SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549
                              -------------------

                                   FORM 10-K

[ X ] ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE
      ACT OF 1934 

For the fiscal year ended      June 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            (I.R.S. Employer
      of Incorporation or Organization)      Identification Number)

      1675 West Maple Road, Troy, Michigan              48084
      (Address of Principal Executive Offices)       (Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act:

                     Common Stock, $.01 par value per share
                     --------------------------------------
                                (Title of Class)

      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,  and (2) has been  subject to such filing
requirements for the past 90 days.
                     Yes  X                    No

      Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x].

      The aggregate market value of stock held by non-affiliates (based upon the
last sale price of such stock on the NASDAQ  National Market System on September
28, 1998) was  approximately  $69 million.  As of September 28, 1998, there were
219,913 shares of the Company's  Class A Common Stock and  12,595,345  shares of
the Company's Common Stock outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE
                                     None



                                  -1-

<PAGE>



                                  PART I

Item 1: Business
------- --------
                                 OVERVIEW

      Energy  Conversion  Devices,  Inc.  (the  "Company")  is a  leader  in the
synthesis of new materials and the development of advanced production technology
and  innovative  products.  The Company was founded by Stanford R. Ovshinsky and
Iris M.  Ovshinsky.  Under the  direction  of Stanford R.  Ovshinsky,  principal
inventor,  the Company has pioneered the  development of products and production
technology  based on  amorphous  and  related  materials,  with an  emphasis  on
alternative  energy and advanced  information  technologies.  Unlike the simple,
ordered,  three-dimensional  arrays  found in most  crystalline  materials,  the
Company's proprietary  synthetic  materials--Ovonic  materials--are  designed to
exploit unique  properties that result from  engineered  chemical and structural
disorder.  Ovonic materials make possible the development and  commercialization
of new  products  with  unique  chemical,  electrical,  mechanical  and  optical
properties and superior performance characteristics.

      The Company has used an integrated  approach to product  development  that
seeks to minimize the  customary  barriers  between  research  and  development,
production  design and product  planning.  The  Company's  strategy  has been to
develop products that have technological  advantages over available alternatives
and  that  are  capable  of  being  produced  commercially  on  an  economically
competitive  basis.  The Company is also  continuing  its  development  efforts,
funded in part through contracts with U.S.  Government  agencies,  the Company's
licensees  and  industrial  partners,  to broaden and build upon its product and
technological base.

      The Company has established a multi-disciplinary business,  scientific and
technical organization to commercialize products based on its technologies.   It
has developed the enabling proprietary core technologies in the important fields
of  energy storage (nickel metal hydride ("NiMH") batteries), energy  generation
(thin-film,  flexible,  low-cost  photovoltaic (solar) products) and information
storage and retrieval (phase-change optical memory technology used in rewritable
compact  disks ("CD-RW") and  rewritable digital  versatile disks ("DVDs").  The
Company  is  currently engaged  in  manufacturing  and  selling  its proprietary
products  on  its  own,  through  its  joint  venture  companies  as  well   as
through  licensing  arrangements  with major companies  throughout the world. In
addition, in support of these activities, the Company is engaged in research and
development  as well as in designing  and  building  production  machinery.  The
Company has  recognized  the need to protect its  technology  and  maintains  an
extensive  patent  portfolio  consisting  currently of 354 issued  United States
patents and 846 foreign  counterparts.  The patent portfolio  includes  numerous
basic and fundamental  patents covering  amorphous and related materials as well
as patents covering products and production technologies.

     The  Company   conducts  its  battery   business  through  its  93.5%-owned
subsidiary,  Ovonic  Battery  Company,  Inc.  ("Ovonic  Battery").  Honda  Motor
Company,   Ltd.   ("Honda")  and  Sanoh  Industrial  Co.,  Ltd.   ("Sanoh")  own
approximately 6.5% of the outstanding stock

                                -2-

<PAGE>



of Ovonic Battery.   Sanoh has been a shareholder  in Ovonic Battery  since 1993
and Honda acquired its interest in 1996.

      The Company has two significant joint ventures in the field of alternative
energy, GM Ovonic L.L.C.  ("GM Ovonic") and United Solar Systems Corp.  ("United
Solar"). GM Ovonic was established to manufacture and commercialize  Ovonic NiMH
rechargeable  batteries for electric  vehicle ("EV") and hybrid electric vehicle
("HEV") applications. Ovonic Battery owns a 40% equity interest in GM Ovonic and
General Motors Corporation  ("General Motors") owns a 60% equity interest.   All
significant manufacturers of consumer NiMH batteries are manufacturing  products
under license  from  the  Company.   NiMH  batteries  have become the battery of
choice in consumer electronics and in the automotive industry  worldwide for EVs
and HEVs.

      The  Company and Canon Inc. of Japan  ("Canon")  each own a 49.98%  equity
interest in United Solar, a joint venture formed for the continued  development,
manufacture and sale of  photovoltaic  ("solar  energy")  products under license
from the Company.  Through United Solar,  the Company has been  producing  solar
shingles that are gaining in popularity as well as other  photovoltaic  products
which have been described as a major breakthrough by the U.S. Government.

      In the field of information technology,  the Company's Ovonic phase-change
rewritable  optical memory  technology,  already being used in phase-change dual
("PD") and CD-RW systems, has been chosen for use in the emerging DVD rewritable
optical disk systems.  The  international standards for rewritable DVD media and
systems,  designed by major  optical  disk  manufacturers,  specify  the  use of
the Company's phase-change optical memory technology.  The  Company's  licensees
in this area include Matsushita Electric  Industrial  Co.,  Ltd.   ("Matsushita/
Panasonic"), Sony Corporation ("Sony"),  Toshiba Corporation ("Toshiba"),  Asahi
Chemical  Industry  Co., Ltd. ("Asahi"),  Hitachi,  Ltd.  ("Hitachi"),  Plasmon
Limited  ("Plasmon"), Toray Industries, Inc. ("Toray"), TDK Corporation ("TDK"),
and Teijin, Limited ("Teijin").

      The Company is developing a non-volatile  thin-film  semiconductor  memory
technology based on its proprietary  phase-change materials that can have a wide
variety of computer  applications and is intended to replace  conventional  DRAM
and Flash EEPROM semiconductor memory devices.

      The Company has entered into a variety of other  strategic  alliances  and
license agreements for the commercialization of its technologies.

      Certain  technical terms used herein are defined in the section  captioned
"Glossary of Technical Terms" appearing at the end of this Item 1.

                                -3-

<PAGE>



                             MAJOR BUSINESSES

      The  Company's  business  strategy  has been to provide  new and  enabling
technologies  for  use in the  fields  of  alternative  energy  and  information
technologies.  This strategy has produced inventions of unique,  proprietary and
cost-effective products and production processes.

      Energy activities, specifically in the areas of rechargeable batteries and
photovoltaic  systems,  represent  a major  element  of the  Company's  business
strategy.  Environmentally-safe  methods of  generating  and storing energy have
become  critical  in today's  world.  The  Company's  battery  and  photovoltaic
technologies  continue to gain worldwide  recognition,  particularly in light of
sustained  concerns about air  pollution,  global  climate  change,  ozone layer
depletion,  dependence on imported oil and related concerns  involving  military
action and international political and economic instability, balance of payments
and the need for healthy economic growth.

Energy Storage.

      Rechargeable  Batteries.  The  Company's  Ovonic  Battery  subsidiary  has
developed the proprietary  NiMH battery  technology using Ovonic materials which
has achieved  recognition by major battery  manufacturers  throughout the world.
The Company  believes  that all  commercial  NiMH  batteries  are covered by the
Company's  basic  patents.  Ovonic  Battery  currently has over a dozen consumer
battery licensees and has established a dominant patent position in the field of
Ovonic NiMH  batteries,  with 49 issued  United  States  patents and 227 foreign
counterparts,  including a basic patent in Japan, issued in 1997,  corresponding
to United States patent No.  4,623,597,  specifying the  fundamentals  that make
NiMH  batteries  commercially  feasible.  Additional  United  States and foreign
patent applications are in various stages of preparation and prosecution.

      Ovonic NiMH batteries are being manufactured and sold throughout the world
by major international  companies under licensing and joint venture arrangements
with the  Company.  Ovonic  Battery  is also in  volume  production  of the NiMH
battery  negative  electrodes  for sale to its licensees and its GM Ovonic joint
venture.

      Ovonic NiMH batteries  store over twice as much energy as standard  nickel
cadmium  ("Ni-Cd") or lead acid  batteries of  equivalent  weight.  In addition,
Ovonic NiMH batteries have high power, long cycle life, are maintenance free and
have no memory effect. Moreover, Ovonic NiMH batteries do not contain cadmium or
lead, both environmentally hazardous substances.  Ovonic NiMH batteries are made
in a wide  range of  sizes  and have a wide  range  of  applications,  including
hand-held  consumer  electronics,  EVs, HEVs and fuel cell  vehicles,  including
electric two- and three-wheeled vehicles,  power tools, utility applications and
industrial batteries.

      During  the  fiscal  year ended June 30,  1998,  Ovonic  Battery  produced
negative and positive electrodes for sale to certain licensees for assembly into
complete  batteries for consumer,  EV and HEV applications.  Ovonic Battery also
has produced batteries for EV

                                -4-

<PAGE>



and HEV applications  engineered and designed for volume production.  The Ovonic
NiMH  battery,  by  virtue  of  its  engineered  materials,  possesses  superior
performance  characteristics  without the limitations of conventional batteries.
Ovonic Battery continues to further improve the performance  characteristics  of
its Ovonic NiMH batteries.

      In  October  1997,  Ovonic  Battery  was  awarded a  contract  by the U.S.
Department  of  Commerce  through  its  National   Institute  of  Standards  and
Technology  Advanced  Technology  Program  ("ATP").  Ovonic Battery,  along with
several  industry  partners,  has as its objective the  development  of the next
generation of high energy density NiMH batteries using low-cost  magnesium-based
hydrogen  storage  materials  and  novel  production   technologies  under  this
multi-year, multi-million dollar cost-sharing program.

      Ovonic Battery is currently  focusing on three principal  battery markets:
rechargeable  batteries for portable electronics and consumer  applications,  EV
and HEV  propulsion  batteries,  and  batteries  for the  propulsion of two- and
three-wheeled  vehicles.  These batteries can also serve industrial applications
such  as  energy  storage  for  remote  power  generation  and  battery-operated
industrial equipment.

      Rechargeable  Portable  Electronics and Consumer  Batteries.  The need for
high energy  density  rechargeable  batteries  has  continued  to grow in recent
years.  Increasing consumer dependence on portable electronic  products--such as
cellular telephones,  portable computers and cordless tools--has created a large
market for  rechargeable  batteries and has fueled  development of higher energy
density battery systems. Although conventional storage batteries, such as Ni-Cd,
have been further  improved in design and packaging in recent years,  the demand
for higher performance batteries continues to increase. At present, conventional
Ni-Cd  batteries  have  an  energy density of 30-35 watt-hours/kilogram.  Ovonic
NiMH   batteries   are   capable  of  having  an  energy   density  of  over  90
watt-hours/kilogram.  Technology  improvements  have led to a  demonstration  of
energy density in excess of 100  watt-hours/kilogram in prototype batteries with
even higher energy densities in the process of development.

      Ovonic NiMH batteries  offer a convenient  "drop in" replacement for Ni-Cd
batteries  in  portable  electronic  and  household  appliances.   Consumer  and
governmental  awareness  that  cadmium  contained in Ni-Cd  batteries  can cause
serious  health  problems  has  begun  to move  the  industry  away  from  Ni-Cd
batteries. The desire of the battery industry to be cadmium-free is also a major
factor in the growing interest in Ovonic NiMH batteries.

      Ovonic Battery has licensing arrangements with many of the world's largest
battery   manufacturing   companies.   Ovonic   Battery's  proprietary   battery
technology has been licensed  for consumer battery  applications to GP Batteries
International Limited ("GP Batteries") (formerly Sylva Industries, Ltd.) in Hong
Kong, one of the  world's largest  manufacturers of  9-volt batteries and button
cells; Varta Batterie AG ("Varta"), Europe's largest battery company; Sovlux Co.
Ltd. ("Sovlux"),  the Company's  joint venture  in Russia;  Harding  Energy Inc.
("Harding");  Eveready Battery Company, Inc. ("Eveready") (formerly Gates Energy
Products,  Inc.),  the  largest  United  States  rechargeable  consumer  battery
company;   Walsin  Technology  Corporation  ("Walsin")   and   Nan  Ya  Plastics
Corporation 

                                -5-

<PAGE>



("Nan Ya")  (an affiliate of  Formosa Plastics Group  and the  assignee of  Asia
Pacific Investment Co.),  both leading Taiwanese companies;  Samsung Electronics
Co.,  Ltd. ("Samsung")  and  LG  Chemical,  Ltd. ("LG  Chem"),  leading  Korean
companies; Canon, Hitachi Maxell, Ltd. ("Hitachi Maxell"), Furukawa Battery Co.,
Ltd. ("Furukawa")  and  Matsushita  Battery  Industrial  Co., Ltd. ("MBI"),  all
leading Japanese companies.  In addition, the Ovonic battery technology is being
used  in   consumer  battery  applications  by   three  major  consumer  battery
manufacturers  based  in  Japan.   Saft, S.A.,  Saft America, Inc., GS-Saft Ltd.
("Saft Group") and  Japan Storage Battery Co., Ltd.  are also  licensed  under a
royalty-bearing  license  agreement  to  Ovonic  Battery's  proprietary  battery
technology in the United States.

      Electric,  Hybrid Electric and Fuel Cell Vehicle Batteries.  The strategic
importance of EVs and HEVs both in the United States and worldwide has increased
greatly in recent years.  This heightened  interest is due to many concerns such
as air pollution, global climate change, ozone layer depletion and dependence on
imported oil.

      Most of the world's major  automobile  manufacturers  have active programs
underway  to  develop  and  commercially  market  EVs and HEVs.  General  Motors
introduced  the EV1, the first modern  limited-production  car designed from the
ground up to be an electric vehicle,  in the Fall of 1996 at Saturn  dealerships
in the Los Angeles and San Diego,  California,  and Phoenix and Tucson, Arizona,
areas.  General Motors  announced that Ovonic NiMH batteries  manufactured by GM
Ovonic became  available in limited  quantities  in the Chevrolet  S-10 electric
pickup truck in late 1997 and will be  available  in the EV1 during 1999.  Since
Ovonic NiMH battery technology provides two to two-and-a-half  times the driving
range  as the same mass of  lead acid batteries, the NiMH battery has become the
battery of choice for several major automobile  manufacturers as they prepare to
commercialize and market EVs and HEVs.

      General  Motors  featured  Ovonic  NiMH  batteries  at the North  American
International  Auto Show in January 1998 as the enabling  technology for EV, HEV
and fuel  cell  vehicles  and as part of  General  Motors'  Advanced  Technology
Vehicles presentation.

      GM Ovonic.  In June 1994, Ovonic Battery and General Motors formed a joint
venture,  GM Ovonic,  to manufacture and sell Ovonic Battery's  proprietary NiMH
batteries  for  four-wheeled   electric   propulsion   applications  to  vehicle
manufacturers on a worldwide basis. GM Ovonic is owned 40% by Ovonic Battery and
60% by General  Motors.  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.  General
Motors'  contribution  consists  of  operating  capital,  plant,  equipment  and
management personnel necessary for the production of batteries.

      GM Ovonic is engaged in manufacturing of NiMH batteries at its facility in
Troy, Michigan, and  its wholly-owned  subsidiary, Ovonic Energy Products, Inc.,
has  opened  a  plant  in  Kettering  (Dayton),   Ohio, approximately  10 times
larger than  its Troy  plant, for the  production  of advanced  NiMH  batteries.
GM Ovonic is producing NiMH batteries for EVs 

                                -6-

<PAGE>



manufactured by General  Motors and will  also make the  batteries  available to
other  original equipment  manufacturers  for use in  their  advanced technology
vehicles.

      Other EV Business Agreements.  In addition to its GM Ovonic joint venture,
Ovonic  Battery has entered  into  royalty-bearing  license  agreements  for the
manufacture  of EV batteries and related  products  outside of the United States
with Hyundai Motor Company ("Hyundai"), Varta, Nan Ya and GP Batteries. Hyundai,
GP Batteries and Sovlux Battery have  restricted  rights to sell EV batteries in
North America.  Varta's  license  includes the right to manufacture EV batteries
subject to certain  limitations  on access to  technology  and  restrictions  on
manufacturing in North America.  Saft Group is licensed under a  royalty-bearing
license  agreement  for the  manufacture  and sale of EV batteries in the United
States.

      During 1997,  Ovonic  Battery  developed a "Family of Batteries"  that can
satisfy the energy storage needs of the full spectrum of EVs and HEVs, including
bicycles,  two-  and  three-wheeled  scooters,   cars,  trucks  and  vans.  This
Company-sponsored  development  was based on the  demonstrated  ability  of NiMH
batteries to be engineered  for different  energy and power  densities in a wide
range of capacities. The automotive industry has expressed considerable interest
in  batteries  for the  emerging  HEV market and Ovonic  Battery is  positioning
itself to offer the industry a high power,  durable,  high charge/discharge rate
NiMH battery.  Ovonic NiMH  batteries for HEVs are being reviewed with a variety
of potential  customers.  This "Family of  Batteries"  was  presented to General
Motors and has led to an Ovonic Battery production development program that is a
multi-million,  multi-year,  multi-task  activity  of  significant  value to the
Company.  This program is intended to provide next- and  future-generation  NiMH
batteries that will be manufactured by GM Ovonic.  Both EV and HEV types of NiMH
batteries  are included in the program  with the  objective  of  increasing  the
energy density of future batteries as well as reducing their size and cost.

      Ovonic  Battery's HEV battery,  developed  under its "Family of Batteries"
program,  meets  specifications  set by the  Partnership  for Next Generation of
Vehicles, a program among Chrysler Corporation ("Chrysler"),  Ford Motor Company
("Ford"),  General  Motors and the U.S.  Department  of  Commerce.  Ovonic  NiMH
batteries   tested   for   HEVs   have   the   following   present   performance
characteristics:

              Specific Energy:          70 watt-hours/kg.
              Peak Power:               625 watts/kg.
              Regenerative Power:       600 watts/kg.

