14,270,145
                                                     ------------   ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD           $ 21,931,190   $  7,430,489
                                                     ============   ============




See notes to consolidated financial statements.

                                     5

<PAGE>



          ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

               CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (Unaudited)


                                                 Three Months Ended
                                                    September 30,
                                                -----------------------
                                                    1998        1997
                                                    ----        ----

SUPPLEMENTAL DISCLOSURES OF CASH FLOW
    INFORMATION:

    Cash paid for interest                       $ 166,917    $ 44,996





                                 6

<PAGE>



  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - SEPTEMBER 30, 1998
  ---------------------------------------------------------------

NOTE A - Basis of Presentation
------------------------------

      Information  for the three months ended  September  30, 1998 (fiscal 1999)
and 1997 is  unaudited  but  includes all  adjustments  which Energy  Conversion
Devices,  Inc. (ECD)  considers  necessary for a fair  presentation of financial
condition, cash flows and results of operations.

      In accordance  with the  instructions  for the completion of the Quarterly
Report on Form 10-Q, certain  information and footnotes necessary to comply with
Generally Accepted Accounting  Principles (GAAP) have been condensed or omitted.
These financial  statements should be read in conjunction with ECD's 1998 Annual
Report on Form 10-K, which contains a summary of ECD's accounting principles and
other footnote information.

      The consolidated  financial statements include the accounts of ECD and its
93.5%- owned subsidiary Ovonic Battery Company, Inc. (Ovonic Battery), a company
formed to develop and  commercialize  ECD's Ovonic nickel metal  hydride  (NiMH)
battery technology (collectively the Company). Due to cumulative losses incurred
by  Ovonic  Battery,  no  minority  interest  is  recorded  in the  consolidated
financial statements.

      ECD also has two major investments accounted for by the equity method: (i)
United Solar Systems Corp. (United Solar) (49.98%),  ECD's  photovoltaic  (solar
energy) joint venture with Canon Inc. of Japan (Canon) and (ii) GM Ovonic L.L.C.
(GM  Ovonic)  (40%),   Ovonic   Battery's  joint  venture  with  General  Motors
Corporation  (General Motors) to manufacture and sell the Company's  proprietary
NiMH batteries for electric and hybrid electric vehicle applications  worldwide.
In  addition,  ECD has a 50%-owned  joint  venture in Russia,  Sovlux Co.,  Ltd.
(Sovlux).

      The Company's investments in its joint ventures,  other than United Solar,
are recorded at zero.  The Company will continue to carry its investment in each
of these joint ventures at zero until the venture becomes profitable (based upon
the venture's  history of sustainable  profits),  at which time the Company will
start to recognize over a period of years its share,  if any, of the then equity
of each of the ventures,  and will recognize its share of each venture's profits
or losses on the equity method of accounting.

     GAAP requires ECD to carry its pre-May 1998 investments in United Solar (as
well as ECD's other joint ventures) at zero, notwithstanding ECD's contributions
to United Solar of licenses in the field of photovoltaics and other property and
equipment  in  exchange   for  ECD's   49.98%   interest  in  United  Solar  and
notwithstanding Canon's investments of $55.5 million. In May 1998, ECD and Canon
each  invested  $2.5 million in United Solar to fund United  Solar's  continuing
operations.

      GAAP requires  that ECD's $2.5 million cash  investment be recorded on the
balance  sheet as an investment  in United  Solar.  At  the same time,  however,
GAAP requires that ECD make non-cash adjustments to its carrying value of United
Solar such that ECD's

                                 7

<PAGE>



carrying  value of United Solar is decreased  by the losses of United Solar  (in
proportion to ECD's ownership share of United Solar) and ECD is required to  re-
cord a non-cash, non-operating expense  in the  amount of the non-cash reduction
in carrying value of United Solar.

      The Company  will suspend  recording  non-cash,  non-operating  expense or
income should the  calculated  investment in United Solar go below zero or above
$2.5 million.  The  investment in United Solar will continue to be carried at an
amount no higher than the Company's cash  investment  until United Solar becomes
profitable  (based upon its history of sustainable  profits),  at which time the
Company will start to recognize over a period of years its share, if any, of the
then equity of United  Solar,  and will  recognize  its share of United  Solar's
profits or losses on the equity method of accounting.

      On  February  2, 1998,  the  Company  and EV Global  Motors  Company  ("EV
Global") entered into a Stock Purchase  Agreement  ("Agreement")  which provided
for the transfer to EV Global of 146,924  shares of the  Company's  Common Stock
and warrants to purchase  133,658  shares of the  Company's  Common  Stock.  The
Agreement  also provided for the transfer to the Company of 250,000 shares of EV
Global Common Stock and 129,241 shares of Unique  Mobility,  Inc.  Common Stock.
The  warrants  are  exercisable  prior to February 2, 2003,  with 73,462  shares
exercisable at $13.6125 and 60,196 shares exercisable at $16.6125.

      The  Company  accounts  for its  investment  in EV  Global,  a  non-public
company,  under the cost  method of  accounting.  The Company  accounts  for its
investment in Unique Mobility,  Inc. in accordance with SFAS 115, Accounting for
Certain  Investments  in Debt and Equity  Securities,  and has  classified  this
security  as  available-for-sale.  Unrealized  gains or  losses  as a result  of
changes  in  the  market   value  of  the  Unique   Mobility   investments   are
marked-to-market,  with the offset  recorded to  Stockholders'  Equity.  Neither
investment is considered impaired as of September 30, 1998.

