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       MARCH 31, 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 May 7, 1998 there were  219,913  shares of Class A Common  Stock and
10,830,067 shares of Common Stock outstanding.

                        Page 1 of 25 Pages


                                 1

<PAGE>



                        PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

                ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (Unaudited)
<TABLE>
<CAPTION>
                                                       Three Months Ended           Nine Months Ended
                                                          March 31,                      March 31,
                                                       ------------------           -----------------
                                                        1998        1997             1998       1997
                                                        ----        ----             ----        ----
<S>                                                <C>          <C>           <C>           <C> 
REVENUES
  Product sales                                    $ 2,862,637  $ 3,287,378   $  8,105,845  $ 12,140,674
  Royalties                                            730,355      302,642      1,825,355     1,119,074
  Revenues from product development 
     agreements                                      3,948,527    1,725,233     10,961,782     3,834,783
  Revenues from license and other agreements           600,000       --            900,000     4,326,645
  Other                                                841,199      368,613      2,398,652     1,019,143
                                                   -----------  -----------   ------------  ------------
     TOTAL REVENUES                                  8,982,718    5,683,866     24,191,634    22,440,319

EXPENSES
  Cost of product sales                              3,214,676    4,214,051      9,173,655    13,895,955
  Cost of revenues from product
     development agreements                          4,171,715    1,728,708     11,084,642     3,719,833
  Product research and development                   3,097,756    3,705,538      9,849,944    10,754,479
  Patent Defense                                        92,157    1,274,766        294,104     2,431,311
  Patent                                               245,096      108,234        715,177       332,541
  Operating, general and administrative              1,969,748    2,078,897      4,984,226     5,314,940
                                                   -----------  -----------   ------------  ------------
     TOTAL EXPENSES                                 12,791,148   13,110,194     36,101,748    36,449,059
                                                   -----------  -----------   ------------  ------------
LOSS FROM OPERATIONS                                (3,808,430)  (7,426,328)   (11,910,114)  (14,008,740)

OTHER INCOME (EXPENSE)
  Interest expense                                     (28,547)     (65,793)      (110,661)     (249,787)
  Interest income                                       89,752      305,124        401,092       995,210
  Other nonoperating income (net)                      (31,772)      58,605         36,801       217,311
                                                   -----------  -----------   ------------  ------------
     TOTAL OTHER INCOME                                 29,433      297,936        327,232       962,734
                                                   -----------  -----------   ------------  ------------
NET LOSS                                           $(3,778,997) $(7,128,392)  $(11,582,882) $(13,046,006)
                                                   ===========  ===========   ============  ============

BASIC NET LOSS PER COMMON SHARE                    $      (.35) $      (.66)  $      (1.07) $      (1.22)
                                                   ===========  ===========   ============  ============

DILUTED NET LOSS PER COMMON SHARE                  $      (.35) $      (.66)  $      (1.07) $      (1.22)
                                                   ===========  ===========   ============  ============
</TABLE>


See notes to consolidated financial statements.

                                 2

<PAGE>



          ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

                    CONSOLIDATED BALANCE SHEETS

                              ASSETS

                                                     March 31,       June 30,
                                                       1998            1997
                                                     ---------       --------
CURRENT ASSETS                                      (Unaudited)     (Audited)
  Cash, including cash equivalents of
    $5,271,000 ($290,000 restricted) as of
    March 31, 1998 and $14,265,000 as of
    June 30, 1997                                  $  5,276,639    $ 14,270,145
  Investments (including restricted investments
    of $290,000 at June 30, 1997)                        --           1,059,933
  Accounts receivable (net of allowance for
    uncollectible accounts of $140,000 at
    March 31, 1998 and June 30, 1997)                 8,898,966      10,800,813
  Amounts due from related parties                    1,829,618       1,809,414
  Inventories                                         1,833,319       1,626,065
  Prepaid expenses and other current assets             466,755         404,204
                                                   ------------    ------------
      TOTAL CURRENT ASSETS                           18,305,297      29,970,574

PROPERTY, PLANT AND EQUIPMENT
  Land and land improvements                            312,588         312,588
  Buildings and improvements                          3,792,025       3,785,827
  Machinery and other equipment (including
    construction in progress of approximately
    $876,000 at March 31, 1998 and
    $1,647,000 at June 30, 1997)                     21,733,373      19,517,585
  Capitalized lease equipment                         2,976,603       5,699,048
                                                   ------------    ------------
                                                     28,814,589      29,315,048

  Less accumulated depreciation and amortization    (22,516,914)    (22,346,615)

    TOTAL PROPERTY, PLANT AND EQUIPMENT               6,297,675       6,968,433

Investment in EV Global/Unique Mobility               2,000,000          --

JOINT VENTURES
  United Solar                                           --              --
  GM Ovonic                                              --              --
  Sanoh/Ovonic Power Systems                             --              --
  Sovlux                                                 --              --

OTHER ASSETS                                          1,339,998         790,090
                                                   ------------    ------------
    TOTAL ASSETS                                   $ 27,942,970    $ 37,729,097
                                                   ============    ============



See notes to consolidated financial statements.