      The United States Advanced  Battery  Consortium  ("USABC"),  a partnership
among Ford,  General Motors and Chrysler,  with funding  participation  from the
United  States  Department  of Energy  ("DOE") and the Electric  Power  Research
Institute formed in 1991 to develop promising battery  technologies for EVs, has
stated that the only battery  technology  with the  capability to meet or exceed
USABC's  mid-term goals for EV battery  performance is NiMH.  Ovonic Battery has
designed and built cells and modules for independent evaluation by USABC as well
as testing advanced prototype batteries with favorable results.

                                -7-

<PAGE>






                  USABC Mid-Term
                  Major Technical    Current Ovonic     Next Generation
Characteristic    Goals              Performance(1)     Battery Performance(2,3)
--------------    -----------------  -----------------  -----------------------
Energy Density    80 watt-hours/kg.  80 watt-hours/kg.  90-95 watt-hours/kg.

Power Density     150 watts/kg.      180 watts/kg.      > 200 watts/kg.

Cycle Life        600 cycles         600 cycles         1000 cycles

Life              5 years            10 years           10 years

100% Recharge     6 hours or less    1 hour (60% in 15  1 hour (60% in 15
Time                                 minutes)           minutes)



(1)   Indicates  independently  verified performance with the exception of life,
      which is projected.  Based on this battery performance,  purpose-built EVs
      have already achieved:

          o   More than 370 miles on a single charge
          o   0 to 60 mph acceleration in 8 seconds
          o   Battery lifetime projected to be equal to the life of the vehicle
          o   Battery quick charge to 60% of its capacity in 15 minutes

      Moreover,  the Ovonic NiMH  battery is robust,  free of lead,  cadmium and
      other environmentally hazardous substances and is maintenance free.

(2)   Indicates performance  already  achieved  on a  prototype  level at Ovonic
      Battery.

(3)   With respect to energy density,  Ovonic Battery  believes that significant
      potential  for even  higher  performance  exists.  Based  upon  laboratory
      measurements of advanced  materials,  optimized  construction and designs,
      Ovonic Battery  projects that energy density can be improved to as high as
      120-150 watt-hours/kilogram.

      Powered by Ovonic  NiMH  batteries,  a  Solectria  Sunrise  four-passenger
prototype EV sedan  traveled  from Boston to New York City on a single charge in
October 1997. The Sunrise EV, with a prototype composite body, was equipped with
a 30 kWh Ovonic NiMH battery pack. A total of 28.3 kWh was used from the pack to
travel the 216 miles at an average  speed of 55 with the driver,  one  passenger
and their luggage on board.

      A Solectria Force four-passenger  sedan, powered by Ovonic NiMH batteries,
achieved a range of 225 miles on a single  charge and won first  place,  for the
fifth  consecutive  year, in the production  category of  commercially-available
electric vehicles at the Tour de Sol Road Rally in May 1998.

      To  illustrate  the  lower  cost  operation  of  battery-powered  electric
vehicles,  a four-door  Chevrolet Geo  Metro with a gasoline  engine was matched
against a Solectria Force (the electric version of the Geo Metro) to measure the
operating efficiencies of the two

                                -8-

<PAGE>



vehicles over a 23.5-mile  route through  mid-town  Manhattan (New York City) at
the 1998 Tour de Sol. Based upon a central power plant efficiency rate of 51%, a
power transmission  efficiency rate of 92%, a battery charger efficiency rate of
90% and a battery energy  efficiency rate of 90%, the electric car's use of 2.87
kWh of  electricity  was  the  equivalent  of  0.27  gallons  of  gasoline.  The
gasoline-fueled  car used 2.28  gallons  of  gasoline.  The  gasoline  Geo Metro
achieved  10.3  miles per  gallon,  while the  Solectria  Force  returned  an 87
miles-per-gallon  equivalent.  At $1.00 per  gallon,  it cost  $2.28 for the Geo
Metro's gasoline and the equivalent of $.27 to power the Solectria.

      Two- and Three-Wheeled Vehicles.  Ovonic Battery has installed Ovonic NiMH
batteries in scooters converted to electric power and successfully  demonstrated
the  application of its battery for two- and  three-wheeled  electric  vehicles.
Ovonic Battery  considers two- and  three-wheeled  electric vehicles a potential
large-volume  market  since  these types of  vehicles  are the  primary  mode of
transportation in many European and developing  countries  throughout the world,
such as India, China and Taiwan.  Electric two-and three-wheeled  vehicles using
Ovonic NiMH batteries  should improve the acute air pollution  problems in these
regions caused by conventional two- and three-wheeled vehicles.

      The Company has entered into  royalty-bearing  license  agreements for the
manufacture  and sale of  Ovonic  NiMH  batteries  for  two-  and  three-wheeled
vehicles with Walsin, Sanoh and Nan Ya.

      Sanoh, a licensee in Japan,  is expanding its production of NiMH batteries
for two-wheeled  electric  vehicle  applications  at its plant in  Koga,  Japan.
Among  Sanoh's  customers  are  large  manufacturers  of  electric  scooters and
bicycles such as Honda who has announced  plans to introduce new products.

      Ovonic   Battery  and  Sanoh   established   Sanoh  Ovonic  Power  Systems
Corporation  ("Sanoh  Ovonic") in December  1997, a joint  venture  owned 45% by
Ovonic  Battery and 55% by Sanoh,  for the  manufacture  and sale of Ovonic NiMH
batteries  for  electrically-powered two- and  three-wheeled  vehicles.  Due  to
Sanoh's  commitment  of resources to the launch of NiMH battery  production  for
electric scooters in Japan, Sanoh Ovonic has not become operational.

      In February 1998, EV Global Motors  ("EVG"),  founded by Lee Iacocca,  and
the Company announced a strategic  alliance to cooperate in further  development
and  commercialization  of light EVs using EVG vehicles and the Company's energy
storage  technologies.  In forming this strategic alliance,  the Company and EVG
exchanged  shares of their Common  Stock.  EVG also  transferred  to the Company
certain shares of the Common Stock of Unique Mobility Corp.  ("Unique Mobility")
held by EVG.  Unique  Mobility is a leader in the development and manufacture of
highly  efficient,  power dense,  permanent  motors and controls  primarily  for
application in EVs and HEVs.

     Sovlux  Battery.  In March 1998,  the Company  announced  the  formation of
Sovlux  Battery,  an  affiliate  of Sovlux,  the  Company's  U.S.-Russian  joint
venture,  owned 50% by the Company  and 50% by the  Chepetsky  Mechanical  Plant
("Chepetsky") in Glazov,

                                -9-

<PAGE>



Udmurt  Republic.  Sovlux  Battery  plans to produce NiMH battery  materials and
components  for sale to Ovonic  Battery and its  licensees.  Sovlux Battery will
also  manufacture  batteries  for the emerging two- and  three-wheeled  electric
vehicle  market in Europe and Asia and for  four-wheeled  electric  vehicles  in
Russia.

      The  availability  of abundant  Russian  raw  materials  for the  battery,
Chepetsky's alloy processing and production  expertise,  and joint collaboration
on battery research and development  could provide the potential for substantial
reductions in the cost of Ovonic Battery's proprietary NiMH batteries.

      Other  Battery  Applications.  Several  licensees  of Ovonic NiMH  battery
technology,  such as Sovlux,  Canon and GM Ovonic,  have been granted  rights to
manufacture  and sell  large  batteries  for  energy  storage  applications  for
electricity  generated  by  photovoltaics,   remote  power  generation,  utility
applications and battery-operated industrial equipment. There are numerous other
applications for Ovonic NiMH batteries where portable energy storage is required
or convenient.

Energy Generation (Photovoltaic Technology).

      Photovoltaic  ("PV") systems provide a clean and simple solid-state method
for direct conversion of sunlight into electrical  energy.  The major barrier to
the widespread use of direct  solar-to-electrical energy conversion has been the
lack of an inexpensive solar cell technology. The Company and its joint venture,
United Solar, are leaders in thin-film amorphous  photovoltaic  technology.  The
Company  has  invented  a unique  proprietary  approach  to the  manufacture  of
photovoltaic  products.  Compared to PV products  that are  produced by other PV
technologies,  the ECD/United Solar PV products are substantially  lighter, more
rugged,  require  much less energy to produce and can be produced in high volume
at significantly lower cost.  In  large  volume (100 MW) production,  ECD/United
Solar's PV products can become price  competitive  to  conventional  fuels.  The
Company's  proprietary  position  in  photovoltaics  ranges  from the  invention
of  materials  and the development of products to the design and  manufacture of
production  equipment.  The  Company  and United  Solar  have more than 165 U.S.
patents  and  numerous foreign  counterpart  patents in the area of photovoltaic
technology.

      Crystalline  silicon was the  original  materials  technology  used by the
photovoltaic  industry.  First  widely  used in space  satellites,  conventional
crystalline  silicon  solar cells are  fabricated  in a  step-and-repeat,  batch
process  from  small  wafers  of  single  crystal  or  polycrystalline   silicon
semiconductor materials. Notwithstanding the substantial advances that have been
made in the development of this technology, the cost of crystalline photovoltaic
modules  still  is high  because  of  high  materials  costs  and  because  many
processing  steps are needed to  manufacture  the modules.  Crystalline  silicon
solar cell modules also are bulky and break easily.

      The Company has developed  proprietary  technology to reduce the materials
cost in a solar cell using the Company's proprietary thin-film,  vapor-deposited
amorphous  silicon  ("a-Si")  alloy  materials.  Because a-Si absorbs light more
efficiently than its crystalline counterpart,  the a-Si solar cell thickness can
be 100 times less, thereby significantly

                               -10-

<PAGE>



reducing materials cost. By utilizing a flexible,  stainless steel substrate and
polymer-based encapsulants,  United Solar's PV products can be very lightweight,
flexible,  abuse-tolerant  and  particularly  easy to  transport to remote rural
areas and install without breakage.

      Amorphous  cells with different  light  absorption  properties also can be
deposited  one on top of  another  to  capture  the broad  solar  spectrum  more
effectively,  which increases the energy-conversion efficiency of the multi-cell
device  and  improves  performance  stability.   This  unique  "triple-junction"
approach has resulted in world record  efficiencies for the a-Si technology.  In
August 1998, United Solar was awarded an "R&D 100" award by R&D Magazine for its
triple-junction  amorphous silicon solar electric module. The magazine's editors
and staff,  together with outside experts,  reviewed thousands of new inventions
to determine the 100 most significant advances of 1998.

      The Company and its United Solar joint  venture hold current world records
for both large- and small-area conversion efficiency for amorphous silicon solar
cells, as measured by the DOE's National  Renewable Energy Laboratory  ("NREL").
Conversion  efficiency  is the  percentage  of sunlight  that is converted  into
electricity.  In 1994, the DOE and United Solar  announced that United Solar had
set a world record of 10.2% stabilized  energy  conversion  efficiency for large
area (one-square foot) amorphous silicon alloy photovoltaic  modules,  which the
DOE characterizes as a major breakthrough. In April 1997, United Solar announced
the laboratory achievement of a new world record solar-to-electricity stabilized
efficiency of 13% for small-area  amorphous  silicon alloy  photovoltaic  cells,
surpassing its earlier record.

      To further reduce the  manufacturing  cost of  photovoltaic  modules,  the
Company has pioneered the  development of and has the  fundamental  patents on a
unique  approach  utilizing  proprietary  continuous   roll-to-roll  solar  cell
deposition process. Using a roll of flexible stainless steel that is a half-mile
long and 14 inches  wide,  nine  thin-film  layers of a-Si  alloy are  deposited
sequentially in a high yield,  automated  machine to make a continuous,  stacked
three-cell structure.  The roll of solar cell material then is processed further
for use in a variety of  photovoltaic  products.  This basic  approach  that the
Company  has   pioneered  is  unique  in  the   industry  and  has   significant
manufacturing  cost  advantages.   The  Company  believes  that  in  high-volume
production its photovoltaic  modules will be  significantly  less expensive than
conventional  crystalline  silicon and other thin-film solar modules produced on
glass and can be cost  competitive  with fossil  fuels.  The  importance  of the
Company  and  United Solar's  work in this field has been recognized by the U.S.
Department of Energy.

      The Company  has formed two joint  ventures  to  manufacture  photovoltaic
modules and systems and to sell them throughout the world.

      In 1990,  the  Company and Canon  formed  United  Solar for the  continued
development,  manufacture  and sale of Ovonic solar cells under license from the
Company. United Solar is owned 49.98% by the Company and 49.98% by Canon.

      Canon has  invested  over $58  million  in United  Solar and has  provided
United Solar with $10 million in loan guarantees. In 1997, Canon entered into an
agreement with United

                               -11-

<PAGE>



Solar whereby,  in  consideration  of an $11.5 million  payment to United Solar,
Canon has been  permitted,  in addition to its exclusive  rights to  manufacture
photovoltaic products in Japan, to expand its rights to manufacture photovoltaic
products  on a  non-exclusive  basis in  Australia  and one country of Europe as
determined by Canon.

      United  Solar is producing a variety of PV products and selling PV modules
and systems throughout the world. United Solar manufactures  products for remote
power applications,  telecommunications,  PV-powered lighting systems, building-
integrated  photovoltaic  systems and  marine  applications at its facilities in
Troy, Michigan.

      Based on research  and  development  conducted at the Company in the early
1980s,  the  Company  and United  Solar  have  developed,  and  United  Solar is
manufacturing and selling,  unique products for the building industry such as PV
shingles and metal roofing products which emulate conventional roofing materials
in form, construction, function and installation. In 1996, United Solar received
the Popular  Science  1996 "Best of What's  New" Grand  Award and,  in 1997,  it
received  the  Discover  Magazine  1997  "Technology  Innovation  Award" for its
flexible solar shingles.

      United Solar is also building on the Company's  development  of ultralight
weight PV  technology  and  developing PV products for space  applications.  The
global  telecommunications  revolution  is  expected  to result in the launch of
thousands of low earth orbit satellites and high altitude  platforms in the next
decade  which will  require  lower cost,  lighter  weight PV modules  than those
currently  used in space.  United Solar's PV cells are radiation  hard,  perform
very well at the high temperatures encountered in space and can be significantly
lighter than conventional technologies as well as less expensive.

      In April 1998,  United  Solar and Sky Station  International,  Inc.  ("Sky
Station")  announced the  formation of a new joint  venture,  Sky Solar,  L.L.C.
("Sky Solar"), to manufacture 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  applications  and for construction of a dedicated PV production line. Sky
Station has  developed  technology  that enables the  deployment of a network of
stationary  stratospheric airships at 70,000 feet above the world's major cities
to provide broadband  telecommunication services. Sky Station will begin funding
the  activities  of Sky Solar upon the  successful  attainment  of Sky Station's
required capital for the project.

      In 1997, United Solar completed the upgrade of its manufacturing  facility
which  has  more  than  tripled  production  capacity.  The  new  machinery  and
equipment, which was designed and built by the Company under an $8 million order
from United  Solar,  became  operational  in early 1997.  This new machinery and
equipment,  now in commercial  production,  incorporates advanced technology and
has the capacity to  manufacture,  on an annual  basis,  solar cells  capable of
producing five megawatts of electricity.

      In 1990,  the  Company  also formed  Sovlux,  a joint  venture  with State
Research and Production  Enterprise Kvant ("Kvant") to manufacture the Company's
photovoltaic products

                               -12-

<PAGE>



in the countries of the former Soviet Union. Sovlux is owned 50% by the Company.
In 1990, Kvant entered into machine-building  contracts with the Company for the
construction of 2MW-capacity photovoltaic manufacturing equipment. The equipment
has been installed in Sovlux's plant in Moscow. Kvant contributed this equipment
to the joint venture in exchange for its ownership  interest in Sovlux.  In July
1996,  the Russian  Ministry of Atomic  Energy  ("MINATOM")  agreed to become an
equity partner in Sovlux.  MINATOM agreed to provide operating capital to enable
Sovlux to commence  production of  photovoltaic  products as well as capital for
new production equipment to be built by the Company's Production  Technology and
Machine Building Division. Because of economic conditions in Russia, MINATOM had
been unable to fulfil its obligations. The Company's contribution to the venture
consists solely of the technology necessary to support Sovlux's operations.

      Sovlux has conducted pre-production activities consisting of manufacturing
plant  preparation  and  machinery   optimization.   Sovlux  received  two  U.S.
Government  contracts  in 1998 in  connection  with  certain of its  operations.
However,  Sovlux has not been able to commence volume production of photovoltaic
products due to MINATOM's  inability  to provide  operating  capital and current
economic conditions in Russia.

      For more than 11 years, the Company has been engaged in research contracts
awarded  by the DOE and NREL  aimed at further  development  of  high-efficiency
amorphous silicon-based alloy thin-film solar cells, improvement of photovoltaic
manufacturing   technologies,   and  the   development  and   demonstration   of
photovoltaic systems to be used in roof-top construction in lieu of shingles and
other roofing materials.

      In June 1998,  the Company was awarded a new  cost-sharing  program by DOE
and  NREL  to  further  advance  the  Company's   proprietary   roll-to-roll  PV
manufacturing technology.  This program is part of the DOE's ongoing initiatives
to  enhance  U.S.  leadership  in  the  world  PV  market  through  improved  PV
manufacturing processes and reduced manufacturing costs.

      Another  new  cost-sharing  contract,  from  DOE's  Thin-Film  Partnership
Program,  was awarded to the Company in August  1998.  The overall  goal of this
program is to increase the rate at which the highly efficient  "triple-junction"
a-Si solar cells are deposited onto the substrate.

      Other Energy  Technologies.  The Company is  conducting  various  research
programs sponsored by U.S. Government agencies to continue the Company's earlier
work  on the  development  of  high-performance  materials  for the  storage  of
hydrogen,  the design of prototype metal hydride hydrogen  storage devices,  and
the development of integrated renewable hydrogen-generation storage systems. The
prototype   hydrogen   storage   devices   utilize  the  Company's   proprietary
high-performance   metal  hydride  materials  and  are  designed  to  work  with
applications such as hydrogen-oxygen  fuel cells as well as other  applications.
These storage  devices offer a safe, low pressure,  high density  alternative to
gaseous or liquid hydrogen storage for a variety of  transportation,  stationary
or portable power applications.