      Upon  consolidation,   all  intercompany  accounts  and  transactions  are
eliminated.

      Certain  items for the three  months  ended  September  30, 1997 have been
reclassified  to be  consistent  with the  classification  of items in the three
months ended September 30, 1998.

      In preparing financial  statements in conformity with GAAP,  management is
required to make estimates and  assumptions  that affect the reported  amount of
assets and liabilities  and the disclosure of contingent  assets and liabilities
at the date of the  financial  statements  and revenues and expenses  during the
reported period.  Actual results could differ from those estimates.  The Company
is impacted by other factors such as the continued receipt of contracts from the
U.S. government and industrial partners, its ability to protect and maintain the
proprietary  nature of its technology,  its continued  product and technological
advances  and the  strength  and ability of the  Company's  licensees  and joint
venture partners to commercialize the Company's products and technologies.


                                 8

<PAGE>



     During the three months ended  September 30, 1998, the Company adopted FASB
Statement No. 130, Reporting  Comprehensive  Income.  Statement No. 130 requires
the reporting of comprehensive income in addition to net income from operations.
Comprehensive  income is a more inclusive financial  reporting  methodology that
includes  disclosure of certain financial  information that historically has not
been  recognized  in  the  calculation  of  net  income.   The  Company's  total
comprehensive loss was as follows:

                                               Three Months Ended September 30,
                                               --------------------------------
                                                 1998                  1997
                                                 ----                  ---- 
Net Loss                                     $(5,223,995)           $(4,297,066)
OTHER COMPREHENSIVE LOSSES:
Unrealized loss on security                     (291,000)                --
                                             ------------           ------------
COMPREHENSIVE LOSS                           $(5,514,995)           $(4,297,066)
                                             ============           ============

United Solar

      In 1990,  ECD and Canon  entered into a joint  venture  agreement  for the
formation of United Solar. United Solar is owned 49.98% by ECD, 49.98% by Canon.
ECD has  contributed  to United  Solar a license in the field of  photovoltaics,
certain solar cell manufacturing and photovoltaic product development equipment,
leasehold  improvements,  furniture  and fixtures,  inventory  and supplies.  In
return for the contribution of these assets, ECD received 49.98% equity interest
in United Solar. In return for its 49.98% equity interest in United Solar, Canon
has invested $58,000,000,  including the $2,500,000 investment in 1998 described
below.

      In May 1998,  ECD and Canon each  invested  $2,500,000  in United Solar to
fund United Solar's continuing  operations.  In the three months ended September
30, 1998, ECD recorded $1,089,000 as its share of the losses of United Solar.

      The following sets forth certain selected  financial data regarding United
Solar that are derived from United Solar's unaudited financial statements:

                        UNITED SOLAR STATEMENTS OF OPERATIONS

                                         Three Months Ended   Three Months Ended
                                         September 30, 1998   September 30, 1997
                                         ------------------   ------------------
                                            (Unaudited)          (Unaudited)

      Revenues*                             $ 3,140,424          $ 2,704,216
      Operating Expenses
        Cost of product sales                 3,684,584            4,312,307
        Research and development                736,517              626,443
        General and administrative              386,710              181,156
        Sales and marketing                     363,355              389,775
                                            -----------          -----------
           Total                              5,171,166            5,509,681
        Other Income (expenses)                (147,660)              --
                                            ------------         -----------
      Net Loss                              $ 2,178,402)         $(2,805,465)
                                            ============         ============

      * Includes product sales and revenues earned under research contracts.


                                 9

<PAGE>



                           UNITED SOLAR BALANCE SHEETS
                           ---------------------------

                                                    September 30,      June 30,
                                                    -------------      --------
                                                        1998            1998
                                                        ----            ----  
                                                      (Unaudited)    (Unaudited)
     Current Assets:
        Cash and cash equivalents                     $ 2,107,661    $ 4,091,047
        Accounts receivable                             1,693,193      1,748,857
        Inventory                                       3,588,644      3,361,684
        Other current assets                              392,372        462,282
                                                      -----------    -----------
           Total Current Assets                         7,781,870      9,663,870
     Property, plant and equipment (net)               10,936,884     11,575,454
     Other assets                                         225,295        183,763
                                                      -----------    -----------
           Total Assets                               $18,944,049    $21,423,087
                                                      ===========    ===========

     Current Liabilities:
        Short-term bank debt                          $ 1,445,703    $ 1,445,703
        Accrued expenses and other                      2,512,165      2,609,402
                                                      -----------    -----------
           Total Current Liabilities                    3,957,868      4,055,105
                                                      -----------    -----------
        Note Payable - Canon                            2,500,000      2,500,000
        Lease Payable                                   7,539,744      7,743,143
           Total Stockholders' Equity                   4,946,437      7,124,839
                                                      -----------    -----------
            Total Liabilities and Stockholders'
              Equity                                  $18,944,049    $21,423,087
                                                      ===========    ===========
GM Ovonic

      In June 1994, Ovonic Battery and General Motors formed a joint venture for
the  manufacture  and  commercialization  of Ovonic NiMH  batteries for electric
vehicles.  General  Motors  has a 60%  interest  and  Ovonic  Battery  has a 40%
interest in this joint  venture.  Ovonic  Battery has  contributed  intellectual
property,  licenses,  production processes,  know-how, personnel and engineering
services pertaining to Ovonic NiMH battery technology to the joint venture.  The
contribution by General Motors consists of operating capital,  plant,  equipment
and management personnel necessary for the volume production of batteries.