                                        3


<PAGE>


             ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

                       CONSOLIDATED BALANCE SHEETS

                  LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>

                                                           March 31,        June 30,
                                                             1998             1997
                                                           ---------       ---------
                                                          (Unaudited)      (Audited)
<S>                                                     <C>              <C>
CURRENT LIABILITIES
  Accounts payable and accrued expenses                 $   3,166,604    $   3,669,167
  Salaries, wages and amounts withheld
    from employees                                          1,678,926        1,144,446
  Deferred revenues under business agreements                 484,584          671,531
  Current installments on capitalized lease
    obligations                                               710,686        1,324,322
                                                        -------------    -------------
    TOTAL CURRENT LIABILITIES                               6,040,800        6,809,466

CAPITALIZED LEASE OBLIGATIONS                                 247,692          585,795

DEFERRED GAIN                                                   --             223,691

NON-REFUNDABLE ADVANCE ROYALTIES                            3,763,402        3,691,486
                                                        -------------    -------------
    TOTAL LIABILITIES                                      10,051,894       11,310,438

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 - 10,848,257 shares
      at March 31, 1998 and
      10,603,251 shares at June 30, 1997                      108,483          106,033
  Additional paid-in capital                              205,057,448      202,004,599
  Accumulated deficit                                    (186,668,246)    (175,085,364)
  Treasury stock at cost - 42,000 shares                     (608,808)        (608,808)
                                                        -------------    -------------
    TOTAL STOCKHOLDERS' EQUITY                             17,891,076       26,418,659
                                                        -------------    -------------

      TOTAL LIABILITIES & STOCKHOLDERS'
           EQUITY                                       $  27,942,970    $  37,729,097
                                                        =============    =============
</TABLE>

See notes to consolidated financial statements.

                                   4

<PAGE>



             ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY
                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                               (Unaudited)

                                                    Nine Months Ended March 31,
                                                        1998           1997
OPERATING ACTIVITIES:
  Net loss                                         $(11,582,882)   $(13,046,006)
  Adjustments to reconcile net loss to net cash
    used in by operating activities:
      Depreciation and amortization                   1,441,960       1,375,188
      Creditable royalties                               71,916        (148,844)
      Employee stock options                            339,750         339,750
      Stock issued for services rendered                 44,995         119,203
      Amortization of deferred gain                     (15,352)        (34,497)
      Loss on sale of equipment                           --              1,508

  Changes in assets and liabilities other than
    property, plant and equipment:
      Accounts receivable and amounts due from
        related parties                               1,881,643      (1,913,922)
      Inventories                                      (207,254)        817,945
      Prepaid expenses and other current assets
        and other assets                               (612,459)       (397,558)
      Accounts payable and accrued expenses and
        salaries, wages and amounts withheld
        from employees                                   31,917         669,201
      Deferred revenues under business agreements      (186,947)        164,139
                                                   ------------    ------------ 
    NET CASH USED IN OPERATIONS                      (8,792,713)    (12,053,893)

INVESTING ACTIVITIES:
  Purchases of capital equipment (net)                 (979,540)     (3,013,859)
  Purchases of investments                           (3,085,435)         --
  Sales of investments                                4,145,368       6,716,187
                                                   ------------    ------------
NET CASH PROVIDED BY INVESTING ACTIVITIES                80,393       3,702,328

FINANCING ACTIVITIES:
  Purchase of treasury stock                              --           (480,938)
  Proceeds from exercise of stock options and
    warrants                                            670,553         594,121
  Principal payments under current debt and
    capitalized lease obligations                      (951,739)     (1,026,950)
                                                   ------------    ------------
NET CASH USED IN FINANCING ACTIVITIES                  (281,186)       (913,767)

NET DECREASE IN CASH AND CASH EQUIVALENTS            (8,993,506)     (9,265,332)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD     14,270,145      23,773,742
                                                   ------------    ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD         $  5,276,639    $ 14,508,410
                                                   ============    ============

See notes to consolidated financial statements.



                                   5

<PAGE>



             ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                               (Unaudited)

                                                        Nine Months Ended
                                                            March 31,
                                                        -----------------
                                                        1998         1997
                                                        ----         ----
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

    Cash paid for interest                            $110,661    $249,787


    The Company's non-cash investing and financing
      activities were as follows:

        Investment in EV Global/Unique Mobility     $2,000,000




                                   6

<PAGE>



      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - MARCH 31, 1998

NOTE A - Basis of Presentation

      Information for the nine months ended March 31, 1998 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
1997 Annual Report on Form 10-K, as amended,  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.

     The  Company  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   vehicle   applications
worldwide.  Additionally,  the Company has  investments in: (i) Sovlux Co., Ltd.
("Sovlux")  (50%),  ECD's joint  venture in Russia;  and (ii) Sanoh Ovonic Power
Systems  Corporation (45%), Ovonic Battery's joint venture with Sanoh Industrial
Co.  Ltd.  ("Sanoh")  to  manufacture  and  sell  NiMH  batteries  for  two- and
three-wheeled electric vehicles in Europe.

      The Company's  investments in its joint ventures are recorded at zero. The
Company will continue to carry its investment in each of these joint ventures at
zero (unless the Company makes a cash  investment in one of its joint  ventures)
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.