                               -13-

<PAGE>



      Under a  DOE-sponsored  program,  the Company is  developing an integrated
renewable   hydrogen-generation   storage   system.   This   system  uses  water
electrolysis to convert the electricity produced by the Company's multi-junction
PV products  to  hydrogen  and stores the  produced  hydrogen  in metal  hydride
hydrogen  storage  devices.  The system is being  designed  for  residential  or
small-scale  commercial  production  of  hydrogen  which can be used to  replace
conventional fuels as sources of energy conversion.

Information Technologies.

      The  Company  has  developed  a number  of key  proprietary  products  and
processes in the field of  information  technology.  In the past,  products have
been  developed  by the Company  for data input  (image  scanners),  data output
(copier and laser  printer  drums),  data display and data storage  (optical and
semiconductor memory devices).

      Optical Memory.  The Company is the originator of phase-change  rewritable
optical memory disk  technology.  The Company's Ovonic  phase-change  rewritable
optical memory technology makes it possible to store, in a convenient, removable
disk format,  many times the amount of data as a  conventional,  removable rigid
magnetic  disk  of  the  same  size.  The  Company's  proprietary   phase-change
rewritable  optical memory uses a laser to write or erase digital data on a thin
film of amorphous  semiconductor  alloy that has been deposited onto a substrate
disk. The disk and data-reading process are similar to an ordinary CD or CD-ROM,
with the significant  difference being that the phase-change  rewritable optical
memory can be erased and rewritten many thousand of times.

      The  Company has  licensed  its  phase-change  rewritable  optical  memory
technology  to 12  companies  and expects to license  others who are  developing
phase-change  optical  memory  products.   Among  the  Company's  licensees  are
Matsushita/Panasonic,  Sony, Toshiba,  Asahi, Hitachi,  Plasmon,  Toray, TDK and
Teijin. The license agreements provide for royalty payments to the Company based
upon sales of phase-change rewritable optical memory disks.

      A  "convergence"  of  the  information   processing,   communications  and
entertainment  industries  is taking  place as a result of  advances  in digital
electronics.  A new and emerging "convergence" product offering  higher-capacity
data  storage is the DVD.  Playback-only  DVD disks and drives  ("DVD-ROM")  are
commercially  available now. The Company's  high-capacity  phase-change  optical
memory  technology  has emerged as the  technology of choice for  rewritable DVD
media.  Rewritable DVD media and drives for computer and information  technology
applications became commercially available in the Summer of 1998.

      The Company's optical memory licensees now producing  phase-change optical
media,  as well as other  storage  media  manufacturers,  are expected to become
manufacturers  of rewritable DVD products.  The DVD Forum,  comprised of leading
manufacturers  in the  optical  disk  industry,  is  targeting  a wide  range of
computer and information  technology  applications for DVD-RAM disks,  including
digital television recording, due to their high data storage capacity.


                               -14-

<PAGE>



     The  Company  is  also  involved  in  several  development  programs  under
cost-sharing  contracts  awarded by the U.S.  Department of Commerce through its
National  Institute of Standards  and  Technology  Advanced  Technology  Program
("ATP")  relating to the Company's  optical  memory  technologies.  Two of these
programs involve DVD media.  Under one program,  the Company is developing a new
manufacturing  system for DVD media that is expected  to increase  manufacturing
throughput and  significantly  reduce costs. The other program involves the goal
of  increasing  the  storage   capacity  of   DVD-compatible   optical   storage
technologies  by a factor of 10 and  significantly  increasing the data transfer
rate,  making it possible to store several hours of  high-definition  television
content, or thousands of professional-quality high-resolution still photos, on a
single disk.

      The  third  ATP  program  in which  the  Company  is  involved  is for the
development of very high data capacity  optical tape for affordable rapid access
mass data storage products.

      Non-Volatile  Semiconductor  Memory.  The  Company,  on the  basis  of its
pioneering  technology,  developed the first non-volatile  semiconductor memory,
the Ovonic  EEPROM,  for  computer  data  storage in the 1960s.  The Company has
advanced and extended that early work and is now developing a proprietary family
of high-performance non-volatile semiconductor memory and information processing
devices.  This  technology  is designed to provide  non-volatile  computer  data
storage with the speed of current,  volatile DRAM semiconductor system memory as
well as to  decrease  the cost of  production.  The  technology  also  offers an
opportunity to develop new, fast computer  architectures  so as to eliminate the
use of multiple tiers of memory as well as data transfer  bottlenecks  caused by
the current  computer  memory  hierarchy.  By removing the  distinction  between
archival storage and system memory, data can be stored in a non-volatile fashion
and "executed in place,"  resulting in improved  computer  performance and lower
costs of data transfer  than those  associated  with the  currently  used memory
hierarchy.  The Company believes that its Ovonic semiconductor memory can, in  a
single device,  replace  the multiple memory types  of devices which are used in
today's personal computers.

      Another  application  of the technology is intended for use in the rapidly
growing  Flash  EEPROM  market.  Flash  EEPROMs are used in portable  electronic
devices  such  as  laptop  computers,   pagers,   and  cellular   telephones  as
all-solid-state,  low-power  replacements for magnetic hard disk storage.  Still
another  application  of  the  Company's   non-volatile   semiconductor   memory
technology can provide a basis for practical, highly complex,  three-dimensional
neural network systems for use in advanced  artificial  intelligence and speech-
and image-pattern recognition. Because the Ovonic semiconductor memory can  pro-
vide the capability to store more  than one  bit of information per memory cell,
it can allow the fabrication of  semiconductor memory with high storage density.
An  application  under  development is the use of this  semiconductor  memory in
electronic cash and smart card systems that require information to be  stored in
an encrypted, secure and tamper-proof manner.


                               -15-

<PAGE>

Thin-Film Synthetic Materials

     The Company has developed a range of  vapor-deposited  thin-film  materials
and cost-effective  roll-to-roll production technologies,  including a high-rate
microwave  plasma  chemical  vapor  deposition   ("MPCVD")  process.  Two  major
commercial  applications for this technology being pursued are  high-performance
optical coatings and transparent vapor barrier coatings.

      Optical Films.  Another  important  application for transparent  thin-film
coatings  which are deposited  using the Company's  cost-effective  roll-to-roll
production  technologies  is in thin-film  optical  coatings  which  selectively
absorb,  reflect or transmit certain types of electromagnetic  radiation.  These
coatings have a wide range of commercial  applications-- from anti-glare screens
for  computer  and   television   displays  to   solar-controlled   windows  for
architectural and automotive applications.

      Vapor Barrier Films.  The Company's  MPCVD process has been applied in the
development of a novel, low-cost,  transparent vapor barrier coating for plastic
beverage  containers  and flexible  packaging  films.  An extremely thin coating
(less than 1 millionth of an inch, or 1/50th of the wavelength of visible light)
of the Company's  MPCVD  amorphous  silicon oxide  (quartz  glass)  improved the
oxygen and water vapor barrier of commodity and rigid packaging films by about a
factor of 100. By blocking oxygen and water vapor  transmission,  the shelf life
of food  beverages,  pharmaceuticals  and other types of  sensitive  products is
extended.

            PRODUCTION TECHNOLOGY AND MACHINE BUILDING DIVISION
                     AND CENTRAL ANALYTICAL LABORATORY

      The Production  Technology  and Machine  Building  Division  operates as a
profit center for the Company's  machine-building and engineering activities. It
has  extensive  experience  in  designing  and  building  proprietary  automated
production  equipment.  The Production  Technology and Machine Building Division
has designed and built for the Company and its  licensees  five  generations  of
photovoltaic  production lines, including United Solar's machinery and equipment
for solar cells  capable of  producing 5 megawatts of  electricity  on an annual
basis,  as  well  as  research,  development  and  manufacturing  equipment  for
batteries, vapor barrier coating and other materials technology.

      The Company's Central Analytical Laboratory conducts analysis of materials
produced by the Company and its joint venture  partners and licensees as well as
materials  produced by other  companies.  The Company also maintains an advanced
materials  technology  group that  supports the efforts of each of the Company's
business areas.


                               -16-

<PAGE>


                     RESEARCH AND PRODUCT DEVELOPMENT

      The nature of the Company's  business has  required,  and will continue to
require,  expenditures  for  research  and  product  development  to support the
commercial  activities  of the Company.  Such funds have been  forthcoming  from
United States  government  agencies and the Company's  licensees and  industrial
partners  to  partially  fund  these  activities.   The  materials,   production
technologies  and products being  developed and produced by the Company,  Ovonic
Battery  and  the   Company's   joint  venture   partners  are   technologically
sophisticated and are designed for markets  characterized by rapid technological
change and  competition  based, in large part,  upon  technological  and product
performance advantages.

      The  following  is  a  summary  of  the  Company's   consolidated   direct
expenditures,  excluding the allocation of patents, depreciation and general and
administrative expenses, for product research and development for the five years
ended June 30, 1998.  All of the Company's  research and  development  costs are
expensed as incurred.

                            Direct Research and Development Expenditures
                            --------------------------------------------
<TABLE>
<CAPTION>

                                                Year Ended June 30,
                     ------------------------------------------------------------------
 
                         1998          1997          1996          1995         1994
                         ----          ----          ----          ----         ----
<S>                  <C>           <C>           <C>           <C>           <C> 

Sponsored            $12,464,256   $ 4,996,632   $ 6,732,570   $ 9,154,263   $6,927,883
by  Licensees,
Government
Agencies and
Industrial Partners

Sponsored by           8,782,943    11,735,861     6,214,848     2,808,219    1,357,341
the Company          -----------   -----------   -----------   -----------   ----------
                     $21,247,199   $16,732,493   $12,947,418   $11,962,482   $8,285,224
                     ===========   ===========   ===========   ===========   ==========

</TABLE>

                  SOURCES AND AVAILABILITY OF RAW MATERIALS

      Materials, parts, supplies and services used in the Company's business are
generally  available  from a  variety  of  sources.  However,  interruptions  in
production or delivery of these goods and services  could have an adverse impact
on the Company's manufacturing operations.

                               -17-

<PAGE>



                       PATENTS AND PROPRIETARY RIGHTS

      Since its founding in 1960, the Company's research and development efforts
have  focused on  amorphous,  disordered  and related  materials,  a  previously
unrecognized  field of  materials  science that has since  attracted  widespread
attention. The Company has established a multi-disciplinary business, scientific
and   technical   organization   ranging  from  research  and   development   to
manufacturing and selling products as well as designing and building  production
machinery.  The  Company  has  recognized  the need to protect  carefully  those
activities.  The Company's  extensive  patent  portfolio  consists of 354 United
States patents and 846 foreign  counterparts,  including a basic patent in Japan
corresponding   to  United  States  patent  No.  4,623,597  and  specifying  the
fundamentals  that make NiMH  batteries  commercially  feasible.  The  Company's
patent portfolio  includes numerous basic and fundamental  patents applicable to
the field of  amorphous  and related  materials.  The  Company  invents not only
materials,    but   also   develops   low-cost   production   technologies   and
high-performance  products.  The Company's  patents,  therefore,  cover not only
materials,  but also the  production  technology  and products  developed by the
Company.

     The Company believes that worldwide  patent  protection is important for it
to compete effectively in the marketplace. Certain of the Company's patents have
been the subject of legal actions,  two of which have been resolved favorably to
the Company prior to trial.  Because the validity of the  Company's  patents has
not to date been confirmed through legal proceedings,  no assurance can be given
as to either the validity or scope of the Company's patent protection.

                          CONCENTRATION OF REVENUES

      See Note B of the Notes to Consolidated  Financial  Statements on page  54
of this Report.

                                   BACKLOG

      The Company has a  $1,584,000  backlog of orders as of August 31, 1998 for
electrodes.  The backlog at August 31, 1997 was  $3,700,000  for battery  packs,
electrodes and  machine-building  contracts.  The Company expects to fill all of
its current backlog within the current fiscal year.

                                 COMPETITION

      The principal  competitive  advantages of the Company are its ownership of
fundamental  patents and enabling technology which cover products and production
technology  in the  important  fields of energy and  information  as well as its
research and development activities.  The Company has entered into joint venture
or licensing  agreements with established  industrial companies that the Company
believes  possess  the  financial  resources  and  manufacturing  and  marketing
capabilities to  commercialize  products based on the Company's  technologies in
the  areas  of  consumer  rechargeable   batteries,  EV  and  hybrid  automotive
batteries,  scooter batteries,  industrial storage batteries,  photovoltaics and
information technologies.

                               -18-

<PAGE>

      The  Company  competes  with  firms,  both  domestic  and  foreign,   that
manufacture  and sell  products,  as well as firms  that  perform  research  and
development.  Some of these firms are among the largest industrial  companies in
the world and have well-established product lines, extensive resources and large
research and development staff and facilities.

      The  Company  is  currently  engaged  in  manufacturing  and  selling  its
proprietary products through joint ventures and licensing arrangements,  as well
as through its own divisions and internal production operations.  The ability of
the Company to maintain its competitive leadership in the future will depend not
only on continuing product and technological  advances, but also on the strength
and ability of the Company's licensees and joint venture partners.

                                  EMPLOYEES

      As of  September  18,  1998,  the  Company  had a total of 362  employees,
including  195  Ovonic  Battery  employees.  The  aforementioned  numbers do not
include  employees of the Company's  joint  ventures or  licensees.  The Company
considers its relations with its employees to be excellent.


           CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR"
     PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

      This Annual Report on Form 10-K contains forward-looking statements within
the meaning of the Private Securities  Litigation Reform Act of 1995 concerning,
among other things,  the Company's  expectations,  plans and  strategies for the
development and  commercialization of products based on its technologies.  These
forward-looking  statements are generally identified by the use of such terms as
"intends," "expects," "plans," "projects," "estimates,"  "anticipates," "should"
and "believes."

      All of such forward-looking  statements are based on assumptions which the
Company,  as of the date of this Annual  Report,  believes to be reasonable  and
appropriate. The Company cautions, however, that the actual facts and conditions
that may exist in the future could vary  materially  from the assumed  facts and
conditions upon which such forward-looking statements are based.

      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.  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.


                               -19-

<PAGE>


      In certain fields, the Company has entered into licensing or joint venture
agreements  with  established  companies.  Any revenues or profits  which may be
derived by the Company from these  arrangements 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.

      The Company's  ability to compete  effectively  with other  companies will
depend,  in part, on its ability to protect and maintain the proprietary  nature
of its technology. 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.   There can also be no assurance  that
the Company will not become  involved in disputes with respect to the patents or
proprietary rights of third parties.

     The foregoing  factors,  as well as other factors  discussed in this Annual
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.





                               -20-

<PAGE>



                         GLOSSARY OF TECHNICAL TERMS

      Certain technical terms used herein have the following meanings:

      Amorphous - having an atomic structure that is not periodic.

      Battery Memory Effect - an undesirable phenomenon in Ni-Cd batteries where
      repeated shallow discharge cycles adversely affect battery performance.

      CD-ROM  (CD--Read Only Memory) - a type of  data-storage  media using a CD
      format with pre-recorded data which cannot be recorded by the user.

      CD-RW  (CD--Rewritable  Memory) - a type of data storage  media using a CD
      format employing ECD's proprietary  phase-change rewritable optical memory
      technology capable of being recorded and re-recorded many times.

      Crystalline - having a repeating atomic structure in all three dimensions.

      Cycle Life - the number of times a rechargeable battery can be charged and
      discharged.

      Disordered  - lacking  order.  Order is defined  over some scale of length
      such as short  range,  intermediate  range or long  range and may refer to
      atomic position (structural order), type of atom (compositional order), or
      other physical  properties such as magnetic and electric  polarization and
      others.

      DRAM  (Dynamic  Random  Access  Memory) - a type of  semiconductor  memory
      device used for the main system memory in most computers.

      Electrode (battery) - the chemically active portions of a battery.

      Energy  Density  - the  amount of energy  stored in a  specific  volume or
      weight.

      EV (Electric  Vehicle) - a vehicle  propelled  exclusively  by an electric
      drive  system  powered  by  an  electrochemical   energy  storage  device,
      typically a rechargeable battery.

      Flash EEPROM  (Electrically  Erasable  Programmable  Read Only Memory) - a
      type of semiconductor memory device that retains stored data even with the
      power off.

      HEV (Hybrid  Electric  Vehicle) - a vehicle that is  propelled  both by an
      electrochemical  energy storage device coupled to an electric drive and an
      auxiliary  power unit powered by a conventional  fuel such as reformulated
      gasoline, direct injection diesel or compressed natural gas.

      Hydrides - solid materials that store hydrogen.


                               -21-

<PAGE>



      Non-Volatile  - a property of some types of computer  memory  which retain
      stored data even when power is removed.

      Optical Memory - a computer  memory  technology that uses lasers to record
      and play back data stored on a rotating disc.

      Ovonic - the term used to describe the  Company's  proprietary  materials,
      products and technologies.

      PD (Phase-Change  Dual) - a type of data-storage format using ECD's phase-
      change rewritable optical memory technology for use in PD drives.

      Peak Power - the maximum amount of energy available for a sustained period
      of time, typically 10 to 30 seconds.

      Phase-Change  Rewritable - an optical  memory  technology  invented by the
      Company  in which  data is stored or erased on memory  media by means of a
      laser beam that  switches  the  structural  phase of a thin-film  material
      between crystalline and amorphous states.

      Photovoltaic (PV) - direct conversion of light into electrical energy.

      Power  Density - the amount of power a battery can deliver per unit volume
      or weight.

      Regenerative  Power - the amount of energy made  available and returned to
      the battery by the recovery of kinetic energy.

      Roll-to-Roll Process - a process where a roll of substrate is continuously
      converted into a roll of product.

      Semiconductor  - a class of materials with special  electrical  properties
      used to fabricate solar cells, transistors,  integrated circuits and other
      electronic devices.

      Specific Energy - the amount of energy  capacity  divided by the weight of
      the battery.

      Stabilized  Energy  Conversion  Efficiency  -  the  long-term  ratio  of
      electrical output to light input. 

      Thin Film - a very thin layer of material formed on a substrate.