      There are no financial  statements  currently  available for GM Ovonic. GM
Ovonic is in its initial start-up phase and, as such, has a history of operating
losses.

Sovlux

      In 1990,  the Company formed  Sovlux,  a joint venture to manufacture  the
Company's  photovoltaic  products in the  countries of the former  Soviet Union.
Sovlux is owned 50% by the Company and 50% by the State  Research and Production
Enterprise  Kvant and  enterprises  of the  Russian  Ministry  of Atomic  Energy
("Minatom").  Sovlux has not been able to commence  production  of  photovoltaic
products due to Minatom's  inability to provide the required  operating  capital
due to current economic conditions in Russia.

      In fiscal  1998,  the  Company  formed  Sovlux  Battery  to  produce  NiMH
batteries and components  for sale to Ovonic  Battery and its licensees.  Sovlux
Battery is owned 50% by the Company and 50% by the  Chepetsky  Mechanical  Plant
("Chepetsky")  an  enterprise  of Minatom.  The  Company's  contribution  to the
ventures consist solely of technology.


                                10

<PAGE>



      There are no financial statements currently available for Sovlux or Sovlux
Battery.  Sovlux and Sovlux  Battery  are in their  developmental  stage and, as
such, have a history of operating losses.

Accounts Receivable

      The  following   tabulation  shows  the  component  elements  of  accounts
receivable from long-term contracts and other programs:

                                                 September 30,       June 30,
                                                    1998               1998
                                                 -------------      ----------- 
      U.S. Government:
        Amounts billed                            $   905,348       $   717,281
        Unbilled                                      711,248           812,439
                                                  -----------       ------------
           Total                                    1,616,596         1,529,720
                                                  -----------       ------------

      Commercial Customers:
        Amounts billed                              4,374,125         5,480,895
        Related party billed
           - United Solar                             110,327           169,847
           - GM Ovonic                                716,716           729,561
        Royalties                                     825,607         1,157,619
        License fees                                  300,000           300,000
        Due per contracts                           1,262,833           353,954
        Related party unbilled
           - GM Ovonic                                452,346           591,707
           Other unbilled                                --               2,358
                                                  -----------       ------------
           Total                                    8,041,954         8,785,941
                                                  -----------       ------------

      Other                                           238,637           157,406
      Allowance for Uncollectible Accounts           (291,000)         (315,000)
                                                  ------------      ------------
             TOTAL                                $ 9,606,187       $10,158,067
                                                  ===========       ===========


      Amounts due per contracts,  related party unbilled and other unbilled from
commercial  customers  represent  revenues  recognized  for the present value of
license  payments to be received in future periods.  They also include  revenues
recognized  on the  percentage-of-completion  method of  accounting  related  to
machine-building   contracts  and  amounts   earned  under  certain   commercial
contracts, which are billed in subsequent months.

      Certain  contracts  with the U.S.  government  require a retention that is
paid upon completion of an audit of the Company's  indirect rates.  There are no
material  retentions  at  September  30, 1998 and June 30,  1998.  Certain  U.S.
government   contracts  remain  subject  to  audit.   Management  believes  that
adjustments, if any, which may result from an audit would not be material to the
financial position or results of operations of the Company.



                                11

<PAGE>



Inventories

      Inventories of raw  materials,  work in process and finished goods for the
manufacture of negative electrodes,  battery packs and other products,  together
with supplies,  are valued at the lower of cost (moving average) or market. Cost
elements  included in inventory are  materials,  direct labor and  manufacturing
overhead. Cost of sales is removed from inventory based on actual costs of items
shipped to customers.

      Inventories (principally those of Ovonic Battery) are as follows:

                                        September 30, 1998       June 30, 1998
                                        ------------------       -------------  

        Finished products                  $   122,165           $   119,649
        Work in process                        713,990               511,582
        Raw materials                          415,506               442,866
                                           -----------           -----------
                                           $ 1,251,661           $ 1,074,097
                                           ===========           ===========

Product Sales

      Product sales include battery electrodes,  revenues related to building of
battery packs,  and revenues  related to  machine-building  contracts.  Revenues
related   to   machine-building    contracts    are    recognized   on   the
percentage-of-completion  method of accounting  using the costs incurred to date
as a  percentage  of the  total  expected  costs.  All other  product  sales are
recognized when the product is shipped.  In certain cases, cost of sales exceeds
product sales due to significant changes in products and manufacturing methods.

Royalties

      Most license  agreements provide for the Company to receive royalties from
the sale of products  which  utilize the  licensed  technology.  Typically,  the
royalties  are  incremental  to and  distinct  from  the  license  fee  and  are
recognized  as revenue  upon the sale of the  respective  licensed  product.  In
several  instances,  the Company has received  cash  payments for  nonrefundable
advance royalty payments which are creditable against future royalties under the
licenses.  Advance  royalty  payments are deferred and recognized in revenues as
the  creditable  sales occur,  the  underlying  agreement  expires,  or when the
Company  has  demonstrable   evidence  that  no  additional  royalties  will  be
creditable and, accordingly, the earnings process is completed.

      For both ECD and Ovonic  Battery  royalties,  there are  royalty  trust or
contingent  fee  arrangements  whereby  ECD is  obligated  to pay a trust 25% of
optical memory royalties received and whereby Ovonic Battery is obligated to pay
a law firm 25% of Ovonic Battery royalties received relative to consumer battery
licenses entered into in 1995 in settlement of an International Trade Commission
action.