      The  Company  has  invested,  through  an  exchange  of stock,  a total of
$2,000,000  in EV Global  Motors  ("EVG"),  a public  company,  a  producer  and
marketer of  electric-powered  bicycles  based in Los Angeles,  California,  and
Unique Mobility,  a private company,  a supplier of the motor and controller for
the EVG bicycle.  The Company's  investment in EVG is being accounted for on the
cost basis of accounting. The Company is accounting for its investment in Unique
Mobility using Statement of Financial  Accounting Standards No. 115, "Accounting
for Certain  Investments in Debt and Equity  Securities"  ("SFAS No. 115"). This
standard requires that certain debt and equity  securities be adjusted to market
value at the end of each accounting  period.  Any unrealized gains and losses
are charged or credited to a separate


                                           7

<PAGE>



component of shareholders' equity.  At March 31, 1998, the carrying value of
these investments was approximately the same as the market value for these
stocks.

      Upon  consolidation,   all  intercompany  accounts  and  transactions  are
eliminated.

      Certain  items for the three  months and nine months  ended March 31, 1997
have been reclassified to be consistent with the  classification of items in the
three  months and nine  months  ended  March 31,  1998.  Revenues  from  product
development  agreements were previously identified as revenues from research and
development agreements.

      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  in the  manufacture  of  products  based  upon the  Company's
technologies.

      In June 1997, the Financial and Accounting Standards Board ("FASB") issued
SFAS  No.  131,   Disclosure   about  Segments  of  an  Enterprise  and  Related
Information.  This Statement  requires that a public business  enterprise report
financial and descriptive  information about its reportable  operating segments.
Operating  segments  are  components  of  an  enterprise  about  which  separate
financial  information  is available  that is  evaluated  regularly by the chief
operating  decision-maker in deciding how to allocate resources and in assessing
performance.  The Company has not completed  its analysis of this  Statement and
its impact on  disclosures.  In the  initial  year of  application,  comparative
information  for earlier  years is to be restated.  This  Statement  need not be
applied to interim financial  statements in the initial year of its application,
but  comparative  information  for  interim  periods  in  the  initial  year  of
application is to be reported in financial statements for interim periods in the
second year of application. The Company will be required to adopt the provisions
of this Statement in fiscal 1999.  Adoption of this Statement is not expected to
have a material impact on the Company's financial statements.

      The Company is in the process of assessing the impact of addressing any of
its Year 2000 computing problems. The Company has not yet determined whether the
Year  2000  issues  are  material  to  its  business,  operations  or  financial
condition.

United Solar

     In 1990,  ECD and Canon  entered  into a joint  venture  agreement  for the
formation of United  Solar.  The  agreement  provided that United Solar would be
owned  49.98% by ECD,  49.98%  by  Canon,  with the  balance  held by Mrs.  Haru
Reischauer,  a  member  of the  Board  of  Directors  of  ECD.  ECD's  principal
contribution  to United  Solar was a license in the field of  photovoltaics.  In
return for its  contributions,  ECD received  49.98%  equity  interest in United


                                         8

<PAGE>


Solar.  In return for its 49.98%  equity  interest  in United  Solar,  Canon has
invested over $55,000,000.

      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
<TABLE>
<CAPTION>

                                             Three Months Ended          Nine Months Ended
                                                  March 31,                   March 31,
                                             ------------------          -----------------
                                             1998          1997          1998         1997
                                             ----          ----          ----         ----
                                         (Unaudited)    (Unaudited)  (Unaudited)   (Unaudited)

<S>                                      <C>            <C>          <C>           <C>        
Revenues*                                $ 2,608,023    $ 1,739,851  $ 8,631,514   $ 4,341,840
Operating Expenses
  Cost of product sales                    3,151,074      2,272,133   11,942,349     5,561,517
  Research and development                   732,450        719,890    2,084,553     2,178,841
  General and administrative                 338,110        776,526      847,053     1,685,290
  Sales and marketing                        401,275        409,316    1,364,976     1,197,302
                                         -----------    -----------  -----------   -----------
     Total                                 4,622,909      4,177,865   16,238,931    10,622,950
                                         -----------    -----------  -----------   -----------
Other Income (Expense)                      (175,389)        13,257     (728,133)      103,020
                                         -----------    -----------  -----------   -----------
Net Loss                                 $(2,190,275)   $(2,424,757) $(8,335,550)  $(6,178,090)
                                         ===========    ===========  ===========   ===========
</TABLE>

  *  Includes product sales and revenues earned under research contracts.