                               -22-

<PAGE>



Item 2: Properties
------- ----------

      A summary of the principal  facilities  of the Company and Ovonic  Battery
follows:





                 Location                     Number of
                                              Square Feet
                 --------                     -----------

          The Company:

          1675 West Maple Road, Troy,            31,550
          MI

          1050 East Square Lake Road,
          Bloomfield Township, MI                11,000

          1621 Northwood, Troy, MI               27,480


          Ovonic Battery:

          1864 Northwood, Troy, MI               12,480

          1826 Northwood, Troy, MI               12,480

          1707 Northwood, Troy, MI               27,400

          1334 Maplelawn, Troy, MI               28,100

          1414 Combermere, Troy, MI               9,870
                                                -------
                 TOTAL                          160,360
                                                =======

   Except for the  property  located at 1050 East Square  Lake Road,  Bloomfield
Township, MI, which is owned by the Company, the foregoing properties, which are
generally of brick and block construction, are leased by the Company and, except
for the property  located at 1334 Maplelawn,  Troy, MI, which is subleased to GM
Ovonic,  are devoted primarily to the product  development,  pre-production  and
production activities and administrative and other operations of the Company and
Ovonic  Battery.  Management  believes that the above  facilities  are generally
adequate for present operations.


                               -23-

<PAGE>


Item 3: Legal Proceedings
------- -----------------

   There  are no  legal  proceedings  to  which  the  Company  is a party  which
management believes to be material.


Item 4: Submission of Matters to a Vote of Security Holders
------- ---------------------------------------------------

   Not applicable.


                               -24-

<PAGE>


                                  PART II

Item 5: Market for Registrant's Common Equity and Related Stockholder Matters
------- ----------------------------------------------------------------------

      Shares of the Company's  Common Stock,  par value $.01 per share  ("Common
Stock"),  trade on the NASDAQ  National  Market System under the symbol  "ENER."
Shares of the Company's Class A Common Stock, par value $.01 per share ("Class A
Common Stock"), are not publicly traded.

      As of September 18, 1998, there were  approximately 2700 holders of record
of Common Stock and four holders of record of Class A Common Stock.

      The  following  table  sets forth the  reported  high and low price on the
NASDAQ National  Market System for the Company's  Common Stock for the following
quarters:
 
                                 For the Fiscal Year Ended June 30
                                      (in Dollars Per Share)


                           1999                1998                1997
                       High     Low        High     Low        High     Low
                       -------  -------    -------  -------    -------  -------
First Quarter          $10.25   $5.188     $17.00   $10.50     $22.75   $15.50
through
September 28,
1998

Second Quarter                             $16.875  $11.00     $17.00   $12.375

Third Quarter                              $15.375  $12.125    $15.50   $11.25

Fourth Quarter                             $15.25   $9.125     $17.25   $ 7.25


      The Company has paid no cash  dividends in the past and no cash  dividends
are expected to be paid in the foreseeable future.

      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 

                               -25-

<PAGE>


purchase  133,658 shares of the Company's Common Stock.  The Agreement also pro-
vided 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, $0.01 par value.

      The warrants are  exercisable on or prior to February 2, 2003, with 73,462
shares exercisable at $13.6125 and 60,196 shares exercisable at $16.6125.

      The Company's  Common Stock and the warrants were obtained by EV Global in
a private  transaction  under  Regulation D, Rule 505 of the  Securities  Act of
1933.



                               -26-

<PAGE>

Item 6: Selected Financial Data
------- -----------------------

     Set forth below is certain  financial  information taken from the Company's
audited consolidated financial statements (See Item 1: Description of Business).

<TABLE>
<CAPTION>
                                                                            June 30,
                                             --------------------------------------------------------------------
Revenues:                                        1998          1997          1996          1995           1994
---------                                        ----          ----          ----          ----           ----
<S>                                         <C>            <C>            <C>           <C>           <C>

Product sales                                 $9,858,343   $ 14,897,144   $14,828,133   $10,298,019   $ 7,366,668
Royalties                                      2,485,981      1,394,872     1,321,117     1,205,036       228,630
Revenues from product development agreements  15,311,416      5,738,877     7,349,195    11,365,708     9,608,224
Revenues from license and other agreements     1,701,134      5,828,648    12,524,262    17,931,852     1,925,000
Other                                          2,200,707      1,718,933     1,289,667       543,143       228,853
                                             -----------   ------------   -----------   -----------    ----------
       TOTAL REVENUES                         31,557,581     29,578,474    37,312,374    41,343,758    19,357,375
                                             -----------   ------------   -----------   -----------    ----------

Net Income(Loss)                            $(16,664,999)  $(17,954,612)  $ 1,054,269   $ 5,605,664   $(3,892,656)
                                            ============   ============   ===========   ===========   ===========

Basic Net Income(Loss) per Common Share     $      (1.50)  $      (1.67)  $       .11   $       .70   $      (.51)

Diluted Net Income(Loss) per Common Share   $      (1.50)  $      (1.67)  $       .10   $       .63   $      (.51)

At year end:
  Total Assets                              $ 51,360,816   $ 37,729,097   $57,129,439   $23,331,019   $10,494,363
  Capitalized Lease Obligations             $  3,967,496   $    585,795   $ 1,853,728   $ 3,012,079   $ 3,484,234
  Working Capital (Deficit)                 $ 29,800,158   $ 23,161,108   $43,524,927   $ 9,310,685   $(2,330,209)
  Stockholders' Equity (Deficit)            $ 34,815,346   $ 26,418,659   $43,734,040   $ 7,899,667   $(4,930,135)






</TABLE>


                                     -27-

<PAGE>


Item 7: Management's Discussion and Analysis of Financial Condition and Results
------- -----------------------------------------------------------------------
of Operations
-------------

                       Results of Operations

Year Ended June 30, 1998 Compared to Year Ended June 30, 1997
-------------------------------------------------------------

     The Company  had a net loss in the year ended June 30, 1998 of  $16,665,000
compared to a net loss of $17,955,000 for the year ended June 30, 1997. The loss
is primarily due to (1) expensed costs of ongoing  battery  product  development
and continued market development;  (2) losses related to electrode production as
the Company  optimizes its product  performance;  (3) ongoing  protection of the
Company's  technologies  and  patents;  (4)  expenses of  additional  technical,
manufacturing and engineering  support for GM Ovonic L.L.C.  ("GM Ovonic"),  the
Company's  manufacturing joint venture with General Motors Corporation ("General
Motors"),  in  furtherance  of initial  nickel metal  hydride  ("NiMH")  battery
production  and  ongoing  technical  assistance  to  other  customers;  and  (5)
development of multi-state  electrical memory. The net loss,  excluding revenues
from  license  and other  agreements,  which are  non-recurring,  was reduced to
$18,366,000 for the year ended June 30, 1998 from $23,783,000 for the year ended
June 30, 1997.

     Product  sales  consisting  of positive  and negative  battery  electrodes,
battery  packs and machine  building,  decreased  34% to  $9,858,000 in the year
ended June 30, 1998 from  $14,897,000 in the year ended June 30, 1997.  Sales of
negative and positive electrodes  decreased  $1,537,000,  primarily due to lower
negative  electrode prices and lower shipments to its primary customer.  Battery
pack sales decreased 82% to $414,000 from $2,333,000 as GM Ovonic,  formerly the
Company's  principal battery pack customer,  began its own production of battery
packs.  Revenues from machine  building were $148,000 in the year ended June 30,
1998 down from  $1,732,000  in the year ended June 30, 1997  principally  due to
completion of the machine building projects for GM Ovonic.

     Royalties  increased 78% from $1,395,000 in the year ended June 30, 1997 to
$2,486,000  in the year ended June 30,  1998 due to the  issuance  in Japan of a
basic  NiMH  battery  patent in August,  1997 to the  Company's  Ovonic  Battery
Company Inc. subsidiary ("Ovonic Battery"),  causing NiMH battery sales in Japan
to be royalty  bearing,  and due to higher  sales of NiMH  batteries  worldwide.
Despite the higher  volume of NiMH  batteries  being  sold,  the  royalties  the
Company  receives were adversely  affected by lower sales prices and unfavorable
exchange  rates with the Japanese yen. The Company  experienced  lower levels of
royalties from ECD's  phase-change  rewritable optical memory technology in 1998
as the  Company's  licensees  prepared to  introduce  new types of ECD's  phase-
change rewritable media products.  (See NOTE B - Notes to Consolidated Financial
Statements.)

     Revenues from product development agreements increased 167% from $5,739,000
in the year ended June 30, 1997 to  $15,311,000  in the year ended June 30, 1998
due  to  substantially   increased  revenues  from  a  multi-year,   multi-task,
multi-million  dollar  program  with  General  Motors to develop  batteries  for
electric and hybrid electric vehicle  applications  ($6,995,000 in 1998 compared
to $151,000 in 1997) and from contracts with National




                               -28-





<PAGE>



Institute of Standards  and  Technology  ("NIST") in the  Company's  battery and
optical memory  technologies  ($1,797,000 in 1998 compared to $706,000 in 1997).
Revenues from product development  agreements for ECD's photovoltaic  technology
increased  84% from  $1,169,000 in the year ended June 30, 1997 to $2,156,000 in
the year ended June 30, 1998.

     The Company has  $18,461,000 in  unrecognized  revenues  outstanding  under
product  development  agreements  with  U.S.  government  or other  agencies  or
companies. Without giving effect to any new product development agreements which
may be entered  into in the year ended  June 30,  1999 and based upon  scheduled
funding and performance, $15,479,000 is expected to be recorded in revenues from
product development agreements for the year ending June 30, 1999.

     Revenues from license and other  agreements  decreased to $1,701,000 in the
year ended June 30, 1998 from  $5,829,000 in the year ended June 30, 1997.  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 revenues from license and
other agreements  include fees of $1,500,000  relating to a technology  transfer
agreement with Sovlux Battery and the Chepetsky  Mechanical Plant, an enterprise
of the Russian Ministry of Atomic Energy.  Revenues from license  agreements are
non-recurring  and are based upon  developing  new business  relationships.  The
Company is  actively  pursuing  its  strategy  to form  strategic  alliances  to
commercialize  its products.  It is in  negotiations  with a number of companies
which could provide additional license fees to the Company in the coming year.

     The  Company  incurred  expenses  of  $28,101,000  ($15,606,000  funded and
$12,495,000  unfunded)  in the year ended June 30, 1998 for product  development
compared to expenses of $21,422,000 ($5,871,000 funded and $15,551,000 unfunded)
in the year ended June 30,  1997.  This  planned  increase in  expenditures  for
product  development  was primarily for continued  development  of the Company's
"family of batteries" products. The increased expenses of $6,679,000 for product
development  were offset by the  $9,573,000  increase in revenues  from  product
development agreements.

     Other revenues increased by $482,000 from $1,719,000 in the year ended June
30,  1997 to  $2,201,000  in the year  ended  June  30,  1998  primarily  due to
increased billings for work performed for licensees of Ovonic Battery, partially
offset by certain  adjustments  reducing revenues in 1998 to reflect a change in
estimate of revenues based on information  received by the Company pertaining to
certain customers and contracts.

     The decrease in cost of product sales to $12,673,000 in the year ended June
30, 1998 from $16,964,000 in the year ended June 30, 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 productivity; and


                               -29-

<PAGE>



improving  the  preventive  maintenance  program to reduce  unplanned  downtime.
Despite the progress made in reducing costs, the loss on product sales increased
from  $2,067,000 in 1997 to $2,815,000 in 1998 due to lower sales and high fixed
costs.

     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.  These expenses were
reduced to $363,000 in the year ended June 30, 1998 from  $3,011,000 in the year
ended  June 30,  1997 and  relate  primarily  to the  successful  conclusion  of
litigation involving Matsushita Battery Industrial Co., Ltd. ("MBI") in December
1997.

     Operating,  general and administrative  expenses decreased to $6,405,000 in
the year ended June 30, 1998 from $6,779,000 in the year ended June 30, 1997 due
to increased  allocations  in 1998 to cost of revenues from product  development
agreements which offset higher spending.

     Other  income of  $1,073,000  in the year ended June 30,  1997  compares to
other income of $180,000 in the year ended June 30, 1998.  The reduction was due
principally  to  decreased  interest  income  in 1998 and the  recording  of the
Company's share of losses of United Solar Systems Corp.  ("United  Solar") joint
venture of $384,000 for 1998 related to the Company's  $2,500,000  investment in
United Solar in May 1998.

     The  Company  does  business in many  different  parts of the world and its
royalty  revenues  are  affected  by  changes in  foreign  currencies  and their
exchange rates relative to the U.S.  dollar.  However,  the vast majority of the
Company's business  agreements are denominated in U.S. dollars and, as such, the
Company has minimized its exposure to currency rate fluctuations.

Year Ended June 30, 1997 Compared to Year Ended June 30, 1996
-------------------------------------------------------------

     The Company  had a net loss in the year ended June 30, 1997 of  $17,955,000
compared  to net income of  $1,054,000  for the year ended  June 30,  1996.  The
change in profitability  was primarily due to the gain on the sale of $4,500,000
of Ovonic Battery stock in the prior year, the approximate  $6,700,000 reduction
in one-time  license fees in the year ended June 30, 1997 and the  investment by
the  company of its own funds in the current  year to develop a new  "family" of
Ovonic NiMH batteries.

     The net loss in the year ended June 30, 1997  resulted  primarily  from (1)
investment  of company  funds for  development  of electric  and hybrid  vehicle
batteries;  (2) decreased  revenues for such development work; (3) costs related
to start  up and  expansion  of  negative  electrode  production  equipment  and
initiation  of positive  electrode  production  and  equipment;  (4) expenses of
additional  technical,  manufacturing and engineering  support for the GM Ovonic
manufacturing  joint venture in furtherance  of initial NiMH battery  production
and  ongoing  technical  assistance  to  other  customers;  (5)  development  of
multi-state  electrical memory; and (6) costs related to defending the Company's
patents.  When revenue from license fees, which are  non-recurring and sporadic,
and the gain on the sale


                               -30-

<PAGE>



of Ovonic  Battery stock in 1996,  are excluded,  the decrease in  profitability
from 1996 to 1997 is approximately $7,800,000.

     Product sales increased  slightly to $14,897,000 in the year ended June 30,
1997  from  $14,828,000  in the year  ended  June 30,  1996 due to a  $5,900,000
increase in 1997 from sales of negative  and  positive  electrodes,  offset by a
$5,900,000  decrease in machine  building  revenues as a result of completion of
production machinery for GM Ovonic and United Solar.

     Royalties  increased  to  $1,395,000  in the year ended June 30,  1997 from
$1,321,000  in the year ended  June 30,  1996,  primarily  due to  increases  in
royalties from battery  technology,  partially  offset by decreases in royalties
from  phase-change  rewritable  memory  products,  as prices  of these  products
decreased  pending  introduction  of newer  generation  phase-change  rewritable
products.  Royalties from licensees based in Japan were also negatively impacted
by  the  weakness  in  the  Japanese  yen.  (See NOTE B - Notes to  Consolidated
Financial Statements).

     Revenues from product development  agreements decreased 22% from $7,349,000
in the year ended June 30,  1996 to  $5,739,000  in the year ended June 30, 1997
due to reductions in 1997 revenues  recognized in government  sponsored programs
in photovoltaic and battery technologies. This decrease was a result of the U.S.
government  spending  reduction  program.  (See  NOTE B - Notes to  Consolidated
Financial Statements.)

      Revenues from license  agreements  decreased 53% to $5,829,000 in the year
ended June 30, 1997 from  $12,524,000 in the year ended June 30, 1996 due to the
reduction  in  1997 of  battery  license  agreements.  (See  NOTE B -  Notes  to
Consolidated   Financial  Statements.)  Revenues  from  license  agreements  are
non-recurring, and are based upon developing new business relationships.

     The increase in other  revenues  was due to increased  billings in 1997 for
services  performed by the Company's Central Analytical  Laboratory,  Production
Technology  and  Machine  Building  Division,  as  well  as  miscellaneous  work
performed for Ovonic Battery licensees.

     The increase in the cost of product sales to  $16,964,000 in the year ended
June 30, 1997 from  $15,504,000 in the year ended June 30, 1996 was  principally
due to $945,000 in inventory  adjustments for Ovonic Battery,  primarily related
to obsolescence  and changed  customer  specifications,  higher costs related to
start-up and expansion of negative electrode production equipment and initiation
of positive electrode production in 1997.

     The decrease in cost of revenues from product development agreements in the
year  ended  June  30,  1997  compared  to the  year  ended  June  30,  1996 was
principally due to decreases in activities during 1997 under the agreements with
USABC, National Renewable Energy Laboratory and Department of Energy.



                               -31-

<PAGE>



     The increase in product  development  expenses to  $15,551,000  in the year
ended June 30,  1997 from  $9,151,000  in the year  ended June 30,  1996 was the
result of the aforementioned reduced funding under the agreements with USABC and
related increased Ovonic Battery product development and research expenses.

     Patent  defense  costs were  $2,467,000 in the year ended June 30, 1996 and
$3,011,000 in the year ended June 30, 1997. In 1997,  patent  defense costs were
incurred for  litigation  with MBI with  respect to certain of Ovonic  Battery's
United States patents covering its proprietary technology for NiMH batteries. In
1996,  patent defense costs primarily  related to the defense and prosecution of
litigation  involving  SAFT  America,  Inc.  and certain  related  companies  or
entities and MBI.

     The change from other  income-net  of $5,233,000 in the year ended June 30,
1996 compared to $1,073,000 of other  income-net in the year ended June 30, 1997
was due  principally to the $4,500,000 gain on the sale of Ovonic Battery common
stock in 1996.

                  Liquidity and Capital Resources

     As of June 30, 1998,  the Company had  unrestricted  consolidated  cash and
cash  equivalents and  investments,  consisting of commercial  paper maturing in
four to six months,  of  $25,786,000,  an increase of $10,746,000  from June 30,
1997.  In  addition,  the Company had  accounts  receivable  at June 30, 1998 of
$8,667,000  compared to  $10,801,000  at June 30, 1997. As of June 30, 1998, the
Company  had  consolidated  working  capital  of  $29,800,000  compared  with  a
consolidated working capital of $23,161,000 as of June 30, 1997.

     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 year  ended  June  30,  1998,  $10,839,000  of cash was used in
operations.  The difference between the net loss of $16,665,000 and the net cash
used in operations was due to  depreciation  expense and a reduction in accounts
receivables.  In  addition,  during  this period  $1,702,000  of  machinery  and
equipment was purchased or constructed for the Company's operations.

     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.