                                12

<PAGE>



Business Agreements

      A substantial  portion of revenue is derived through  business  agreements
for  the  development  and/or  commercialization  of  products  based  upon  the
Company's proprietary technologies. Such agreements are of two types.

      The first type of business  agreement  relates to licensing  the Company's
proprietary  technologies.  Licensing  activities  are  tailored to provide each
licensee  with the right to use the  Company's  technologies,  most of which are
patented, for a specific product application or, in some instances,  for further
exploration of new product applications of such technologies.  The terms of such
licenses,  accordingly,  are  tailored  to  address  a number  of  circumstances
relating to the use of such technologies  which have been negotiated between the
Company and the licensee.  Such terms generally address whether the license will
be exclusive or nonexclusive,  whether the licensee is limited to very narrowly-
defined applications or to broader-based product manufacture or sale of products
using such technologies, whether the license will provide royalties for products
sold which employ such  licensed  technologies  and how such  royalties  will be
measured, as well as other factors specific to each negotiated  arrangement.  In
some  cases,  licenses  relate  directly to research  and  development  that the
Company has  undertaken  pursuant to product  development  agreements;  in other
cases, they relate to product development and  commercialization  efforts of the
licensee;  other agreements combine the efforts of the Company with those of the
licensee.

      License agreement fees are generally recognized as revenue at the time the
agreements are  consummated,  which is the  completion-of-the-earnings  process.
Typically, such fees are nonrefundable, do not obligate the Company to incur any
future costs or require future  performance by the Company,  and are not related
to future  production  or  earnings of the  licensee.  License  fees  payable in
installments  are  recorded at the  present  value of the amounts to be received
taking into account the collectibility of the license fee. In some instances,  a
portion of such license fees is contingent  upon the  commencement of production
or other uncertainties.  In these cases, license fee revenues are not recognized
until  commencement of production or the resolution of uncertainties.  There are
no current or future direct costs associated with license fees.

      In the second  type of  agreement,  product  development  agreements,  the
Company  conducts  specified  commercialization  and  research  and  development
projects  related  to one of its  principal  technology  specializations  for an
agreed-upon fee. Some of these projects have stipulated performance criteria and
deliverables whereas others require "best efforts" with no specified performance
criteria.  Revenues from product  development  agreements that contain  specific
performance  criteria are  recognized on a  percentage-of-completion basis which
matches the contract  revenues to the costs  incurred on a project  based on the
relationship  of costs incurred to estimated  total project costs.  Revenue from
product development  agreements,  where there are no specific performance terms,
is  recognized  in  amounts  equal  to the  amounts  expended  on the  programs.
Generally,  the agreed-upon fees for product development  agreements contemplate
reimbursing the Company for costs considered  associated with project activities
including  expenses  for  direct  product  development  and  research,  patents,
operating, general and administrative

                                13

<PAGE>



and  depreciation.   Accordingly,   expenses  related  to  product   development
agreements are recorded as cost of revenues from product development agreements.

Overhead Allocations

      The  Company  allocates  overhead  to  product  development  and  research
expenses and to cost of revenues from product development  agreements based on a
percentage of direct labor costs. For cost of revenues from product  development
agreements  this  allocation is limited to the amount of revenues,  after direct
expenses,  under the  applicable  agreements.  Overhead is  allocated to cost of
product sales through the application of overhead to inventory costs.

Other Operating Revenues

      Other  operating  revenues  consist  principally  of  third-party  service
revenue realized by certain of the Company's service departments,  including the
Production  Technology  and Machine  Building  Division  and Central  Analytical
Laboratory.

Other Nonoperating Income

      Other  nonoperating  income-net  consists  of rental  income and gains and
losses on the sale of fixed assets.

NOTE B - Product Sales, Royalties, Revenues from Product Development Agreements
-------------------------------------------------------------------------------
and License and Other Agreements
--------------------------------

      The Company has business agreements with third parties for which royalties
and  revenues are  included in the  consolidated  statements  of  operations.  A
summary of the royalties and revenues from such agreements follows:

                                                Three Months Ended September 30,
                                                --------------------------------
                                                     1998              1997
                                                     ----              ---- 
Product Sales:
   Negative and positive electrodes               $   966,555      $ 2,316,828
   Battery packs                                        --             164,374
   Machine building                                     --              93,295
                                                  -----------      -----------
                                                  $   966,555      $ 2,574,497
                                                  ===========      ===========

Royalties:
   Battery Technology                             $   599,845      $   300,000
   Optical Memory                                      15,491           38,000
                                                  -----------      -----------
                                                  $   615,336      $   338,000
                                                  ===========      ===========

 Revenues from product development agreements:
   Photovoltaics                                  $   718,168      $    75,248
   Battery Technology                               2,506,534        2,038,284
   Microelectronics                                   446,676          241,705
   Hydrogen                                            90,220          184,877
   Other                                               11,749          249,951
                                                  -----------      -------------
                                                  $ 3,773,347      $ 2,790,065
                                                  ===========      =============

Revenues from license and other agreements:
   Battery                                        $    42,000      $    58,505
                                                  ===========      =============


                                14

<PAGE>



NOTE C - Nonrefundable Advance Royalties
----------------------------------------