                      UNITED SOLAR BALANCE SHEETS

                                                      March 31,     June 30,
                                                      ---------     --------
                                                        1998          1997
                                                        ----          ----
                                                    (Unaudited)   (Unaudited)
     Current Assets:
        Cash and cash equivalents                  $  1,056,141   $  2,342,628
        Accounts receivable - trade                   1,310,255        738,378
        Accounts receivable - National Renewable
           Energy Laboratory ("NREL")                   373,191        242,938
        Accounts receivable - stockholders              225,682      4,633,757
        Inventory                                     2,879,436      4,015,379
        Other current assets                            467,112        322,232
                                                   ------------   ------------
           Total Current Assets                       6,311,817     12,295,312
     Property, plant and equipment (net)             12,089,427     13,676,080
     Other assets                                       183,763        225,913
                                                   ------------   ------------
           Total Assets                            $ 18,585,007   $ 26,197,305
                                                   ============   ============

     Current Liabilities:
        Short-term bank debt                       $    --        $ 10,000,000
        Current maturities of capitalized lease
           obligation                                 1,445,703         --
        Accounts payable - trade and stockholders     1,588,151      3,001,352
        Accrued expenses and other                      659,549        376,743
                                                   ------------   ------------
           Total Current Liabilities                  3,693,403     13,378,095
        Note Payable - Canon                          2,500,000         --
        Lease Payable                                 7,943,059         --
           Total Stockholders' Equity                 4,448,545     12,819,210
                                                   ------------   ------------
            Total Liabilities and Stockholders'
               Equity                              $ 18,585,007   $ 26,197,305
                                                   ============   ============


                                             9


<PAGE>



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.

      GM  Ovonic  is  currently  engaged  in  low-volume  manufacturing  of NiMH
batteries  at its facility in Troy,  Michigan.  GM Ovonic,  consistent  with the
business  plan,  is in the  process  of  scaling  up  production  in a  facility
approximately ten times larger than the current plant.

      There are no financial  statements  currently  available for GM Ovonic. GM
Ovonic is in the early stages of  commercialization  and, as such, has a history
of operating losses.

Accounts Receivable

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

                                                   March 31,       June 30,
                                                     1998            1997
      U.S. Government:
        Amounts billed                           $   646,318     $   572,193
        Unbilled                                     683,942         797,558
                                                 -----------     -----------
           Total                                   1,330,260       1,369,751
                                                 -----------     -----------
      Commercial Customers:
        Amounts billed                             6,067,166       1,701,006
        Related party billed
           - United Solar                            178,536          19,840
           - GM Ovonic                             1,179,620       1,072,546
        Due per contracts                          1,406,004       7,480,792
        Related party unbilled
           - GM Ovonic                               471,462         717,028
        Other unbilled                               168,476         281,580
                                                 -----------     -----------
           Total                                   9,471,264      11,272,792
                                                 -----------     -----------
      Other                                           67,060         107,684
      Allowance for Uncollectible Accounts          (140,000)       (140,000)
                                                 -----------     -----------
             TOTAL                               $10,728,584     $12,610,227
                                                 ===========     ===========


     Amounts due per  contracts,  related party unbilled and other unbilled from
commercial  customers  include  revenues  recognized  for the  present  value of
license  payments to be received in future periods.  They also include  revenues
recognized on the  percentage-of-

                                         10

<PAGE>


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 March 31, 1998 and June 30, 1997. 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.

Inventories

      Inventories of raw  materials,  work in process and finished goods for the
manufacture of negative electrodes,  battery packs and other products are valued
at the  lower  of cost 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:

                              March 31, 1998     June 30, 1997

        Finished products       $  127,236        $    --
        Work in process          1,101,997         1,010,989
        Raw materials              604,086           615,076
                                ----------        ----------
                                $1,833,319        $1,626,065
                                ==========        ==========

Product Sales

      Product sales include battery electrodes,  revenues related to building of
battery   packs   and   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  non-refundable
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.


                                       11


<PAGE>


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

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, and 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  non-refundable,  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


                                        12

<PAGE>

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  expenses 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.



                                  13

<PAGE>



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:

                                               Nine Months Ended March 31,
                                               ---------------------------
                                                   1998            1997
                                                   ----            ----
Product Sales:
   Negative and positive electrodes           $  7,710,893    $  8,273,418
   Battery packs                                   246,652       2,218,556
   Machine building                                148,300       1,648,700
                                              ------------    ------------
                                              $  8,105,845    $ 12,140,674
                                              ============    ============
Royalties:
   Battery technology                         $  1,775,699    $    915,001
   Optical memory technology                        49,656         204,073
                                              ------------    ------------
                                              $  1,825,355    $  1,119,074
                                              ============    ============
 Revenues from Product Development Agreements:
   Photovoltaics                              $  1,431,412    $    842,290
   Battery technology                            7,702,140       1,606,794
   Microelectronics                                963,037         687,249
   Hydrogen                                        535,807         488,590
   Other                                           329,386         209,860
                                              ------------    ------------
                                              $ 10,961,782    $  3,834,783
                                              ============    ============
License and Other Agreements:
   Battery                                    $    900,000    $  4,246,000
   Microelectronics                                --               80,645
                                              ------------    ------------
                                              $    900,000    $  4,326,645
                                              ============    ============

NOTE C - Non-Refundable Advance Royalties

      At March 31, 1998 and June 30, 1997, the Company  deferred  recognition of
revenues  relating to non-refundable  advance royalty  payments.  Non-refundable
advance royalties consist of the following:

                                                  March 31,       June 30,
                                                    1998            1997
                                                    ----            ----
       Battery                                   $1,647,592     $1,647,592
       Optical Memory                             2,115,810      2,043,894
                                                 ----------     ----------
                                                 $3,763,402     $3,691,486
                                                 ==========     ==========