     The Company has two major  electrode  customers  for its battery  electrode
products, GP Batteries International Limited ("GP Batteries") and GM Ovonic. The
Company  and  GP  Batteries  are   currently   negotiating   electrode   product
specifications  and  pricing.  These  negotiations  could result in GP Batteries
manufacturing its own electrode products or


                               -32-

<PAGE>



purchasing such products from a manufacturer other than Ovonic Battery. 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.
Nonetheless,  sales of  electrode  products  in the near term and in fiscal year
1999 are expected to  decrease.  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 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-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 to the
Company by NIST, in the Fall of 1997, under three Advanced  Technology  Programs
("ATP") 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).

     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.  The  Company  has not  borrowed  under this
financing agreement.

     In  April  1998,  the  Company  also  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 $200,000.  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. At June 30, 1998 the
Company  has entered  into sale and  leaseback  arrangements  of  $3,137,000  in
connection with the second component.



                               -33-

<PAGE>



     In May, 1998, the Company  completed a limited public offering of 1,750,000
units,  each  consisting  of one share of ECD  Common  Stock and one  warrant to
purchase one  share  of  ECD  Common  Stock for  net  proceeds  of approximately
$21,700,000.

     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.

     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 June 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 for  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 sporadic and  difficult to predict,  the Company is
unable to predict 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.



                               -34-

<PAGE>



                          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.

     The Company's Year 2000 Plan is to: 

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


                               -35-

<PAGE>



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.


                               -36-

<PAGE>



Item 8: Consolidated Financial Statements and Supplementary Data
------- --------------------------------------------------------

                   INDEPENDENT AUDITORS' REPORT


Board of Directors
Energy Conversion Devices, Inc.
Troy, Michigan

We  have  audited  the  accompanying   consolidated  balance  sheets  of  Energy
Conversion Devices,  Inc. and subsidiary (the "Company") as of June 30, 1998 and
1997,  and the related  consolidated  statements  of  operations,  stockholders'
equity,  and cash flows for each of the three years in the period ended June 30,
1998. These  consolidated  financial  statements are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  such consolidated  financial  statements present fairly, in all
material respects, the financial position of the Company as of June 30, 1998 and
1997, and the results of its operations and its cash flows for each of the three
years in the period ended June 30, 1998 in conformity  with  generally  accepted
accounting principles.



/s/ Deloitte & Touche LLP


Detroit, Michigan
October 8, 1998

















                               -37-

<PAGE>



          ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

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

                                                               June 30,
                                                        -----------------------
                                                           1998         1997
                                                        ----------   ----------
CURRENT ASSETS (NOTE A)
 Cash, including cash equivalents of
   $25,780,000 at June 30, 1998 and
   $14,265,000 at June 30, 1997                        $25,786,112  $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 approximately
   $315,000 at June 30, 1998 and $140,000
   at June 30, 1997)                                     8,666,952   10,800,813
 Amounts due from related parties                        1,491,115    1,809,414
 Inventories                                             1,074,097    1,626,065
 Prepaid expenses and other current assets                 374,590      404,204
                                                        ----------   ----------

   TOTAL CURRENT ASSETS                                 37,392,866   29,970,574

PROPERTY, PLANT AND EQUIPMENT (NOTES A and E)
 Land and land improvements                                312,588      312,588
 Buildings and improvements                              3,666,411    3,785,827
 Machinery and other equipment (including
   construction in progress of
   approximately $785,000 and $1,647,000 at
   June 30, 1998 and 1997)                              16,870,261   19,517,585
 Capitalized lease equipment                             5,383,672    5,699,048
                                                        ----------   ----------
                                                        26,232,932   29,315,048
 Less accumulated depreciation
 and amortization                                      (17,641,505) (22,346,615)
                                                        ----------   ----------

   TOTAL PROPERTY, PLANT AND EQUIPMENT                   8,591,427    6,968,433

 Investments in EV Global and Unique Mobility (NOTE A)   1,953,000       --

JOINT VENTURES (NOTE D)
 United Solar                                            2,115,914       --
 GM Ovonic                                                  --           --
 Sovlux                                                     --           --

OTHER ASSETS                                             1,307,609      790,090
                                                        ----------   ----------
          TOTAL ASSETS                                 $51,360,816  $37,729,097
                                                        ==========   ==========


See notes to consolidated financial statements.



                               -38-

<PAGE>



          ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

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

                                                              June 30,
                                                     --------------------------
                                                         1998           1997
                                                     -----------    -----------
CURRENT LIABILITIES
 Accounts payable and accrued expenses              $  4,443,189   $  3,669,167
 Salaries, wages and amounts withheld
   from employees                                      1,413,217      1,144,446
 Deferred revenues under business
   agreements (NOTE A)                                   417,082        671,531
 Current installments on capitalized lease
   obligations (NOTE E)                                1,319,220      1,324,322
                                                     -----------    -----------

     TOTAL CURRENT LIABILITIES                         7,592,708      6,809,466

CAPITALIZED LEASE OBLIGATIONS (NOTE E)                 3,967,496        585,795

DEFERRED GAIN (NOTE E)                                 1,551,146        223,691

NON-REFUNDABLE ADVANCE ROYALTIES
 (NOTE C)                                              3,434,120      3,691,486
                                                     -----------    -----------
     TOTAL LIABILITIES                                16,545,470     11,310,438

STOCKHOLDERS' EQUITY
 Capital Stock (NOTES F and G)
   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 & outstanding - 12,639,817
     shares at June 30, 1998 and
     10,603,251 shares at June 30, 1997                  126,398        106,033
 Additional paid-in capital                          227,092,920    202,004,599
 Unrealized loss on investment (Note A)                  (47,000)        --
 Accumulated deficit                                (191,750,363)  (175,085,364)
 Treasury stock at cost - 42,000 shares                 (608,808)      (608,808)
                                                    ------------    -----------
     TOTAL STOCKHOLDERS' EQUITY                       34,815,346     26,418,659
                                                    ------------    -----------
     TOTAL LIABILITIES & STOCKHOLDERS'
     EQUITY                                         $ 51,360,816   $ 37,729,097
                                                    ============   ============


See notes to consolidated financial statements.


                               -39-

<PAGE>



                    ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

                         CONSOLIDATED STATEMENTS OF OPERATIONS
                         -------------------------------------
<TABLE>
<CAPTION>
                                                                      Years ended June 30,
                                                             ----------------------------------------
                                                                 1998          1997          1996
                                                             -----------   -----------    -----------
<S>                                                          <C>           <C>            <C>
REVENUES (NOTES A and B)

   Product sales                                             $ 9,858,343   $14,897,144    $14,828,133
   Royalties                                                   2,485,981     1,394,872      1,321,117
   Revenues from product development
     agreements                                               15,311,416     5,738,877      7,349,195
   Revenues from license and other agreements                  1,701,134     5,828,648     12,524,262
   Other                                                       2,200,707     1,718,933      1,289,667
                                                             -----------   -----------    -----------
         TOTAL REVENUES                                       31,557,581    29,578,474     37,312,374

EXPENSES

   Cost of product sales (NOTE A)                             12,673,323    16,964,429     15,504,385
   Cost of revenues from product
     development agreements (NOTE A)                          15,605,895     5,870,725      7,581,904
   Product development and research (NOTE A)                  12,495,195    15,550,775      9,151,167
   Patent Defense (NOTE A)                                       363,164     3,011,133      2,467,295
   Patents (NOTE A)                                              859,566       429,980        381,186
   Operating, general and administrative                       6,405,011     6,779,003      6,405,162
                                                             -----------   -----------    -----------
         TOTAL EXPENSES                                       48,402,154    48,606,045     41,491,099
                                                             -----------   -----------    -----------

 LOSS FROM OPERATIONS                                        (16,844,573)  (19,027,571)    (4,178,725)

OTHER INCOME (EXPENSE):

   Equity in loss of Joint Venture                              (384,000)       --             --
   Gain on sale of Ovonic Battery Company stock                     --          --          4,500,000
   Interest expense                                             (137,541)     (384,468)      (445,933)
   Interest income                                               598,940     1,308,344      1,090,952
   Other nonoperating income - net                               102,175       149,083         87,975
                                                             -----------   -----------    -----------
         TOTAL OTHER INCOME (EXPENSE)                            179,574     1,072,959      5,232,994
                                                             -----------   -----------    -----------

     NET INCOME (LOSS)                                      $(16,664,999)  $(17,954,612)  $ 1,054,269
                                                            ============   ============   ===========
     BASIC NET INCOME (LOSS) PER
       COMMON SHARE (NOTE H)                                $      (1.50)  $      (1.67)  $       .11
                                                            ============   ============   ===========
     DILUTED NET INCOME (LOSS) PER
       COMMON SHARE (NOTE H)                                $      (1.50)  $      (1.67)  $      .10
                                                            ============   ============   ==========

</TABLE>

 See notes to consolidated financial statements.




                                     -40-

<PAGE>

<TABLE>
<CAPTION>

 
                                             ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY
                                     CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (NOTES F and G)
                                     ---------------------------------------------------------------
                                                    Three years ended June 30, 1998

                              Class A Convertible
                              Common Stock         Common Stock                                     Treasury Stock
                              -------------------  -------------------                              ----------------
                              Number               Number              Additional                   Number             Total
                              of                   of                  Paid-In       Accumulated    of                 Stockholders'
                              Shares     Amount    Shares     Amount   Capital       Deficit        Shares   Amount    Equity
                              -------    --------  ---------- -------- ------------  -------------  -------  -------   -------------

<S>                           <C>        <C>        <C>       <C>      <C>           <C>            <C>      <C>       <C>
Balance at July 1, 1995       219,913    $ 2,199    8,078,667 $ 80,787 $166,001,702  $(158,185,021)                    $  7,899,667

Net income for year ended
  June 30, 1996                                                                          1,054,269                        1,054,269
Issuance of stock to directors
   and consultants                                      6,899       69       59,395                                          59,464
Public Offering of common
   stock                                            1,650,000   16,500   27,764,555                                      27,781,055
Common stock issued in
   connection with exercise of
   stock options and warrants
   and conversion of certain
   securities                                         754,025    7,540    6,932,045                                       6,939,585
                              -------    -------   ---------- --------  -----------  -------------  -------  --------   -----------
Balance at June 30, 1996      219,913      2,199   10,489,591  104,896  200,757,697   (157,130,752)                      43,734,040

Net loss for year ended
   June 30, 1997                                                                       (17,954,612)                     (17,954,612)
Issuance of stock to directors
   and consultants                                      3,040       31      119,172                                         119,203
Common stock issued in
   connection with exercise of
   stock options and warrants                         110,620    1,106    1,127,730                                       1,128,836
Purchase of treasury stock                                                                          (42,000)  (608,808)    (608,808)
                              -------    -------   ---------- -------- ------------  -------------  -------  ---------- -----------
Balance at June 30, 1997      219,913    $ 2,199   10,603,251 $106,033 $202,004,599  $(175,085,364) (42,000) $(608,808) $26,418,659
                              =======    =======   ========== ======== ============  =============  =======  =========  ===========



</TABLE>



                                     -41-

<PAGE>


<TABLE>
<CAPTION>

                                             ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY
                                  CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (NOTES F and G)
                                  ---------------------------------------------------------------
                                                     Three years ended June 30, 1998

                                                                (CONTINUED)

                    Class A Convertible
                    Common Stock        Common Stock                                              Treasury Stock
                    ------------------- -----------------                                         ---------------
                    Number              Number              Additional   Unrealized                Number              Total
                    of                  of                  Paid-In      Loss on    Accumulated    of                  Stockholders'
                    Shares    Amount    Shares     Amount   Capital      Investment Deficit        Shares    Amount    Equity
                    ------    ------    ---------- -------- ------------ ---------- -------------  --------  --------- -------------
<S>                 <C>       <C>       <C>        <C>      <C>                     <C>            <C>      <C>        <C>
Balance at
 June 30, 1997      219,913   $2,199    10,603,251 $106,033 $202,004,599            $(175,085,364) (42,000) $(608,808) $ 26,418,659

Net loss for year
 ended June 30, 1998                                                                  (16,664,999)                      (16,664,999)
Issuance of stock to
 directors and
 consultants                                 3,564       36       84,960                                                     84,996
Public Offering of
 common stock and
 warrants                                1,750,000   17,500   21,704,450                                                 21,721,950
Common stock issued
 in connection with
 exercise of stock
 options and warrants
 and conversion of
 certain securities                        135,866    1,358    1,300,382                                                  1,301,740
Common stock issued in
 connection with
 conversion of CICs                            212        2           (2)
Common stock and 
 warrants issued to
  EV Global                                146,924    1,469    1,998,531                                                  2,000,000
Unrealized loss on
 investment                                                               $(47,000)                                         (47,000)
                    -------   ------    ---------- -------- ------------  --------- -------------  -------  ---------- ------------
Balance at
 June 30, 1998      219,913   $2,199    12,639,817 $126,398 $227,092,920  $(47,000) $(191,750,363) (42,000) $(608,808) $ 34,815,346
                    =======   ======    ========== ======== ============  ========= ============== ======== ========== ============






</TABLE>





See notes to consolidated financial statements.


                                      -42-

<PAGE>



                ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                     -------------------------------------

<TABLE>
<CAPTION>

                                                                    Years ended June 30,
                                                       ------------------------------------------------
                                                          1998               1997             1996
                                                          ----               ----             ----
<S>                                                    <C>               <C>                <C>

OPERATING ACTIVITIES:
 Net income (loss)                                     $(16,664,999)     $ (17,954,612)     $ 1,054,269
 Adjustments to reconcile net income (loss) to net
    cash used in operating activities:
      Depreciation and amortization                       2,130,494          2,312,661        1,890,484
      Equity in Loss of United Solar                        384,000
      Gain on sale of Ovonic Battery stock                    --                --           (4,500,000)
      Creditable royalties                                 (257,366)           (62,743)        (144,148)
      Options issued to executive
         for services rendered                              453,000            453,000          453,000
      Stock issued for services rendered                     84,996            119,203           59,464
      Loss (gain) on sale of equipment                        --               (13,544)          52,429
      Amortization of deferred gain                        (274,025)          (462,660)        (462,660)
 Changes in working capital:
      Accounts receivable and amounts due from
         related parties                                  2,452,160            277,004       (4,727,022)
      Inventories                                           551,968          1,649,070       (1,220,385)
      Prepaid expenses and other assets                    (487,905)           (27,729)         (72,765)
      Accounts payable and accrued expenses               1,042,793           (272,611)          81,336
      Deferred revenues under business agreements          (254,449)           (40,363)        (172,257)
                                                       -------------     --------------     ------------   

NET CASH USED IN OPERATIONS                             (10,839,333)       (14,023,324)      (7,708,255)
                                                       -------------     --------------     ------------

INVESTING ACTIVITIES:
 Investment in United Solar                              (2,499,914)            --                --
 Purchases of capital equipment (net)                    (1,701,536)        (3,577,478)      (1,887,118)
 Purchase of investments                                 (3,085,435)        (3,903,820)     (10,327,352)
 Sales of investments                                     4,145,368         13,171,239            --
 Proceeds from sale of capital equipment                     --                  9,342            7,600
                                                       -------------     --------------     ------------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES      (3,141,517)         5,699,283      (12,206,870)
                                                       -------------     --------------     ------------

FINANCING ACTIVITIES:

 Purchase of treasury stock                                  --               (608,808)          --
 Principal payments under short-term and long-
    term debt obligations and capitalized lease
    obligations                                          (1,604,599)        (1,259,511)      (1,505,385)
 Proceeds from capital lease transactions                 4,530,725             12,927          167,161
 Proceeds from sale of stock of subsidiary                   --                 --            4,500,000
 Net Proceeds from sale of stock and  warrants           21,721,950             --               --
 Proceeds from sale
 of stock upon exercise of stock options
    and warrants                                            848,741            675,836       34,267,640
                                                       -------------     --------------     ------------

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES      25,496,817         (1,179,556)      37,429,416
                                                       -------------     --------------     ------------

NET INCREASE (DECREASE) IN CASH AND
    CASH EQUIVALENTS                                     11,515,967         (9,503,597)      17,514,291

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD         14,270,145         23,773,742        6,259,451
                                                       -------------     --------------     ------------

CASH AND CASH EQUIVALENTS AT END OF PERIOD             $ 25,786,112       $ 14,270,145     $ 23,773,742

                                                       =============      ============     ============

</TABLE>

See notes to consolidated financial statements.


                                     -43-

<PAGE>



                ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                     -------------------------------------

                                                     Years Ended June 30,
                                             -----------------------------------
                                               1998          1997          1996
                                               ----          ----          ----


SUPPLEMENTAL DISCLOSURES OF CASH FLOW
 INFORMATION:

    Cash paid for interest                  $  137,541    $ 384,468    $ 445,933







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

        Investments in EV Global and
          Unique Mobility                   $2,000,000
        Unrealized loss on investment          (47,000)





See notes to consolidated financial statements.



                                     -44-

<PAGE>


          ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

            Notes to Consolidated Financial Statements


NOTE A - Summary of Accounting Policies
---------------------------------------

Nature of Business

      Energy    Conversion    Devices,    Inc.   ("ECD")   has   established   a
multi-disciplinary   business,   scientific   and  technical   organization   to
commercialize  products based on its  technologies.  Its  activities  range from
product  development to manufacturing  and selling products as well as designing
and building  production  machinery with an emphasis on  alternative  energy and
advanced information technologies.

Financial Statement Presentation and Principles of Consolidation

      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 NiMH battery technology
(collectively,  the  "Company").  In the  year  ended  June 30,  1996,  ECD sold
approximately  3.3% of its  interest  in Ovonic  Battery to  another  entity and
realized  a gain on this  sale.  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 vehicle applications  worldwide.  Additionally,  the
Company has a 50%-owned  joint venture in Russia,  Sovlux Co., Ltd.  ("Sovlux").
See NOTE D for a discussion of these ventures.

      Upon  consolidation,   all  intercompany  accounts  and  transactions  are
eliminated.

      Certain  items  for the  years  ended  June 30,  1997 and 1996  have  been
reclassified to be consistent with the classification of items in the year ended
June 30, 1998.

      In preparing  financial  statements in conformity with Generally  Accepted
Accounting Principles,  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.  In addition,  the Company has certain  concentrations  of
revenues as described  in Note B. 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


                               -45-

<PAGE>


          ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

            Notes to Consolidated Financial Statements


NOTE A - Summary of Accounting Policies - (Continued)
-----------------------------------------------------

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.