      At September 30 and June 30, 1998,  the Company  deferred  recognition  of
revenues  relating to  nonrefundable  advance royalty  payments.  Non-refundable
advance royalties consist of the following:

                                                   September 30,      June 30,
                                                       1998             1998
                                                   -------------     -----------
       Battery                                      $ 1,338,802      $ 1,338,802
       Optical Memory                                 2,086,449        2,095,318
                                                    -----------      -----------
                                                    $ 3,425,251      $ 3,434,120
                                                    ===========      ===========

NOTE D - Net Loss Per Share
---------------------------

      Basic net loss per common  share is computed  by dividing  net loss by the
weighted  average  number of common  shares  outstanding.  The Company  used the
treasury  stock  method to  calculate  diluted  earnings  per  share.  Potential
dilution  exists from stock options and  warrants.  Weighted  average  number of
shares outstanding and basic and diluted earnings per share for the three months
ended September 30, 1998 and 1997 are computed as follows:

                                                      1998                1997
                                                    --------            --------

   Weighted average number of shares outstanding   12,830,539        10,785,775

   Net loss                                       $(5,223,995)      $(4,297,066)
                                                  ============      ============

   BASIC NET LOSS PER SHARE                       $      (.41)      $      (.40)
                                                  ============      ============

   DILUTED NET LOSS PER SHARE                     $      (.41)      $      (.40)
                                                  ============      ============


      Basic and  diluted  loss per share were the same in each period due to the
losses  recognized  in each period.  Due to the  Company's  net loss in 1998 and
1997,  50,198 and 456,302,  respectively,  of potentially  dilutive  shares were
excluded from the weighted average number of shares and from the calculations of
diluted  loss per  share,  as  inclusion  of these  securities  would  have been
antidilutive  to the net loss per  share.  An  additional  4,681,609  and 45,000
shares,  respectively,  were  excluded  from the 1998  and 1997  calculation  of
weighted average number shares of potentially  dilutive  securities.  Because of
the relationship between the exercise prices and the average market price of the
Company's stock during these periods,  such excluded  securities would have been
antidilutive regardless of the Company's net loss.



                                15

<PAGE>



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

      The  following   discussion   should  be  read  in  conjunction  with  the
accompanying Quarterly Financial Information and Notes thereto and the Company's
Annual  Report on Form 10-K for the year ended June 30, 1998 and is qualified in
its entirety by the  foregoing.  The results of operations  for the three months
ended  September  30,  1998 are not  necessarily  indicative  of  results  to be
expected in future periods.

                        Forward-Looking Information

      This  Quarterly  Report on Form 10-Q contains  forward-looking  statements
within the meaning of Section 27A of the Securities Act of 1933 (the "Securities
Act") and  Section 21E of the  Securities  Exchange  Act of 1934 (the  "Exchange
Act") which are not historical  facts and involve risks and  uncertainties  that
could  cause  actual  results  to differ  materially  from  those  expected  and
projected.  These  forward-looking  statements concern,  among other things, the
Company's   expectations,   plans  and  strategies  for  the   development   and
commercialization  of  products  based  on its  technologies  and are  generally
identified  by  the  use  of  such  terms  as  "intends,"   "expects,"  "plans,"
"projects," "estimates," "anticipates," "should" and "believes."

      The Company's future business  prospects are substantially  dependent upon
the ability of the Company, its joint venture partners and licensees to develop,
manufacture and sell products based on the Company's technologies.  Any revenues
or profits  which may be derived by the Company from  license and joint  venture
agreements will be  substantially  dependent upon the willingness and ability of
the Company's  licensees and joint  venture  partners to devote their  financial
resources and manufacturing and marketing capabilities to commercialize products
based on the  Company's  technologies.  Additional  development  efforts will be
required  before  certain  products based on the Company's  technologies  can be
manufactured  and sold  commercially.  There can be no  assurance  that  certain
products  based  on  the  Company's   technologies  can  be  manufactured   cost
effectively  on  a  commercial  scale,  that  such  products  will  gain  market
acceptance or that competing  products and technologies will not render products
based on the Company's technologies obsolete or noncompetitive.  There can be no
assurance  that the  Company's  patents  or  other  proprietary  rights  will be
determined to be valid or enforceable  if challenged in court or  administrative
proceedings or that the Company  patents or other  proprietary  rights,  even if
determined  to be valid,  will be broad enough in scope to enable the Company to
prevent third parties from  producing  products  using similar  technologies  or
processes.

      The Company cautions that the foregoing factors,  as well as other factors
discussed in this Quarterly  Report and in other  documents and reports filed by
the  Company  with  the  Securities  and  Exchange  Commission  pursuant  to the
requirements of the federal  securities  laws,  could cause the actual facts and
conditions  that may exist in the  future to vary  materially  from the  assumed
facts and conditions upon which the forward-looking  statements contained herein
are based. The Company does not undertake any obligation

                                16

<PAGE>



to update or revise any forward-looking  statement, made by it or on its behalf,
whether as a result of new information, future events or otherwise.