                                  14

<PAGE>



NOTE D - Net Loss Per Share

      In the three  months and nine  months  ended March 31,  1998,  the Company
adopted  FASB  Statement  of  Financial  Accounting  Standards  (SFAS) No.  128,
Earnings  per Share.  The  Statement  simplifies  the  standards  for  computing
earnings per share.  The adoption of this  Statement  did not have any impact on
the Company since there were net losses in all of the current periods.  Weighted
average  number of  shares  outstanding  and basic  loss per share for the three
months and nine months ended March 31, 1998 and 1997 are computed as follows:

                                Three Months Ended        Nine Months Ended
                                     March 31,                March 31,
                                  ---------------        ------------------
                               1998         1997         1998          1997
                                   (Unaudited)              (Unaudited)
 AVERAGE NUMBER OF SHARES 
    OUTSTANDING             10,931,636   10,745,713    10,837,143    10,714,176
                            ==========   ==========    ==========    ==========

 NET LOSS                  $(3,778,997) $(7,128,392) $(11,582,882) $(13,046,006)
                           ===========  ===========  ============  ============
 NET LOSS PER SHARE        $      (.35) $      (.66) $      (1.07) $      (1.22)
                           ===========  ===========  ============  ============


      Basic  and  diluted  net  loss  per  share  are the same for each of these
periods.  Outstanding  stock  options were not treated as common  shares as they
were not anti-dilutive.


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, as amended,  for the year ended June 30, 1997 and is
qualified in its entirety by the  foregoing.  The results of operations  for the
three and nine months  ended March 31, 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

                                       15

<PAGE>


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 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 March 31, 1998 Compared to Three Months Ended March 31, 1997
-------------------------------------------------------------------------------

      The  Company had a net loss for the three  months  ended March 31, 1998 of
$3,779,000 compared to a net loss of $7,128,000 for the three months ended March
31, 1997. The loss is primarily due to (i) ongoing battery  product  development
and (ii) losses related to electrode production.

     Product  sales,  consisting  of positive and negative  battery  electrodes,
battery packs and machine building, decreased 13% in the quarter ended March 31,
1998 compared to the same quarter in the previous year.  Battery electrode sales
were  $2,819,000  in the March 1998 quarter  compared to $2,814,000 in the March
1997 quarter.  Higher  product  volumes of negative  electrodes  were  partially
offset  by lower  negative  electrode  prices  and  reduced  sales  of  positive
electrodes as GM Ovonic ramps up its production of positive electrodes.  Battery
pack sales  decreased to $44,000 in the March 1998 quarter from  $137,000 in the
March 1997 quarter as GM Ovonic (Ovonic Battery's principal customer for battery
packs) ramps up its  production  of battery  packs.  There were no revenues from
machine  building  in the March 1998  quarter,  compared to $335,000 in the same
period last year,  principally  because machine- building projects for GM Ovonic
were completed for that time period.

      Royalties  increased  141% to $730,000 in the three months ended March 31,
1998 from  $303,000 in the three months ended March 31, 1997,  primarily  due to
the issuance in Japan

                                      16

<PAGE>

of a basic patent  recognizing  the  fundamentals  that make NiMH batteries
commercially  feasible.  The volume of NiMH  batteries  being sold is increasing
substantially;  however,  the  royalties  the  Company  receives  are  adversely
affected by lower sales prices and unfavorable  exchange rates with the Japanese
yen.  Royalties from ECD's optical memory  technology were  significantly  lower
than the year  earlier  quarter due to lower sales of  phase-change  dual ("PD")
disks in 1998.

      The 129%  increase in revenues  from  product  development  agreements  to
$3,949,000 in the three months ended March 31, 1998 from $1,725,000 in the three
months ended March 31, 1997 was due to substantially  increased  revenues from a
new multi-year,  multi-task program with General Motors to develop batteries for
electric and hybrid  electric  vehicle  applications  ($1,953,000 in the quarter
ended  March  31,  1998)  and from  contracts  with the  National  Institute  of
Standards and Technology ("NIST") ($382,000 in the quarter ended March 31, 1998)
in the Company's battery and optical memory technologies.  Revenues from product
development  agreements  and research  and  development  for ECD's  photovoltaic
technology increased $405,000 (136%).

      The Company has $13,463,000 in  unrecognized  revenues  outstanding  under
product  development  agreements  with  U.S.  government  or other  agencies  or
companies,  of which $7,133,000 is subject to the normal availability of funding
by the applicable agency. Based on these product development agreements,  and on
scheduled  funding and  performance,  without  giving  effect to any new product
development  agreements  which may be entered  into during the  remainder of the
year ended June 30,  1998,  $5,955,000  additional  revenue  is  expected  to be
recorded in revenues from product  development  agreements  for the remainder of
the year ending June 30, 1998.

      Revenues  from  license and other  agreements  were  $600,000 in the three
months ended March 31, 1998  relating to a technology  transfer  agreement  with
Sovlux and the Chepetsky Mechanical Plant, an enterprise of the Russian Ministry
of Atomic Energy.