      In  February  1997,  the FASB issued  Statement  of  Financial  Accounting
Standards  (SFAS) No. 128,  Earnings per Share.  The  Statement  simplifies  the
standards  for  computing  earnings  per share (for years in which  there is net
income). The Company adopted this new method of accounting in its second quarter
of fiscal 1998. Adoption of this Statement did not have a material impact on the
Company's financial statements.

      In June  1997,  the FASB  issued  SFAS No.  130,  Reporting  Comprehensive
Income.  The  Statement  establishes  standards  for  reporting  and  display of
comprehensive  income and its  components  and requires that an  enterprise  (a)
classify  items of other  comprehensive  income by their  nature in a  financial
statement and (b) display the accumulated balance of other comprehensive  income
separately from retained  earnings and additional  paid-in capital in the equity
section of a statement  of  financial  position.  Reclassification  of financial
statements for earlier periods  provided for  comparative  purposes is required.
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.

      In June 1997, the 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 an impact on the  Company's
financial statements.



                               -46-

<PAGE>


          ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

            Notes to Consolidated Financial Statements


NOTE A - Summary of Accounting Policies - (Continued)
-----------------------------------------------------

Cash Equivalents

      Cash  equivalents  consist of  investments  in  short-term,  highly liquid
securities  having  a  maturity  of  three  months  or  less  from  the  date of
acquisition.

Short-term Investments

      Investments consist of commercial paper, classified as available for sale,
maturing in four to six months from date of acquisition  and are stated at cost,
which approximates fair market value.

Investments in EV Global and Unique Mobility, Inc.
--------------------------------------------------

      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 June 30, 1998.

Financial Instruments

      The Company  considers the carrying value of its financial  instruments to
be a reasonable estimate of fair value.



                               -47-

<PAGE>


          ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

            Notes to Consolidated Financial Statements


NOTE A - Summary of Accounting Policies - (Continued)
-----------------------------------------------------

Translation Gains and Losses

     Since all of the Company's  contracts and  transactions are denominated and
settled in U.S. dollars, there are no foreign currency gains or losses.

Accounts Receivable

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

                                                               June 30,
                                                  ------------------------------
                                                      1998             1997
                                                      ----             ----
      U.S. Government:
        Amounts billed                              $   717,281     $   572,193
        Unbilled                                        812,439         797,558
                                                    -----------     ------------
             Total                                    1,529,720       1,369,751
                                                    -----------     ------------

      Commercial Customers:
        Amounts billed                                5,480,895       1,701,006
        Related party billed
             - United Solar                             169,847          19,840
             - GM Ovonic                                729,561       1,072,546
        Royalties                                     1,157,619         714,530
        License fees                                    300,000       6,766,262
        Due per contracts                               353,954           --
        Related party unbilled
             - GM Ovonic                                591,707         717,028
        Other unbilled                                    2,358         281,580
                                                    -----------     ------------
           Total                                      8,785,941      11,272,792
                                                    -----------     ------------

      Other                                             157,406         107,684
      Allowance for Uncollectible Accounts             (315,000)       (140,000)
                                                    -----------     ------------

                TOTAL                               $10,158,067     $12,610,227
                                                    ===========     ============

      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, for which amounts are billed in subsequent months.

     Certain contracts with the U.S. government require a retention that is paid
upon completion of audit of the Company's  indirect rates. There are no material
retentions at June 30, 1998 and 1997. Certain U.S.  government  contracts remain
subject to audit.


                               -48-

<PAGE>


          ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

            Notes to Consolidated Financial Statements


NOTE A - Summary of Accounting Policies - (Continued)
-----------------------------------------------------

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  electrodes,  battery  packs and other  products,  together with
supplies,  are  valued at the  lower of actual  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:

                                              Years Ended June 30,
                                          --------------------------
                                              1998          1997
                                              ----          ----

        Finished products                 $  119,649    $    --
        Work in process                      511,582     1,010,989
        Raw materials                        442,866       615,076
                                         -----------    ----------
                                          $1,074,097    $1,626,065
                                         ===========    ==========

Property, Plant and Equipment

      All properties are recorded at cost.  Plant and equipment are  depreciated
on the  straight-line  method over the estimated  useful lives of the individual
assets. The estimated lives of the principal classes of assets are as follows:

                                                      Years
                                                      -----
        Buildings and improvements                   5 to 20
        Machinery and other equipment                3 to 10
        Capitalized lease equipment and
           leasehold improvements                    3 to 5

      Capitalized lease equipment and leasehold  improvements are amortized over
the  shorter  of the  term  of  the  lease  or the  life  of  the  equipment  or
improvement,   usually  three  to  five  years.   Accumulated   amortization  on
capitalized  lease  equipment as of June 30, 1998 and June 30, 1997 was $258,800
and $3,136,000, respectively.

      Costs of  machinery  and other  equipment  acquired or  constructed  for a
particular product development project, which have no alternative future use (in
other product


                               -49-

<PAGE>


          ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

            Notes to Consolidated Financial Statements


NOTE A - Summary of Accounting Policies - (Continued)
-----------------------------------------------------

development projects or otherwise), are charged to product development and
research costs as incurred.

      Expenditure  for  maintenance  and  repairs  are  charged  to  operations.
Expenditures   for  betterments  or  major  renewals  are  capitalized  and  are
depreciated over their estimated useful lives.

Product Development and Research

      Total direct product  development  and research  costs, a portion of which
are  included in cost of revenues  from  product  development  agreements,  were
$21,247,000,  $16,732,000  and  $12,947,000  for the three  years ended June 30,
1998, 1997 and 1996, respectively.

Patents

      Patent  expenditures  are  charged  directly  to  expense.   Total  patent
expenditures,  a portion of which are allocated for financial statement purposes
to cost of revenues from product development  agreements and product development
and research were $1,507,000,  $1,002,000 and $945,000 for the three years ended
June 30, 1998, 1997 and 1996, respectively.  Patent defense expenditures,  which
are  incurred by the  Company to protect its patents and to defend or  prosecute
claims involving the Company's patents, are charged directly to expense.

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, costs 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


                               -50-

<PAGE>


          ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

            Notes to Consolidated Financial Statements


NOTE A - Summary of Accounting Policies - (Continued)
-----------------------------------------------------

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.

      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 relative to consumer battery licenses entered into in 1995 in
settlement of an International Trade Commission action.

Business Agreements

      A substantial  portion of revenues are 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  technology.  Licensing  activities  are  tailored  to provide  each
licensee  with  the  right  to use the  Company's  technology,  most of which is
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 technology  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  technology  and how such  royalties  will be
measured, as well as other factors specific to each negotiated  arrangement.  In
some cases, licenses relate directly to product 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


                               -51-

<PAGE>


          ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

            Notes to Consolidated Financial Statements


NOTE A - Summary of Accounting Policies - (Continued)
-----------------------------------------------------

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 product  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,  are 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  research expenses
and to cost of revenues  from  research and  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 of  billings  for work  performed  for
licensees and 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, and changes in estimates of revenues
recognized on certain customers and contracts.



                               -52-

<PAGE>


          ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

            Notes to Consolidated Financial Statements


NOTE A - Summary of Accounting Policies - (Continued)
-----------------------------------------------------

Other Non-operating Income

      Other  non-operating  income-net  consists of rental  income and gains and
losses on sale of fixed assets.

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

      The Company has product sales and business  agreements  with third parties
for which royalties and revenues are included in the consolidated  statements of
operations. A summary of all of the Company's revenues follows:
<TABLE>
<CAPTION>

                                                             Years Ended June 30,
                                                -------------------------------------------
                                                    1998            1997            1996
                                                    ----            ----            ----
<S>                                             <C>             <C>             <C>
Product Sales:
   Negative and positive electrodes             $ 9,295,574     $10,832,282     $ 4,902,836
   Battery packs                                    414,469       2,333,276       2,257,971
   Machine building                                 148,300       1,731,586       7,667,326
                                                -----------     -----------     -----------
                                                $ 9,858,343     $14,897,144     $14,828,133
                                                ===========     ===========     ===========
Royalties:
   Battery technology                           $ 2,479,319     $ 1,258,633     $ 1,149,198
   Optical Memory                                     6,662         136,239         171,919
                                                -----------     -----------     -----------
                                                $ 2,485,981     $ 1,394,872     $ 1,321,117
                                                ===========     ===========     ===========

 Revenues from product development agreements:
   Photovoltaics                                $ 2,156,080     $ 1,168,718     $ 1,870,946
   Battery technology                            10,668,813       2,660,342       3,823,403
   Microelectronics                               1,357,128         824,892         900,000
   Hydrogen                                         585,103         679,174         603,056
   Other                                            544,292         405,751         151,790
                                               ------------     -----------     -----------
                                               $ 15,311,416     $ 5,738,877     $ 7,349,195
                                               ============     ===========     ===========
License and other agreements:
   Battery                                     $  1,701,134     $ 4,448,004     $11,024,262
   Microelectronics                                  --           1,380,644       1,500,000
                                               ------------     -----------     -----------
                                               $  1,701,134     $ 5,828,648     $12,524,262
                                               ============     ===========     ===========

</TABLE>


                                   -53-

<PAGE>


          ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

            Notes to Consolidated Financial Statements



NOTE B - Product Sales, Royalties, Revenues from Product Development
--------------------------------------------------------------------
         Agreements and License and other Agreements - (Continued)
         ---------------------------------------------------------

     The Company  historically  has entered  into  agreements  with a relatively
small number of major customers throughout the world. Revenues from unaffiliated
foreign customers  represent  approximately 31%, 58% and 41% for the years ended
June 30,  1998,  1997 and 1996,  respectively.  There are three major  customers
which represent a total of 62% of total revenue for the year ended June 30, 1998
(24%  for  General  Motors,  15%  for  GM  Ovonic  and  23%  for  GP  Batteries
International Limited  ("GP Batteries").  There  are two  major customers  which
represent  a  total of  56% of total  revenue for  the year ended  June 30, 1997
(26% for  GM Ovonic and  30% for GP Batteries).  There are  two major  customers
which  represent a  total of  27%  (11% for GM Ovonic  and 16% for  Asia Pacific
Investment Co.) of total revenue for the year ended June 30, 1996.

NOTE C - Non-Refundable Advance Royalties
-----------------------------------------

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

                                                 June 30,
                                        -------------------------
                                            1998          1997
                                        -----------    ----------
       Battery                          $ 1,338,802    $1,647,592
       Optical Memory                     2,095,318     2,043,894
                                        -----------    ----------
                                        $ 3,434,120    $3,691,486
                                        ===========    ==========

      During the years ended June 30, 1998, 1997 and 1996, $257,366, $62,743 and
$144,148,  respectively,  of  creditable  royalties  earned were  recognized  as
revenue.  There are no obligations in connection with any of the advance royalty
agreements which require the Company to incur any additional costs.

NOTE D - Joint Ventures
-----------------------

      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.

      The Company invested $2,500,000 in United Solar in May 1998, and therefore
its investment is recorded at the amount of cash directly  invested adjusted for
the net earnings or losses for each respective  period. The Company will suspend
recognition of


                               -54-

<PAGE>


          ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

            Notes to Consolidated Financial Statements



NOTE D - Joint Ventures - (Continued)
-------------------------------------

net earnings or losses should the  calculated  investment go below zero or above
$2,500,000. The Company will continue to carry its investment in United Solar at
an amount no higher than its cash investment until it 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.

      Based upon the opinion of legal counsel,  the Company believes that it has
no  obligation  to fund any  losses  that its joint  ventures  incur  beyond the
Company's  investment.  Additionally,  the  Company  has no  financial  or other
guarantees with respect to liabilities incurred by its joint ventures.

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.  During 1998 ECD recorded $384,000 as
its share of the losses (after ECD's investment) of United Solar.

      In 1997,  Canon entered into an agreement  with United Solar  whereby,  in
consideration of an $11.5 million payment to United Solar, Canon, in addition to
its exclusive  rights to manufacture  photovoltaic  products in Japan,  has been
permitted  to  expand  its  rights to  manufacture  photovoltaic  products  on a
non-exclusive  basis in  Australia  and one country of Europe as  determined  by
Canon.  In addition,  ECD received a $500,000 fee from Canon in connection  with
this agreement.

      ECD  performed  laboratory,  shop,  patent and  research  services for the
benefit of United Solar for which ECD received approximately $ 315,000, $144,000
and $128,000 in the years ended 1998, 1997 and 1996, respectively. These amounts
are included in other revenues.  In addition,  in the years ended June 30, 1998,
1997 and 1996, United Solar billed ECD for approximately $180,000,  $296,000 and
$289,000,  respectively, for work performed in accordance with a U.S. Government
contract.


                               -55-

<PAGE>


          ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

            Notes to Consolidated Financial Statements



NOTE D - Joint Ventures - (Continued)
-------------------------------------

      In 1995, ECD received a $7,966,000  order from United Solar for solar cell
manufacturing equipment to provide production capacity of solar cells capable of
producing five megawatts of  electricity on an annual basis.   In the year ended
June 30,  1998,  1997 and  1996,  ECD  recognized  revenue of  $0, $175,000  and
$4,702,000, respectively, under this order.

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

                 UNITED SOLAR STATEMENTS OF OPERATIONS


                                  Six Months
                                Ended June 30,       Year Ended December 31,
                                --------------       -----------------------
                                    1998                 1997          1996
                                    ----                 ----          ----
                                 (Unaudited)

Revenues                        $  5,040,824         $ 9,661,402   $ 5,222,970

Operating Expenses
    Cost of sales                  6,391,855          14,158,315     7,846,603
    Product development            1,397,265           2,789,524     2,029,297
    General and administrative       658,572           1,533,295     1,672,706
    Sales and marketing              761,222           1,785,465     1,590,200
                                ------------          ----------    ----------
         Total                     9,208,914          20,266,599    13,138,806
                                ------------          ----------    ----------
Other Income (Expense)              (345,720)         10,785,471*     (191,577)
                                ------------          ----------    ----------
Net Income (Loss)               $ (4,513,810)        $   180,274   $(8,107,413)
                                ============          ==========    ==========

*Includes royalty income of $11,500,000.





                               -56-

<PAGE>


          ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

            Notes to Consolidated Financial Statements



NOTE D - Joint Ventures - (Continued)
-------------------------------------

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

                                                      June 30,      December 31,
                                                    ------------    ------------
                                                        1998           1997
                                                        ----           ----
                                                     (Unaudited)
Current Assets:
  Cash and Cash Equivalents                         $ 4,091,047     $   716,461
  Accounts Receivable                                 1,748,857       2,402,559
  Inventory                                           3,361,684       2,633,131
  Other Current Assets                                  462,282         475,145
                                                    -----------     -----------
    Total Current Assets                              9,663,870       6,227,296
Property, Plant and Equipment (Net)                  11,575,454      12,595,857
Other Assets                                            183,763         216,794
                                                    -----------     -----------
    Total Assets                                    $21,423,087     $19,039,947
                                                    ===========     ===========
Current Liabilities:
     Current Maturities of Long-Term Debt           $ 1,445,703     $ 1,445,703
  Accounts Payable and Accrued Expenses               2,609,402       2,815,874
                                                    -----------     -----------
    Total Current Liabilities                         4,055,105       4,261,577
                                                    -----------     -----------
    Note Payable-Canon                                2,500,000         --
                                                    -----------     -----------
    Lease Payable                                     7,743,143       8,139,551
                                                    -----------     -----------
    Total Stockholders' Equity                        7,124,839       6,638,819
                                                    -----------     -----------
     Total Liabilities and Stockholders' Equity     $21,423,087     $19,039,947
                                                    ===========     ===========
                                                    
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 of General Motors consists of operating capital,  plant,  equipment
and management personnel necessary for the volume production of batteries.

      In October 1995, the Company received a $3,710,000 order, as amended, from
GM Ovonic for battery manufacturing equipment. In the years ended June 30, 1998,
1997 and 1996 ECD recognized  revenue of $133,000,  $1,448,000  and  $2,129,000,
respectively, under this order.

      During the years  ended June 30,  1998,  1997 and 1996,  the  Company  had
revenues, including the aforementioned machine-building revenues, of $4,871,000,
$7,776,000  and  $4,118,000,  respectively,  related to sales of  products to GM
Ovonic and for reimbursement of services performed for GM Ovonic.


                               -57-

<PAGE>


          ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

            Notes to Consolidated Financial Statements


NOTE D - Joint Ventures - (Continued)
-------------------------------------

      There are no financial  statements  currently  available for GM Ovonic. GM
Ovonic is in its  developmental  stage and, as such,  has a history of operating
losses.

Sovlux

      In 1990,  the Company also 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").  The Company's  contribution to the venture  consists solely of the
technology necessary to support Sovlux's operations.

      Sovlux has conducted pre-production activities consisting of manufacturing
plant  preparation  and  optimization  of ECD-built  manufacturing  equipment to
provide  2 MW of  solar  cell  production  capacity.  Sovlux  received  two U.S.
Government  contracts  in 1998 in  connection  with  certain of its  operations.
However,  Sovlux has not been able to commence volume production of photovoltaic
products due to MINATOM's  inability to provide the required  operating  capital
due to current economic conditions in Russia.

     In March 1998, the Company announced the formation of Sovlux Battery, a new
affiliate  of  Sovlux  ,  owned  50% by the  Company  and  50% by the  Chepetsky
Mechanical  Plant  ("Chepetsky")  an enterprise of MINATOM.  Sovlux Battery also
plans to produce NiMH  batteries and  components  for sale to Ovonic Battery and
its  licensees.  Sovlux  Battery  also plans to  manufacture  batteries  for the
emerging two- and  three-wheeled  electric vehicle market in Europe and Asia and
for four-wheeled electric vehicles in Russia.

      In 1998, the Company recorded  revenues of $1,500,000 and received cash of
$1,200,000  for license fees relating to a technology  transfer  agreement  with
Sovlux Battery and Chepetsky.

      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.