                           Results of Operations
    
Three Months Ended September 30, 1998 Compared to Three Months Ended
--------------------------------------------------------------------
September 30, 1997
------------------

      The  Company  had a net loss from  operations  in the three  months  ended
September  30,  1998 of  $4,434,000  compared to a net loss from  operations  of
$4,473,000 for the year ended  September 30, 1997. The loss is primarily due to:
(1)  costs  of  ongoing  battery  product   development  and  continued   market
development; (2) losses related to electrode production as the Company optimized
its product  performance;  (3)  unreimbursed  expenses of additional  technical,
manufacturing  and  engineering  support for GM Ovonic in furtherance of initial
NiMH battery production and ongoing technical assistance to other customers; and
(4) development  costs of the  multi-state  electrical  memory.  In addition the
Company  incurred  nonoperating  expenses of $790,000 in the three  months ended
September  30, 1998 compared to  non-operating  income in the same period in the
prior year.  Nonoperating income (expenses) includes principally interest income
and expense and in 1998 a $1,089,000  charge required under  generally  accepted
accounting  principles  representing the Company's share of the losses of United
Solar related to its investment in May, 1998 (see NOTE A of Note to Consolidated
Financial Statement).

      Product  sales  consisting  of positive and negative  battery  electrodes,
battery  packs and  machine  building,  decreased  62% to  $967,000 in the three
months  ended  September  30, 1998 from  $2,574,000  in the three  months  ended
September  30,  1997.  Sales  of  negative  and  positive  electrodes  decreased
$1,350,000,  primarily due to lower negative electrode prices and a low level of
orders  and  shipments.  There were no battery  pack sales in 1998  compared  to
$164,000 in 1997 as GM Ovonic,  formerly the  Company's  principal  battery pack
customer,   began  its  own   production  of  battery   packs.   There  were  no
machine-building  revenues in 1998 compared to $93,000 in 1997,  principally due
to completion of the machine-building projects for GM Ovonic.

      Royalties,  substantially all of which relate to batteries,  increased 82%
from  $338,000 in the three months ended  September  30, 1997 to $615,000 in the
three  months  ended  September  30,  1998.  This  increase  was a result of the
issuance  in Japan of a basic  NiMH  battery  patent  in  August  1997 to Ovonic
Battery  causing NiMH battery sales in Japan to be royalty  bearing,  and due to
higher sales of NiMH batteries  worldwide.  (See NOTE B - Notes to  Consolidated
Financial Statements.)

      Revenues from product development agreements increased 35% from $2,790,000
in the three months ended  September  30, 1997 to $3,773,000 in the three months
ended September 30, 1998 due to substantially  increased revenues from a program
with  General  Motors to develop  batteries  for  electric  and hybrid  electric
vehicle  applications  ($1,924,000 in 1998 compared to $1,035,000 in 1997), from
contracts  with  National  Institute of Standards and  Technology  (NIST) in the
Company's battery and optical 

                                17

<PAGE>



memory  technologies  ($998,000 in  1998  compared to $143,000 in 1997) and con-
tracts with National Renewable  Energy  Laboratory in photovoltaics ($718,000 in
1998 compared to $75,000 in 1997). These increases in 1998 were partially offset
by  decreases  in  revenues  from the  United States Advanced Battery Consortium
($730,000 in 1997 compared to none in 1998) and decreases in revenues from other
technologies.

      Other  revenues  increased  by $81,000  from  $699,000 in the three months
ended  September  30, 1997 to $780,000 in the three months ended  September  30,
1998,  primarily due to increased  billings for work  performed for licensees of
Ovonic Battery.

      The decrease in cost of product sales from  $2,577,000 in the three months
ended  September 30, 1997 to $2,092,000 in the three months ended  September 30,
1998 was principally due to reduced level of sales in 1998. The negative margins
in 1998 were due to fixed  costs  related to reduced  levels of  production  and
reductions in cost of product sales  insufficient to offset the reduced level of
sales in 1998.

      The increase in cost of revenues from product  development  agreements and
the decrease in product  development  and  research  expense in the three months
ended  September 30, 1998 compared to the three months ended  September 30, 1997
was  principally  due to ongoing  electric  vehicle  battery  and other  product
development,  as  a  result  of  increased  revenues  from  product  development
agreements.  Total cost of funded and unfunded product  development and research
expense increased 18% to $6,937,000 in the three months ended September 30, 1998
compared to $5,869,000 in the three months ended September 30, 1997.

      The increase in patent  expenses  from  $327,000 in the three months ended
September 30, 1997 to $357,000 in the three months ended  September 30, 1998 was
primarily due to higher patent and  maintenance  costs in the three months ended
September 30, 1998. Patent defense expenses for the three months ended September
30, 1998 were  basically  flat compared to the three months ended  September 30,
1997 due to the conclusion of significant patent defense activities.

      The  decrease in  operating,  general  and  administrative  expenses  from
$2,088,000  in the three months ended  September  30, 1997 to  $1,157,000 in the
three  months  ended  September  30,  1998 was  primarily  related to  increased
allocations  to  cost  of  revenues  from  product  development  agreements  and
decreased depreciation expense in 1998.

      The  change  from  other  income of  $175,000  in the three  months  ended
September  30, 1997  compared to other  expense of $790,000 in the three  months
ended  September  30, 1998 was due  principally  to the  Company's  share of the
losses of United Solar in 1998 and decreased interest income in the three months
ended September 30, 1998.

                  Liquidity and Capital Resources

      As of September 30, 1998, the Company had unrestricted  consolidated  cash
and cash  equivalents  of  $21,931,000,  a decrease of $3,855,000  from June 30,
1998. In addition,  the Company had accounts receivable at September 30, 1998 of
$8,327,000  

                                18

<PAGE>



compared to  $8,667,000  at June 30, 1998. As of September 30, 1998, the Company
had  consolidated  working  capital of $25,500,000  compared with a consolidated
working capital of $29,800,000 as of June 30, 1998.