      The Company  incurred a total of $7,269,000 in the quarter ended March 31,
1998 for product development (funded and unfunded) compared to $5,434,000 in the
same  quarter in the prior  year.  This  planned  increase in  expenditures  for
product  development  was primarily for continued  development  of the Company's
"family of batteries" products. The increased spending of $1,835,000 for product
development  was more than paid for by the $2,223,000  increase in revenues from
product development agreements.

      Other  revenues  increased by $473,000 in the three months ended March 31,
1998 due to increased billings for work performed for Ovonic Battery licensees.

      The decrease in cost of product sales from  $4,214,000 in the three months
ended March 31, 1997 to  $3,215,000 in the three months ended March 31, 1998 was
principally  due to the  reduced  level of  machine  building  for GM Ovonic and
reduced  sales of  battery  packs as GM Ovonic  ramped-up  its  production.  The
Company has made progress in its efforts to reduce product  costs,  and the loss
on product sales  decreased from $927,000 in the 1997 quarter to $352,000 in the
1998 quarter.  The Company's cost reduction  efforts  continue to be focused on:
improving  quality  control  through  increased  automation,   on-line  gauging,
improved process

                                      17

<PAGE>

monitoring and control,  early identification of non-conforming material and
operator training; investing in equipment and equipment upgrades to minimize
downtime  and  increase  capability;   and  improving  the  preventive
maintenance program to reduce unplanned downtime.

      Expenses were incurred in 1998 and 1997 in connection with the defense and
prosecution of litigation with respect to Ovonic Battery's United States patents
covering its proprietary NiMH battery technology.  The reduction in expense from
$1,275,000  in the three  months  ended  March 31,  1997 to $92,000 in the three
months ended March 31, 1998 relates to the  successful  conclusion of litigation
involving Matsushita Battery Industrial Co., Ltd.
("MBI") in December 1997.

      The  decrease in  operating,  general  and  administrative  expenses  from
$2,079,000  in the three months ended March 31, 1997 to  $1,970,000 in the three
months ended March 31, 1998 was primarily due to increased  allocations  in 1998
to cost of revenues from product development agreements.

      The decrease in other income from $298,000 in the three months ended March
31, 1997 to other income of $29,000 in the three months ended March 31, 1998 was
due principally to decreased interest income in 1998.


Nine months ended March 31, 1998 Compared to Nine Months Ended March 31, 1997
-----------------------------------------------------------------------------

      The  Company  had a net loss for the nine  months  ended March 31, 1998 of
$11,583,000  compared to a net loss of  $13,046,000  for the nine  months  ended
March  31,  1997.  The loss is  primarily  due to (i)  ongoing  battery  product
development;  (ii) losses  related to electrode  production;  and (iii)  ongoing
protection of the Company's  technologies.  Excluding  revenues from license and
other  agreements,  which  are  non-recurring,  the net  loss was  reduced  from
$17,373,000 for the nine months ended March 31, 1997 to $12,483,000 for the nine
months ended March 31, 1998.

     Product  sales,  consisting  of positive and negative  battery  electrodes,
battery packs and machine building, decreased 33% in the nine months ended March
31, 1998  compared to the nine months  ended March 31, 1997.  Battery  electrode
sales  decreased  to  $7,711,000  in the nine  months  ended March 31, 1998 from
$8,273,000  in the nine months  ended  March 31,  1997,  primarily  due to lower
negative  electrode  prices.  Battery pack sales  decreased 89% to $247,000 from
$2,219,000 as GM Ovonic, formally the Company's principal battery pack customer,
ramps up its  production of battery packs.  Revenues from machine  building were
$148,000 in the nine months  ended  March 31, 1998 down from  $1,649,000  in the
nine months ended March 31, 1997, principally because machine-building  projects
for GM Ovonic were completed for that time period.

      Royalties  increased  63% to $1,825,000 in the nine months ended March 31,
1998 from  $1,119,000  in the nine months ended March 31, 1997  primarily due to
the issuance in Japan of a basic NiMH battery patent in August, 1997. The volume
of NiMH batteries being sold is increasing substantially; however, the royalties
the  Company  receives  are  adversely   affected  by  lower  sales  prices  and
unfavorable  exchange rates with the Japanese yen. The Company


                                           18

<PAGE>

also  experienced lower levels of royalties from ECD's optical memory technology
in 1998 due to lower sales of PD disks.

      The 186%  increase in revenues  from  product  development  agreements  to
$10,962,000 in the nine months ended March 31, 1998 from  $3,835,000 in the nine
months ended March 31, 1997 was due to substantially  increased  revenues from a
new multi-year,  multi-task program with General Motors to develop batteries for
electric and hybrid electric vehicle applications ($4,707,000 in the nine months
ended March  1998),  from a contract  with the United  States  Advanced  Battery
Consortium  ("USABC")  ($1,759,000  in the nine months ended March 31, 1998) and
from contracts with NIST in the Company's  battery and optical memory technology
($605,000  in the nine  months  ended March 31,  1998).  Revenues  from  product
development  agreements  and research  and  development  for ECD's  photovoltaic
technology increased $589,000 (70%).