                               -58-

<PAGE>


          ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

            Notes to Consolidated Financial Statements



NOTE E- Capitalized Lease Obligations and Line of Credit
--------------------------------------------------------

   A summary of the Company's capitalized lease agreements is as follows:

                                                                June 30,
                                                      -------------------------
                                                         1998           1997
                                                      ----------     ----------
Financing Lease for headquarters building with
 interest at 8.2% and monthly payments of $19,250    $   344,419    $   540,057
Capitalized leases with Finova
 (with interest rates of approximately 12% at
 June 30, 1998 and ranging between 5% and 13%
 at June 30, 1997)                                     4,799,551      1,248,597
Other capitalized leases                                 142,746        121,463
                                                      ----------     ----------
     Total                                             5,286,716      1,910,117
  Less amounts included in current liabilities         1,319,220      1,324,322
                                                      ----------     ----------
     Total Long-Term Capitalized Lease Obligation    $ 3,967,496    $   585,795
                                                      ==========     ==========
Financing Lease

      In 1990, ECD entered into a 10-year financing lease  transaction  relating
to certain  buildings and land. The terms of the transaction  included an option
for ECD to purchase  the  buildings  and land in the sixth year of the lease for
$2,150,000,  increasing 5% each year  thereafter.  The Company has not exercised
the option.

Capitalized Leases

     In  April  1998,  the  Company  entered  into a  $6,000,000  capital  lease
transaction  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. At June
30, 1998 the  Company  has entered  into  sale-and-  leaseback  arrangements  of
$3,137,000 in connection with the second component.

      The lease agreement is secured by Ovonic Battery's plant and equipment. In
addition,  ECD has guaranteed Ovonic Battery's  obligations under this agreement
and has provided a first security interest in the Company's  unencumbered  plant
and equipment.

      In 1994, ECD entered into a $1,250,000 sale and lease-back transaction for
a vapor barrier coating  machine,  with a net book value of zero, at an interest
rate of  approximately  13%. ECD recorded a deferred  gain of  $1,250,000 in the
year ended June 30, 1995 and is  amortizing  this deferred gain over the term of
the lease. During the years


                               -59-

<PAGE>


          ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

            Notes to Consolidated Financial Statements



NOTE E - Capitalized Lease Obligations - (Continued)
----------------------------------------------------

ended  June 30,  1998,  1997 and 1996,  ECD  amortized  approximately  $208,000,
$463,000 and $417,000, respectively, of this deferred gain.

Other

      The Company has operating  lease  agreements,  principally  for office and
research  facilities and equipment.  These leases,  in some  instances,  include
renewal  provisions at the option of the Company.  Rent expense under such lease
agreements  for the years ended June 30, 1998,  1997 and 1996 was  approximately
$1,361,000, $1,685,000 and $1,623,000, respectively.

      Future  minimum   payments  on   obligations   under  capital  leases  and
noncancellable operating leases expiring in each of the five years subsequent to
June 30, 1998 are as follows:

                                               Capital Leases  Operating Leases
                                               --------------  ----------------
         1999                                  $ 1,612,384     $   698,522
         2000                                    1,552,681         644,207
         2001                                    1,547,249         183,466
         2002                                      777,478           --
         2003                                      709,761           --
                                                ----------      ----------
           TOTAL                                 6,199,553     $ 1,526,195
         Less interest & taxes included above    1,257,256      ==========
                                                ----------
         Present value of minimum payments     $ 4,942,297
                                                ==========

 Line of Credit

      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. The Company has not borrowed under
this financing agreement.

NOTE F - Capital Stock
----------------------

      The voting rights of ECD's two classes of stock are as follows:

            Class A Convertible Common Stock - 25 votes per share

            Common Stock - one vote per share



                               -60-

<PAGE>


          ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

            Notes to Consolidated Financial Statements



NOTE F - Capital Stock - (Continued)
------------------------------------

      The Class A Convertible  Common Stock is  automatically  convertible  into
Common Stock on a share-for-share basis on September 14, 1999 and is convertible
at the option of the holder any time prior to that date.

      As part of an  employment  agreement  among ECD,  Ovonic  Battery  and Mr.
Ovshinsky,  ECD  granted  Mr.  Ovshinsky  the right to vote the shares of Ovonic
Battery  held by ECD  following a change in control of ECD. For purposes of this
agreement,  change  in  control  means (i) any sale,  lease,  exchange  or other
transfer of all or substantially  all of ECD's assets;  (ii) the approval by ECD
stockholders of any plan or proposal of liquidation or dissolution of ECD; (iii)
the  consummation of any  consolidation or merger of ECD in which ECD is not the
surviving or continuing  corporation;  (iv) the acquisition by any person of 30%
or more of the combined voting power of the then outstanding  securities  having
the right to vote for the election of directors; (v) changes in the constitution
of the  majority  of the Board of  Directors;  (vi) the  holders  of the Class A
Common Stock ceasing to be entitled to exercise their preferential voting rights
other than as provided in ECD's  charter and (vii)  bankruptcy.  In the event of
mental or physical disability or death of Mr. Ovshinsky,  the foregoing power of
attorney  and  proxy  shall be  exercised  by Mr.  Ovshinsky's  wife,  Dr.  Iris
Ovshinsky, a Vice President of ECD. The initial term of the employment agreement
is six years (through September 1999) and shall  be automatically  renewed every
year thereafter unless terminated by the Company.

      During the years ended June 30, 1998, 1997 and 1996, ECD issued restricted
shares of 3,564,  3,040 and 6,899,  respectively,  as compensation to employees,
consultants, contractors and directors. ECD recorded compensation expense, based
upon fair market value of these  shares at the date of  issuance,  for the years
ended  June  30,  1998,  1997  and  1996  of  $45,000,   $119,000  and  $59,000,
respectively, relating to these restricted shares of Common Stock.

NOTE G - Options and Warrants to Purchase Stock
-----------------------------------------------

      The Company has Common Stock reserved for issuance as follows:

<TABLE>
<CAPTION>
                                                                       Number of Shares
                                                                 ----------------------------
                                                                 June 30, 1998  June 30, 1997
                                                                 -------------  -------------
<S>                                                                <C>            <C>
    Conversion of Class A Convertible Common Stock                   219,913        219,913
    Stock options                                                  3,207,177      3,201,892
    1999 Private Placement Warrants                                  174,966        174,966
    Warrants issued in connection with services rendered             285,000        219,000
    Warrants issued to EV Global                                     133,658          --
    Warrants issued in connection with public offering of units    1,750,000          --
    Convertible Investment Certificates                                6,021          6,233
                                                                   ---------      ---------
      TOTAL RESERVED SHARES                                        5,776,735      3,822,004
                                                                   =========      =========


                               -61-
</TABLE>

<PAGE>


          ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

            Notes to Consolidated Financial Statements



NOTE G - Options and Warrants to Purchase Stock - (Continued)
-------------------------------------------------------------

Stock Option Plans

      The  Company's  1976 Amended and Restated  Stock Option Plan (the "Amended
Plan") which expired in November 1996, the 1987 Stock Option and Incentive  Plan
("1987  Stock  Option  Plan"),  which  expired in  December  1997,  and the 1995
Non-Qualified  Stock  Option Plan  ("1995  Stock  Option  Plan")  authorize  the
granting  of  stock  options  at such  exercise  prices  and to such  employees,
consultants  and other persons as the  Compensation  Committee  appointed by the
Board of Directors (the  "Compensation  Committee")  shall determine.  All three
stock option plans are administered by the Compensation Committee.

      Options  under the Amended  Plan and the 1987 Stock Option Plan expire six
years from the date of grant. Options under the 1995 Stock Option Plan expire no
later than 10 years from the date of grant.  Stock options under all three plans
may not be  exercised  during  the first six  months of the  grant.  Thereafter,
options  may be  exercised  cumulatively  each year,  starting at the end of six
months  after  grant of the  option,  at a  predetermined  rate of the number of
shares of the Common  Stock  subject to the option.  The  exercise  price of all
options  granted has been equal to the fair market  value of the Common Stock at
the time of grant.

      The purchase price and number of shares covered by the options are subject
to adjustment under certain  circumstances to protect the optionholders  against
dilution.

      A summary of the  transactions  during the years ended June 30, 1998, 1997
and 1996 with respect to the Company's  Amended Plan, 1987 Stock Option Plan and
1995 Stock Option Plan follows:
<TABLE>
<CAPTION>


                                       1998                    1997                    1996
                                -------------------     -------------------     -------------------
                                           Weighted                Weighted                Weighted
                                           Average                 Average                 Average
                                           Exercise                Exercise                Exercise
                                Shares     Price        Shares     Price        Shares     Price
                                ---------  --------     ---------  --------     ---------  --------

<S>                             <C>        <C>          <C>        <C>          <C>        <C>       
Outstanding July 1              2,327,606  $12.82       2,129,856  $12.24       2,422,646  $10.42
Granted                            19,453   15.71         291,030   14.93         358,190   17.71
Exercised                          61,866    7.73          90,420    5.99         650,650    8.46
Canceled                           15,780   15.10           2,860   15.74             330   11.75
                                ---------  ------       ---------  ------       ---------  ------ 
Outstanding June 30             2,269,413   12.97       2,327,606  $12.82       2,129,856  $12.24
                                =========  ======       =========  ======       =========  ======
Exercisable June 30             2,135,933  $12.76       1,705,546  $12.19       1,046,438  $10.79
                                =========  ======       =========  ======       =========  ====== 


</TABLE>

                               -62-

<PAGE>


          ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

            Notes to Consolidated Financial Statements



NOTE G - Options and Warrants to Purchase Stock - (Continued)
-------------------------------------------------------------

      The following table summarizes information about stock options outstanding
at June 30, 1998:
<TABLE>
<CAPTION>

                                  OPTIONS OUTSTANDING                        OPTIONS EXERCISABLE
                     ---------------------------------------------        ------------------------- 
                                          Weighted        Weighted                         Weighted
                        Number            Average         Average            Number        Average
Range of              Outstanding        Remaining        Exercise         Exercisable     Exercise
Exercise Prices      As of 6/30/98    Contractual Life     Price          As of 6/30/98     Price
----------------     -------------    ----------------    --------        -------------    -------- 
<S>                    <C>                  <C>            <C>              <C>             <C>   
$ 6.75 - $11.50          227,782            1.54            $7.47             216,982        $7.32
$11.75 - $11.88        1,276,478            4.97           $11.83           1,276,478       $11.83
$15.13 - $15.88          519,083            7.72           $15.48             439,012       $15.54
$16.19 - $16.88          130,070            6.71           $16.74             122,261       $16.75
$18.63 - $23.50          116,000            7.58           $20.80              81,200       $20.80
                       ----------           ----           ------           ---------       ------
$ 6.75 - $23.50        2,269,413            5.49           $12.97           2,135,933       $12.76
</TABLE>


      In November 1993,  stock options to purchase 94,367 shares of Common Stock
held by Stanford R.  Ovshinsky,  and stock options to purchase  49,630 shares of
Common  Stock held by Dr. Iris M.  Ovshinsky,  issued  under the  aforementioned
Amended Plan, were canceled and new stock options, covering 150,000 (adjusted to
255,534 as of June 30, 1998) shares of Common Stock in the case of Mr. Ovshinsky
and 100,000 shares  (adjusted to 170,105 as of June 30, 1998) of Common Stock in
the case of Dr.  Ovshinsky,  were granted by ECD. The stock options canceled had
an average  exercise  price of  approximately  $18.00 per  share.  The  weighted
average exercise price of the outstanding stock options is $10.19 per share. The
number of stock options are adjusted pursuant to the antidilution  provisions of
the stock option  grants.  The weighted  average price was arrived at based upon
(i) the option  price of $7.00 per share for the  original  number of shares and
any additional shares as adjusted for the antidilution provisions during the 18-
month period following the grant; and (ii) thereafter,  the fair market value of
any additional  shares as adjusted for the antidilution  provisions,  determined
quarterly.

      The  Company  continues  to apply APB 25 to its  stock-based  compensation
awards to employees  instead of adopting SFAS 123. Had compensation cost for the
Company's  stock option plans been  determined  based upon the fair value at the
grant  date for  awards  under  these  plans  consistent  with  the  methodology
prescribed  under SFAS 123,  the  Company's  net loss and loss per share for the
year ended June 30, 1998 would have been increased by  approximately  $1,268,000
and $.11 per  share and the  Company's  net loss and loss per share for the year
ended June 30, 1997 would have been  increased by  approximately  $1,840,000 and
$.17 per share and net income and earnings per share for the year ended June 30,
1996 would have been reduced by $1,883,000 and $.17 per share. The fair value of
the options granted during 1998, 1997 and 1996 is estimated as


                               -63-

<PAGE>


          ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

            Notes to Consolidated Financial Statements



NOTE G - Options and Warrants to Purchase Stock - (Continued)
-------------------------------------------------------------

$349,000, $1,710,000 and $3,195,000 on the date of grant using the Black-Scholes
option-pricing model with the following assumptions:

                                              1998        1997        1996
                                              ----------  ----------  ----------
      Dividend Yield                                0%          0%          0%
      Volatility %                              59.77%      57.96%      56.95%
      Risk Free Interest Rate                    5.74%       6.26%       5.83%
      Expected Life                           3.91 years  3.54 years  3.54 years

      In February  1995,  the  Compensation  Committee of the Board of Directors
extended the exercise  period of certain  stock  options  granted in March 1989.
These  options  were  extended  on the  same  terms  and  conditions,  including
continuation of the exercise price at fair market value. The Committee  extended
the options in order to afford the holders of said options the six-year exercise
period which had  previously  been  interrupted  for a period of time due to the
Company's  inability to issue  registered  shares upon exercise of options.  The
difference between the aggregate exercise price and the fair market value of the
Company's  stock at  February  1995,  totaling  $1,600,000,  was  recorded  as a
non-cash charge to operations in the year ended June 30, 1995.

Warrants

      ECD has outstanding  warrants for the purchase of 174,966 shares of Common
Stock in connection with private  placements of Common Stock as well as warrants
to purchase 285,000 shares of Common Stock in connection with services rendered.
The warrants are currently exercisable at a weighted average price of $13.40 per
share.  The  exercise  price of  certain of the  warrants  may be reduced in the
future pursuant to certain antidilution provisions.

      ECD also had  outstanding  warrants for the purchase of 133,658  shares of
Common Stock issued to EV Global pursuant to a Stock Purchase Agreement  between
EV Global and ECD entered into in February 1998.  These warrants are exercisable
on or prior to February 2, 2003,  with 73,462 shares exercisable at $13.6125 per
share and 60,196 shares exercisable at $16.6125 per share.

      In  connection  with the 1998 limited  public  offering of units,  ECD has
outstanding warrants for the purchase of 1,750,000 shares of Common Stock. These
warrants  are  exercisable  at $17.89 on or prior to January 31,  2000,  and for
$20.54 at any time thereafter on or prior to July 31, 2001.




                               -64-

<PAGE>


          ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

            Notes to Consolidated Financial Statements


NOTE H - Net Income (Loss) Per Share
------------------------------------

      Basic  net income (loss)  per  common share  is computed  by dividing  net
income  (loss)  per  share  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 years ended June 30 are computed as follows:
<TABLE>
<CAPTION>

                                                         1998             1997            1996
                                                     -------------    -------------    -----------
  <S>                                                <C>              <C>              <C>      
   Weighted average number of shares outstanding       11,116,619       10,729,802       9,370,841

   Net income (loss)                                 $(16,664,999)    $(17,954,612)    $ 1,054,269

   BASIC NET INCOME (LOSS) PER SHARE                 $      (1.50)    $      (1.67)    $       .11
                                                     =============    =============    ===========

   Weighted average number of shares outstanding       11,116,619       10,729,802       9,370,841
   Weighted average shares for dilutive
      securities                                          -0-              -0-           1,515,067
                                                     -------------    -------------    -----------
   Average number of shares outstanding and 
      potential dilutive shares                        11,116,619       10,729,802      10,885,908

   Net income (loss)                                 $(16,664,999)    $(17,954,612)    $ 1,054,269

   DILUTED NET INCOME (LOSS) PER SHARE               $      (1.50)    $      (1.67)    $       .10
                                                     =============    =============    ===========

</TABLE>

     Due to the Company's net loss in 1998 and 1997,  weighted average shares of
potential  dilutive  securities  of  450,639  and  705,056,  respectively,  were
excluded from the  calculations of diluted loss per share, as inclusion of these
securities  would have been  antidilutive to the net loss per share.  Additional
securities of 2,014,649,  335,430 and 26,000,  respectively,  were excluded from
the 1998,  1997 and 1996  calculation  of weighted  average  shares of potential
dilutive securities. Because of the relationship between the exercise prices and
the average  market price of the  Company's  stock during these  periods,  these
securities would have been antidilutive regardless of the Company's net loss.

NOTE I - Federal Taxes on Income
--------------------------------

     At June 30, 1998 and 1997, the Company has  approximately  $42,935,000  and
$40,223,000,  respectively,  of net deferred tax assets, consisting primarily of
$41,681,000   and   $38,523,000,   respectively,   due  to  net  operating  loss
carryforwards,  and $1,254,000 and $1,700,000,  respectively,  due to tax credit
carryforwards.  However,  a valuation reserve of the same amount is required due
to  the  Company's  operating  history  and  


                               -65-

<PAGE>


          ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

            Notes to Consolidated Financial Statements



NOTE I - Federal Taxes on Income - (Continued)
----------------------------------------------

uncertainty  regarding  the future realizability of the net  tax operating  loss
carryforwards and tax credit carryforwards.

      The  Company's  valuation  reserve was  increased by  $2,712,000  in 1998,
$4,584,000 in 1997 and by $818,000 in 1996 for the impact of the 1998,  1997 and
1996 net operating income (losses),  temporary differences and the expiration of
tax carryforwards.

      At  June  30,  1998,  the  Company's  remaining  net  tax  operating  loss
carryforwards and tax credit carryforwards expire as follows:

                 Net Tax Operating     Investment Tax     R & D Credit
                 Loss Carryforward      Credit Total      Carryforward
                 -----------------     --------------     ------------

      1999          $5,395,000            $40,000           $202,000
      2000           8,767,000            172,000            813,000
      2001          23,828,000             27,000
      2002          15,900,000
      2003          17,460,000
      2004           1,378,000
      2005              --
      2006           7,075,000
      2007           2,854,000
      2008           1,802,000
      2009           4,304,000
      2010              --
      2011           5,430,000
      2012          15,749,000
      2013          12,649,000
                 -------------           --------         ----------
                 $ 122,591,000           $239,000         $1,015,000
                 =============           ========         ==========


NOTE J - Related Party Transactions
-----------------------------------

      For the three  years  ended June 30,  1998,  1997 and 1996,  ECD  incurred
expenses of $107,881, $146,000 and $90,514,  respectively, for services rendered
by its directors.