      With the issuance of the basic patents for NiMH batteries and phase change
memory in Japan,  various agreements are under discussion.  On October 22, 1998,
Ovonic Battery entered into a cooperative venture agreement and a patent license
with Sanyo Electric Co., Ltd.  ("Sanyo") of Osaka,  Japan. The license agreement
provides  for an up- front  payment  and  royalties  on (1) NiMH  batteries  for
two-and-three-wheel  vehicles  in  Japan  and  China  for  worldwide  sale,  (2)
other-use  large NiMH batteries in Japan and (3) NiMH batteries for four or more
wheel vehicles manufactured in Japan for domestic and export sale. Sanyo is also
purchasing a minority common share position in Ovonic Battery. The Company is to
receive a payment of $7,970,000 within 30 days from the date of the agreement.

      The Company is pursuing  its  strategies  to  commercialize  its  products
through strategic alliances by forming joint ventures or license agreements with
third parties who can provide  financial  resources and marketing  expertise for
the Company's  technologies and products. The Company is also developing its own
capabilities for volume manufacturing of battery electrodes.

      During the three months ended  September 30, 1998,  $3,337,000 of cash was
used in operations.  The  difference  between the net loss of $5,224,000 and the
net cash used in operations was due to the Company's  share  ($1,089,000) of the
losses of  United  Solar,  depreciation  expense  and a  reduction  in  accounts
receivables.  In addition,  $208,000 of machinery and equipment was purchased or
constructed for the Company's operations during this period.

      During the next 12 months,  the Company is considering  the purchase of up
to $750,000 of machinery and  equipment.  The  machinery and equipment  would be
utilized principally for Ovonic Battery's manufacturing operation.

      At present,  the Company has two major electrode customers for its battery
electrode  products,  GP Batteries  International  Limited (GP Batteries) and GM
Ovonic.  GP  Batteries  is a  licensee  and  pays  royalties  and  is  currently
negotiating  electrode product  specifications  and pricing.  These negotiations
could result in GP Batteries manufacturing its own electrode products.  Sales of
electrode  products to GM Ovonic are  expected to increase as GM Ovonic ramps up
its  production of battery packs at an expanded  manufacturing  facility.  While
sales of  electrode  products in fiscal  year 1999 are  currently  projected  to
decrease,  new positive and negative electrodes materials are being developed to
help increase sales in future periods. The Company has taken steps to reduce its
costs in a manner  consistent  with the  expected  lower  volumes  of  electrode
product sales.

      The Company expects significant revenues and cash flows related to product
development  agreements,  many of which already exist,  that are entered into by
the 

                                19

<PAGE>



Company with U.S. government agencies and with industry partners to develop  the
Company's  products and  production  technology.  In October  1998,  ECD was
awarded two contracts by Department of Energy (DOE) valued at over $3.5 million,
subject to funding: (1) a $1.7  million, 50% cost-shared  cooperative  agreement
to  develop  and demonstrate  an  integrated  system  for the  production  and
storage of clean, renewable  hydrogen  fuel  for  transportation  and  other
applications  in the developing  world, and (2) a $1.9 million,  50% cost-shared
contract to develop and  demonstrate  a high-rate  thin-film deposition  process
to further  reduce photovoltaic  manufacturing  costs.  Revenues  under  these
contracts will be recognized quarterly as the work is performed.  Contracts with
industry partners include a  multi-task,  multi-million  dollar  program  with
General  Motors to develop batteries for electric and hybrid electric vehicle
applications which is presently projected to conclude in June 1999.This program,
which is funded on a monthly basis,builds upon the Company's earlier investments
to develop a family of batteries and is intended to  provide  next- and  future-
generation  NiMH batteries that will be manufactured by GM Ovonic.

      Three  contracts  awarded  in the Fall of 1997 to the  Company  under NIST
Advanced  Technology  Programs  will also provide  significant  cash flows.  One
contract was awarded to Ovonic  Battery to develop the next  generation  of high
energy density NiMH batteries using low-cost  magnesium-based  hydrogen  storage
materials.  The  other  two  NIST  contracts  were  awarded  to ECD  to  support
development of a new, low-cost  manufacturing  system for DVD (digital versatile
disks)  based on  ECD's  proprietary  phase-change  technology  and for  further
development  of  the  optical  memory  phase-change  products.   Generally,  the
agreed-upon fees for these product development  agreements reimburse the Company
for its direct costs associated with these projects,  together with a portion of
indirect costs  (patents,  operating,  general and  administrative  expenses and
depreciation).

      Currently,  the Company has two financing  arrangements  available:  (1) a
$5,000,000 line of credit with Standard Federal Bank bearing an interest rate of
prime  plus 1/2% that  expires on March 31,  1999;  and (2)  $863,000  in unused
credit  of  an  original  $6,000,000  credit  arrangement  with  Finova  Capital
Corporation  that expires on December  31, 1998.  The Company does not expect to
use any of this available financing.

      The Company is actively pursuing its strategy to form strategic  alliances
to further commercialize its products. While the Company is in negotiations with
a number of companies which could provide  additional  revenue under license and
other agreements for the Company in the coming year, it is unable to predict the
amount, if any, of such revenue.