      Revenues from license and other  agreements  decreased from  $4,327,000 in
the nine months  ended March 31, 1997 to $900,000 in the nine months ended March
31,  1998.  1997  revenues  included  license  fees  of  $2,000,000  from  Sanoh
Industrial  Co., Ltd.,  $1,000,000  from LG Chemical,  Ltd. and $1,246,000  from
Canon,  Inc. in connection with license  agreements with these  companies.  1998
license fees of $900,000 relate to a technology  transfer  agreement with Sovlux
and the Chepetsky Mechanical Plant in Russia.

      The Company incurred a total of $20,935,000 in the nine months ended March
31, 1998 for product  development  (funded and unfunded) compared to $14,474,000
in the nine months ended March 31, 1997.  This planned  increase in expenditures
for product development was primarily for continued development of the Company's
"family of batteries" products. The increased spending of $6,461,000 for product
development  was more than paid for by the $7,127,000  increase in revenues from
product development agreements.

      Other revenues  increased by $1,380,000 in the nine months ended March 31,
1998 due to increased billings for work performed for Ovonic Battery licensees.

     The  decrease  in cost of product  sales to  $9,174,000  in the nine months
ended March 31, 1998 from  $13,896,000  in the nine months  ended March 31, 1997
was principally  due to the reduced level of machine  building for GM Ovonic and
reduced  sales of  battery  packs as GM Ovonic  ramped-up  its  production.  The
Company  has made  progress in its effort to reduce  product  costs and its cost
reduction  efforts are focused on: improving  quality control through  increased
automation,  on-line  gauging,  improved process  monitoring and control,  early
identification of non-conforming  material and operator  training;  investing in
equipment and equipment  upgrades to minimize downtime and increase  capability;
and improving the preventive maintenance program to reduce unplanned downtime.

      Expenses were incurred in 1998 and 1997 in connection with the defense and
prosecution of litigation with respect to Ovonic Battery's United States patents
covering its proprietary technology for NiMH batteries. The reduction in expense
from  $2,431,000 in the nine months ended March 31, 1997 to $294,000 in the nine
months ended March 31, 1998 relates to the  successful  conclusion of litigation
involving MBI in December 1997.

                                          19

<PAGE>

      Operating,  general and administrative expenses decreased to $4,984,000 in
the nine months  ended March 31, 1998 from  $5,315,000  in the nine months ended
March  31,  1997  primarily  due to  increased  allocations  in  1998 to cost of
revenues from product development agreements.

      The change from other  income of  $963,000 in the nine months  ended March
31, 1997 compared to other income of $327,000 in the nine months ended March 31,
1998 was due principally to decreased interest income in 1998.

                    Liquidity and Capital Resources

      As of March 31, 1998, the Company had unrestricted  consolidated  cash and
cash  equivalents and  investments,  consisting of commercial  paper maturing in
four to six months, of $5,277,000, a decrease of $10,053,000 from June 30, 1997.
In addition,  the Company had current  accounts  receivable at March 31, 1998 of
$10,729,000, a decrease of $1,881,000,  compared to $12,610,000 at June 30, 1997
due to the collection of a large  receivable  for a one-time  license fee. As of
March 31, 1998,  the Company had  consolidated  working  capital of  $12,264,000
compared with a consolidated working capital of $23,161,000 as of June 30, 1997.

      The Company continues 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 nine months ended March 31, 1998,  $8,793,000  of cash was used
in operations.  The difference  between the net loss of $11,583,000  and the net
cash used in  operations  was  principally  due to  depreciation  expense  and a
decrease in accounts receivable, partially offset by an increase in inventories.
In  addition,  during  this period  $980,000  of  machinery  and  equipment  was
purchased or constructed for the Company's operations.

      During the next 12 months,  Ovonic Battery is considering  the purchase of
up to $4,000,000 of machinery and equipment.  The machinery and equipment  would
be utilized principally for Ovonic Battery's manufacturing operation.

      The Company expects significant revenues and cash flows related to product
development  agreements,  many of which already exist,  that are entered into by
the Company with U.S.  government agencies and with industry partners to develop
the  Company's  products and  production  technology.  Contracts  with  industry
partners include a multi-year, multi-task program with General Motors to develop
batteries for electric and hybrid electric vehicle  applications.  This program,
which is currently 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 to the Company by NIST under three Advanced  Technology
Programs  ("ATP")  will also  provide  significant  cashflows.  One contract was
awarded to Ovonic Battery to develop the next  generation of high energy density
NiMH batteries using low-cost

                                          20

<PAGE>

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).

      In April 1998,  the Company  entered into a one-year  financing  agreement
with  Standard  Federal  Bank for a line of  credit  of up to  $5,000,000.  This
financing  bears an  interest  rate of prime  plus  1/2%,  is secured by a first
interest in the Company's accounts receivable and inventory and contains certain
financial  covenants  relating  to the  Company's  tangible  net worth,  working
capital and total debt to tangible net worth.