      In August 1997, the Company was issued a basic patent in Japan  specifying
the fundamentals that make NiMH batteries commercially feasible and causing NiMH
battery  sales in Japan to be royalty  bearing.  The issuance of this patent has
resulted in higher  royalty  revenue and is expected to result in the payment of
higher running  royalties in the future based upon current  production rates and
selling  prices of  batteries  produced  in Japan by  licensees.  Other than the
foregoing,  the Company is not aware of other events or circumstances that would
allow it to forecast royalty revenues significantly higher or lower for the next
12 months.


                                20

<PAGE>



      The Company is also negotiating new machine-building  contracts that could
provide revenues in the coming year and beyond. Machine building is cyclical but
an important part of the Company's  business.    As  of  September 30, 1998, the
Company had no backlog of machine-building contracts.

      Based upon the above information,  the amount of cash to be received under
existing  product  development  agreements  in the year  ending June 30, 1999 is
anticipated to be  approximately  $19,000,000  compared to $11,200,000  received
from product development  agreements in the year ended June 30, 1998. The amount
of cash from  royalties  to be  received  in the year  ending  June 30,  1999 is
expected to be, based on historical trends, approximately $2,600,000 compared to
$1,989,000 received in the year ended June 30, 1998.

      Since license fees are continuously  being negotiated,  they are difficult
to predict.  The Company is unable to forecast the amount of cash to be received
from license fees in the year ending June 30, 1999.

      Management believes that funds generated from operations and existing cash
and cash  equivalents  will be adequate to support and finance  planned  growth,
capital expenditures and company-sponsored product development programs over the
coming year. It is the Company's  intent to use its cash and investments to fund
its operations. Additional sources of cash are, however, required to sustain the
Company for the long-term  and to build the business in the future.  While it is
the  Company's  intent  to fund its  operations  from  cash and cash  equivalent
balances on hand and from activities such as product sales, licensing, royalties
and product development agreements,  the amount and timing of revenues from such
activities  are  uncertain  such  that  the  Company  may be  required  to  seek
additional equity or debt financing.

                          Year 2000 Issue

      Historically,  many  computer  programs have been written using two digits
rather  than four to define  the  applicable  year,  which  could  result in the
program  failing to properly  recognize a year that begins with "20"  instead of
"19." This, in turn,  could result in major system  failures or  miscalculations
and is generally referred to as the "Year 2000 Issue."

      The Company has  formulated a Year 2000 Plan to address the Company's Year
2000 Issues. The Company's own internal systems are a primary area of focus. The
Company  installed  a new  computer  system in July  1997 to run its  financial,
business reporting and data processing software  applications.  The providers of
the application  software used in the new computer  system have  represented the
software to be Year 2000 compliant.

      The  Company is  currently  evaluating  its other  software  applications,
including,  but  not  limited  to,  its  computerized  laboratory  manufacturing
equipment  and  imbedded  chips  to  identify  any  Year  2000  Issues  that may
significantly disrupt the Company's operations in a material manner.



                                21

<PAGE>



The Company's Year 2000 Plan is to:

      o   Inventory hardware, software and equipment
      o   Test and/or confirm hardware, software and equipment
          considered Year 2000 compliant
      o   Identify Year 2000 issues
      o   Determine necessary measures to address issues
      o   Implement remedies
      o   Test and confirm

      The above steps will  overlap to a  significant  degree and the Company is
currently in various stages of each of these steps. The Company  presently plans
to have  identified  all issues  related to  critical  operations  by the end of
calendar 1998 and have implemented remedies no later than June 1999.

      The Company believes that most non-compliant software can be upgraded from
equipment  manufacturers and software providers.  It is currently estimated that
the cost of Year 2000 compliance  will be less than $250,000,  primarily for the
purchase of upgraded  software and new or upgraded  computers.  This preliminary
estimate is based on presently available  information and will be updated as the
Company continues to implement its Year 2000 Plan.

      If the Company's  new computer  system fails with respect to the Year 2000
Issue  or if any  applications  or  embedded  chips  critical  to the  Company's
manufacturing  process are overlooked,  there could be a material adverse impact
on  the  business   operations   or  financial   performance   of  the  Company.
Additionally,  there can be no assurance that the systems of other  companies on
which the Company's systems rely will be timely converted,  or that a failure to
convert  by another  company,  or a  conversion  that is  incompatible  with the
Company's  systems,  would not have  material  adverse  effect  on the  business
operations or financial  performance  of the Company.  In  particular,  if third
party  providers,  due to the Year 2000 Issue,  fail to provide the Company with
components,   materials  or  energy  which  are  necessary  to  timely  complete
contractual  requirements or to manufacture its products,  then any such failure
could have a material  adverse  effect on the business  operations and financial
performance of the Company.

      The Company has not yet  established  a contingency  plan,  but intends to
formulate one to address  unavoided or unavoidable risks and expects to have the
contingency plan formulated by July 1999.

                                22

<PAGE>



                         PART II - OTHER INFORMATION
                         ---------------------------

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

      A.   Exhibits
           --------

           Exhibit 27.    Financial Data Schedule (Edgar version)

      B.   Reports on Form 8-K
           -------------------

           None


                                23

<PAGE>


                            SIGNATURES

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


                             Energy Conversion Devices, Inc.
                             (Registrant)


                             
                     By:     /s/ Stephan W. Zumsteg
                             ---------------------------------
                             Stephan W. Zumsteg
Date: November 16, 1998      Treasurer



                     By:     /s/ Stanford R. Ovshinsky
                             ---------------------------------
                             Stanford R. Ovshinsky
Date: November 16, 1998      President and Chief Executive Officer




                                24