      In April 1998, the Company also recently entered into a $6,000,000  credit
arrangement  with Finova  Capital  Corporation,  which has two  components.  One
component,  which has been fully  utilized,  provided  $2,000,000  to  refinance
existing  leased  equipment,  (resulting in $1,200,000 net cash to the Company),
has a three-year term at the expiration of which the Company will be required to
purchase  the  equipment  for 10% of the  original  cost.  The second  component
provides for up to  $4,000,000  of financing  through  December 31, 1998 for the
Company's  sale and  leaseback of equipment it acquired  subsequent  to June 30,
1996; at the  expiration  of the related  five-year  lease,  the Company will be
required to purchase the leased equipment for 10% of the original cost.

      On April 22, 1998,  the Company filed a  Registration  Statement  with the
Securities  and Exchange  Commission  for the sale of two million  shares of ECD
Common  Stock and two million  warrants to  purchase  two million  shares of ECD
Common Stock in the form of two million units, each unit consisting of one share
of ECD Common Stock and one warrant to purchase one share of ECD Common Stock.

      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, if
any, the amount of such revenue.

      The Company was issued a basic patent in Japan in August,  1997 specifying
the fundamentals that make NiMH batteries commercially feasible. 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 twelve months.

      The Company is also actively  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 March 31, 1998,
the Company had no backlog of machine-building contracts.


                                       21

<PAGE>

      The  amount of cash to be  received  under  existing  product  development
agreements  for the remainder of the year ending June 30, 1998 is anticipated to
be  approximately  $5,900,000.  The  amount  of cash for  royalties  (which  are
recognized  for  revenue  purposes on an accrual  basis) to be received  for the
remainder  of the  year  ending  June  30,  1998 is  expected  to be,  based  on
historical trends, approximately $62,000.

      License  fees are  non-recurring,  and while the  Company  is  engaged  in
negotiations  with a number of companies,  the outcome of these  negotiations is
difficult to predict.  Therefore, the Company is unable to predict the amount of
cash from license fees, if any, to be received  during the remainder of the year
ending June 30, 1998.

      Management believes that funds generated from operations and existing cash
and investment  balances,  along with agreements currently under negotiation and
the  proceeds  from  the  securities  offered  by the  Company  pursuant  to the
Registration  Statement filed by the Company on April 22, 1998, will be adequate
to fund its operations and to support and finance planned  capital  expenditures
and company-sponsored research and development programs over the coming year.



                                  22

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                      PART II - OTHER INFORMATION


Item 4.Submission of Matters to a Vote of Security Holders

      At the Annual Meeting of  Stockholders of the Company held on February 19,
1998 (the "Meeting"),  the following directors were elected for the ensuing year
and until their successors shall be duly elected and qualified:
                                         For          Withheld

       Stanford R. Ovshinsky        14,498,500        227,499
       Iris M. Ovshinsky            14,505,058        220,941
       Robert C. Stempel            14,502,815        223,184
       Nancy M. Bacon               14,528,295        197,704
       Umberto Colombo              14,367,563        358,436
       Hellmut Fritzsche            14,514,635        211,364
       Joichi Ito                   14,374,702        351,297
       Seymour Liebman              14,529,443        196,556
       Walter J. McCarthy, Jr.      14,510,954        215,045
       Florence I. Metz             14,510,529        215,470
       Haru Reischauer              14,351,838        374,161
       Nathan J. Robfogel           14,509,339        216,660
       Stanley K. Stynes            14,485,829        240,170

      At the  Meeting,  the  stockholders  approved a proposal to  increase  the
number of  authorized  shares of the Company's  Common Stock from  15,000,000 to
20,000,000 with 7,950,596  Common Stock votes and 5,497,825 Class A Common Stock
votes cast for the proposal.  There were 536,401 Common Stock votes cast against
the proposal and 97,495 Common Stock abstentions.

      Also approved at the Meeting was the  appointment of Deloitte & Touche LLP
as  independent  accounts  for the fiscal year ending June 30, 1998 which passed
with 14,511,325 votes for, 155,501 votes against and 59,173 abstentions.

Item 5.Other Information

      On April 23, 1998,  United Solar Systems  Corp.  ("United  Solar"),  ECD's
photovoltaic  (solar  energy)  joint  venture with Canon Inc. of Japan,  and Sky
Station  International,  Inc. ("Sky  Station")  announced the formation of a new
joint venture,  Sky Solar,  L.L.C., to manufacture  photovoltaic ("PV") products
for stratospheric  platforms and space  satellites.  The venture is owned 60% by
United  Solar,  which is  contributing  its  proprietary  PV  technology  to the
venture,  and 40% by Sky  Station  which is to provide  the  funding to optimize
United  Solar's   technology  for  stratospheric   and  space   ("strato-space")
applications  and for  construction  of a dedicated  strato-space  PV production
line. In connection with this agreement, substantial amounts of the funding will
be used for the  development  and  construction  of the equipment  which will be
subcontracted  by  United  Solar to ECD to  produce  the PV  products  for these
platforms and satellites.  Final contracts for the development and construction
of this equipment are pending the successful completion of Sky Station's
funding.


                                         23


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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.


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                              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: May 8, 1998             Treasurer





                          By: /s/ Stanford R. Ovshinsky
                              Stanford R. Ovshinsky
Date: May 8, 1998             President and Chief Executive Officer




                                  25

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