          For related party  transactions  involving United Solar, GM Ovonic and
Sovlux see Note D.




                               -66-

<PAGE>


          ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

            Notes to Consolidated Financial Statements


NOTE K - Business Segments
--------------------------

      The Company has two business segments, its subsidiary, Ovonic Battery, and
the parent company,  ECD. Ovonic Battery is primarily involved in developing and
commercializing battery technology.  ECD is primarily involved in photovoltaics,
microelectronics  and machine building.  General corporate  expenses (except for
those  expenses  allocated  to Ovonic  Battery),  interest  expense and interest
income are classified in the ECD business segment.

      The Company's operations by business segment were as follows:

                Financial Data by Business Segment
                ----------------------------------
                          (in thousands)

                                      Ovonic Battery     ECD     Consolidated
                                      --------------   -------   ------------
Revenues
   Year ended June 30, 1998              $27,161        $4,397      $31,558
   Year ended June 30, 1997               24,183         5,395       29,578
   Year ended June 30, 1996               26,946        10,366       37,312

Operating Income(Loss)
   Year ended June 30, 1998*            $(14,462)      $(2,383)    $(16,845)
   Year ended June 30, 1997*             (12,610)       (6,418)     (19,028)
   Year ended June 30, 1996*              (2,258)       (1,921)      (4,179)

Depreciation and Amortization Expense
   Year ended June 30, 1998               $1,307          $823       $2,130
   Year ended June 30, 1997                1,065         1,248        2,313
   Year ended June 30, 1996                  811         1,079        1,890

Capital Expenditures
   Year ended June 30, 1998               $1,357          $345       $1,702
   Year ended June 30, 1997                2,807           770        3,577
   Year ended June 30, 1996                  915           972        1,887

Identifiable Assets
   Year ended June 30, 1998              $16,340       $35,021      $51,361
   Year ended June 30, 1997               18,643        19,086       37,729
   Year ended June 30, 1996               17,501        39,628       57,129


 * Includes  intercompany  interest of $3,444 for the year ended June 30,  1998,
   $2,124 for the year ended June 30, 1997 and $432 for the period from April 1,
   1996 to June 30, 1996 charged by ECD to Ovonic Battery in accordance with the
   agreements between the parties.





                               -67-

<PAGE>




Item 9: Changes in and Disagreements on Accounting and Financial Disclosure
------- -------------------------------------------------------------------

   Not applicable.



                               -68-

<PAGE>



                             PART III

Item 10: Directors and Executive Officers of the Registrant
-------- --------------------------------------------------

      The composition of the Board of Directors of the Company is as follows:

<TABLE>
<CAPTION>

                              
                              Director    
                              of the
                              Company                                           Principal Occupation and
         Name                 Since                 Office                      Business Experience
         ----                 -----                 ------                      ------------------------
<S>                            <C>                 <C>                          <C>          
Stanford R. Ovshinsky          1960                President, Chief             Mr. Ovshinsky, 75, the founder and Chief
                                                   Executive Officer            Executive Officer of the Company, has been an
                                                   and Director                 executive officer and director of the Company
                                                                                since its inception in 1960.  Mr. Ovshinsky is the
                                                                                primary inventor of the Company's technology. Mr.
                                                                                Ovshinsky also serves as: the Chief Executive
                                                                                Officer of Ovonic Battery; President, CEO and
                                                                                director of United Solar; a member of the Board of
                                                                                Managers of GM Ovonic; and Co-Chairman of the
                                                                                Board of Directors of Sovlux.  Mr. Ovshinsky is the
                                                                                husband of Dr. Iris M. Ovshinsky.

Iris M. Ovshinsky              1960                Vice President               Dr. Ovshinsky, 71, co-founder and Vice President
                                                   and Director                 of the Company, has been an executive officer
                                                                                and director of the Company since its inception in
                                                                                1960.  Dr. Ovshinsky also serves as a director of
                                                                                Ovonic Battery.  Dr. Ovshinsky is the wife of
                                                                                Stanford R. Ovshinsky.

   
Robert C. Stempel              1995                Chairman of the              Mr. Stempel, 65, is Chairman of the Board and
                                                   Board, Executive             Executive Director of the Company.  Prior to his
                                                   Director and                 election as a director in December 1995, Mr.
                                                   Director                     Stempel  served as senior business and technical
                                                                                advisor to Mr. Ovshinsky.  He is also the Chairman
                                                                                of Ovonic Battery and serves on the Board of
                                                                                Managers of GM Ovonic.  From 1990 until his
                                                                                retirement in 1992, he was the Chairman and
                                                                                Chief Executive Officer of General Motors
                                                                                Corporation.  Prior to serving as Chairman, he had
                                                                                been President since 1987.  Mr. Stempel serves
                                                                                on the Audit Committee of the Board.

Nancy M. Bacon                 1977                Senior Vice                  Mrs. Bacon, 52, joined the Company in 1976 as its
                                                   President                    Vice President of Finance and Treasurer.  She
                                                   and Director                 became the Senior Vice President of the Company
                                                                                in 1993.  Mrs. Bacon also serves on the Boards of
                                                                                Directors of Sovlux and United Solar.

                                                   -69-

</TABLE>

<PAGE>

<TABLE>
<S>                            <C>                 <C>                          <C>
Umberto Colombo                1995                Director                     Prof. Colombo, 70, is Chairman of the Scientific
                                                                                Councils of the ENI Enrico Mattei Foundation and
                                                                                of the Instituto Per l'Ambiente in Italy.  He was
                                                                                Chairman of the Italian National Agency for New
                                                                                Technology, Energy and the Environment until
                                                                                1993 and then served as Minister of Universities
                                                                                and Scientific and Technological Research in the
                                                                                Italian Government until 1994.  Prof. Colombo is
                                                                                also active as a consultant in international science
                                                                                and technology policy institutions related to
                                                                                economic growth.

Hellmut Fritzsche              1969                Vice President               Dr. Fritzsche, 71, was a professor of Physics at
                                                   and Director                 the University of Chicago from 1957 until his
                                                                                retirement in 1996.  He was also Chairman of the
                                                                                Department of Physics, the University of Chicago,
                                                                                until 1986.  Dr. Fritzsche has been a Vice
                                                                                President of the Company since 1965, acting on a
                                                                                part-time basis, chiefly in the Company's research
                                                                                and product development activities.

Joichi Ito                     1995                Director                     Mr. Ito, 32, is President of Digital Garage, KK and
                                                                                Transoceanic Ventures, Inc. as well as a board
                                                                                member of PSINet Japan, KK.  He is an expert on
                                                                                new computer technology and networked
                                                                                information systems and writes and lectures
                                                                                extensively in the United States, Japan and
                                                                                Europe.  Mr. Ito serves as a director and
                                                                                consultant to many companies in the field of
                                                                                information technology.

Seymour Liebman                1997                Director                     Mr. Liebman, 49, currently Executive Vice
                                                                                President and General Counsel at Canon U.S.A.,
                                                                                Inc., has held a variety of positions with Canon
                                                                                since 1974, including Senior Vice President and
                                                                                General Counsel from 1992-1996.  Mr. Liebman
                                                                                also serves on the Board of Directors of United
                                                                                Solar.  He is a director of Zygo Corporation.


Walter J. McCarthy, Jr.        1995                Director                     Mr. McCarthy, 73, until his retirement in 1990, was
                                                                                the Chairman and Chief Executive Officer of
                                                                                Detroit Edison Company.  He has served as a
                                                                                consultant to the Company since  1990.  Until
                                                                                1995, Mr. McCarthy also served on the Boards of
                                                                                Comerica Bank, Detroit Edison Company and
                                                                                Federal-Mogul Corporation. He is a member of the
                                                                                National Academy of Engineering.  Mr. McCarthy
                                                                                serves as Chairman of the Compensation Committee
                                                                                and on the Audit Committee of the Board.

                                                   -70-

</TABLE>

<PAGE>
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Florence I. Metz               1995                Director                     Dr. Metz, 69, until her  retirement in 1996,  held 
                                                                                various  executive  positions with Inland Steel 
                                                                                Company:  General Manager, New Ventures,  Inland 
                                                                                Steel Company (1989-1991);  General Manager, New 
                                                                                Ventures, Inland Steel Industries (1991-1992)
                                                                                and Advanced Graphite Technologies (1992-1993); 
                                                                                Program Manager for Business and Strategic Planning
                                                                                at Inland  Steel (1993-1996).  Dr. Metz also serves 
                                                                                on the Board of Directors of Ovonic Battery.  She 
                                                                                serves on the Compensation  Committee of the Board.

Nathan J. Robfogel             1990                Director                     Mr. Robfogel, 63, was, until his retirement in 
                                                                                1996, a partner with the law firm of Harter, Secrest
                                                                                & Emery,  which he joined in 1959. Mr. Robfogel is 
                                                                                currently Vice President for University Relations 
                                                                                of the Rochester Institute of Technology where he 
                                                                                was a trustee from 1985-1996.  He is a member of 
                                                                                the Board of Directors of Genesee Valley Trust 
                                                                                Company and Rochester  Community  Baseball,  Inc. 
                                                                                After serving for 12 years as a trustee of Monroe 
                                                                                Community College, he was elected an Honorary  
                                                                                Trustee.  From 1989 to 1995, Mr. Robfogel served as 
                                                                                Chairman of the Board and CEO of the New York State 
                                                                                Facilities Development Corporation, a public benefit
                                                                                corporation.

Stanley K. Stynes              1977                Director                     Dr. Stynes, 66, was Dean of the College of 
                                                                                Engineering at Wayne State University from 1970
                                                                                to August 1985, and a Professor of Engineering at
                                                                                Wayne State University from 1985 until his 
                                                                                retirement in 1992.  He has been involved in
                                                                                various administrative, teaching, research and
                                                                                related activities.  Dr. Stynes serves as Chairman
                                                                                of the Audit Committee of the Board.
</TABLE>

                               * * *

      Mrs. Haru Reischauer, a director since 1990, died on September 23, 1998.


                               -71-

<PAGE>


      The executive officers of the Company are as follows:



       Name             Age       Office               Served As An Executive
                                                       Officer or Director Since
---------------------   ---  -------------------       -------------------------

Stanford R. Ovshinsky   75   President, Chief Executive         1960(1)
                             Officer and Director

Iris M. Ovshinsky       71   Vice President and Director        1960(1)

Robert C. Stempel       65   Executive Director and             1995
                             Chairman of the Board

Nancy M. Bacon          52   Senior Vice President              1976
                             and Director

Hellmut Fritzsche       71   Vice President and Director        1969

Subhash K. Dhar         47   President and Chief Operating      1986
                             Officer of Ovonic Battery

Stephan W. Zumsteg      52   Treasurer                          1997



(1)   The predecessor of the Company was originally founded in 1960. The present
      corporation was incorporated in 1964 and is the successor by merger of the
      predecessor corporation.


      See above for information relating to Stanford R. Ovshinsky, Iris M. 
Ovshinsky, Robert C. Stempel, Nancy M. Bacon and Hellmut Fritzsche.

      Subhash K. Dhar joined the Company in 1981 and has held various  positions
with Ovonic  Battery since its inception in October 1982. Mr. Dhar has served as
Chief Operating Officer of Ovonic Battery since 1986 and President since 1987.

      Stephan  W.  Zumsteg  joined the  Company  in March  1997 and was  elected
Treasurer  in April 1997.  Prior to joining the Company,  Mr.  Zumsteg was Chief
Financial Officer of the Kirlin Company from July 1996 to February 1997 and Vice
President-Finance  & Administration and Chief Financial Officer of Lincoln Brass
Works from July 1991 to June 1996.





                               -72-

<PAGE>



Item 11: Executive Compensation
-------- ----------------------

      The following tables set forth the compensation paid by the Company during
its last three fiscal years to its Chief Executive Officer and each of its other
four most highly  compensated  executive officers for the fiscal year ended June
30, 1998.

                            SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>


                                            Annual                    Long Term
                                         Compensation                Compensation
                                        ---------------         ----------------------
<S>                         <C>         <C>         <C>         <C>         <C>            <C>
                                                                                           All
                                                                Restrict    Options        Other
Name and Principal          Fiscal                              Stock       (Number        Compen-
     Position               Year(1)     Salary(2)   Bonus       Award       of Shares)     sation(4)
------------------          --------    ---------   -----       --------    ----------     ---------


Stanford R. Ovshinsky       1998        $284,967        --                                 $14,652
President and Chief         1997        $276,016    $37,981(3)                             $10,017
Executive Officer (5)       1996        $267,800    $90,741(3)                             $10,017

Robert C. Stempel,          1998        $270,005                   --          --          $ 3,159
Executive Director(6)       1997        $270,005                   --        25,000        $ 3,159
                            1996        $125,008                $50,312     125,000        $ 3,159

Iris M. Ovshinsky,          1998        $250,016                                           $13,569
Vice President              1997        $250,016                                           $ 8,939
                            1996        $250,004                                           $ 5,726

Nancy M. Bacon,             1998        $235,019                               --          $ 5,796
Senior Vice President       1997        $235,019                               --          $ 5,796
                            1996        $235,472                             25,000        $ 5,794

Subhash K. Dhar, President  1998        $211,545       --                      --          $ 5,283
and Chief Operating Officer 1997        $200,013       --                      --          $ 5,283
Ovonic Battery              1996        $200,503    $15,000                  62,040        $ 5,283


</TABLE>




(1)   The Company's fiscal year is July 1 to June 30.  The Company's 1998 fiscal
      year ended June 30, 1998.
(2)   Amounts shown include compensation deferred under the Company's 401 (k) 
      Plan.  Does not include taxable income resulting from exercise of stock 
      options.
(3)   Computed  based on net  income  from  operations for  preceding  years as
      provided in Mr. Ovshinsky's September 1993 Employment Agreement.


                               -73-

<PAGE>



(4)   "All Other Compensation" is comprised of (i) contributions made by the 
      Company to the accounts of each of the named executive officers under the 
      Company's 401(k) Plan with respect to each of the fiscal years ended June
      30, 1998, 1997 and 1996, respectively, as follows: Mr. Ovshinsky $4,500
      (1998); Dr. Ovshinsky $4,500, $3,269 and $2,500; Mrs. Bacon $4,500 (for 
      each of 1998, 1997 and 1996); Mr. Dhar $4,500 (for each of 1998, 1997 and 
      1996); (ii) the dollar value of any life insurance premiums paid by the 
      Company in the calendar years ended December 31, 1998, 1997 and 1996,
      respectively, with respect to term-life insurance for the benefit of each 
      of the named executives as follows: Mr. Ovshinsky $10,152 (1998) and 
      $10,017 (for each of 1997 and 1996);  Mr. Stempel $3,159 (for each of 
      1998, 1997 and 1996); Dr. Ovshinsky $9,069, $5,670, and $3,226; Mrs. Bacon
      $1,296 (1998 and 1997) and $1,294 (1996); and Mr. Dhar $783 (for each of 
      1998, 1997 and 1996).  Under the 401 (k) Plan, which is a qualified 
      defined-contribution plan, the Company makes matching contributions 
      periodically on behalf of the participants in the amount of 50% of each 
      such participant's contributions.  These matching contributions were 
      limited to 3% of a participant's salary, up to $150,000 for 1997.  The 
      contributions reported for 1998 are for the calendar year ended December
      31, 1997.
(5)   In  September  1993,  Mr.  Ovshinsky  entered  into  separate   employment
      agreements   with  the  Company  and  Ovonic   Battery.   See  "Employment
      Agreements." The amounts  indicated include  compensation  received by Mr.
      Ovshinsky  pursuant  to the  Employment  Agreements  with the  Company and
      Ovonic Battery.
(6)   Mr. Stempel joined the Company in December 1995.  The salary reported for
      1996 is for the six month period January 1996 - June 1996.


                        OPTION GRANTS IN LAST FISCAL YEAR

      There were no options granted to the named  executive  officers during the
fiscal year ended June 30, 1998.





                               -74-

<PAGE>



            AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
                       FISCAL YEAR END OPTION VALUES

      The following  table sets forth all stock  options  exercised by the named
executives  during the fiscal  year ended June 30, 1998 and the number and value
of unexercised options held by the named executive officers at fiscal year end.


<TABLE>
<CAPTION>


                             Shares                                 Number of Securities             Value of Unexercised
                             Acquired on          Value            Underlying Unexercised            in-the-Money Options
                             Exercise            Realized        Options at Fiscal Year End           at Fiscal Year End
       Name                     (#)                ($)             Exercisable/Unexercise          Exercisable/Unexercisable
--------------------------   -----------         --------        --------------------------        -------------------------
<S>                             <C>                <C>                    <C>                              <C>

Stanford R. Ovshinsky (1)         _                  -                    550,491/0                        $438,254/$0

Iris M. Ovshinsky (2)             _                  _                    351,993/0                        $291,497/$0

Robert C. Stempel (3)           12,000             $80,256                308,000/30,000                   $ 17,442/$0

Nancy M. Bacon (4)              10,000             $39,125                217,700/7,500                    $117,520/$0

Subhash K. Dhar (5)               _                   _                    68,928/0                        $8,721/$0


</TABLE>

(1)   Mr. Ovshinsky's exercisable  options are exercisable at a weighted average
      price of $11.07 per share.

(2)   Dr. Ovshinsky's exercisable options are exercisable at a weighted average 
      price of $11.05 per share.

(3)   Mr. Stempel's  exercisable and unexercisable  options are exercisable at a
      weighted average price of $14.12 and $19.59 per share, respectively.

(4)   Mrs. Bacon's  exercisable and  unexercisable  options are exercisable at a
      weighted average price of $11.60 and $20.125 per share, respectively.

(5)   Mr. Dhar's exercisable options are exercisable at a weighted average price
      of  $15.99 per share.


                       EMPLOYMENT AGREEMENTS

      On  September  2,  1993,  Stanford  R.  Ovshinsky  entered  into  separate
employment  agreements  with each of the Company and Ovonic  Battery in order to
define clearly his duties and  compensation  arrangements and to provide to each
company  the  benefits of his  management  efforts  and future  inventions.  The
initial  term  of  each  employment  agreement  is six  years.  Mr.  Ovshinsky's
employment  agreement with the Company provides for an annual salary of not less
than $100,000,  while his agreement  with Ovonic Battery  provides for an annual
salary of not less than $150,000. Both agreements provide

                               -75-

<PAGE>



for annual increases to reflect  increases in the cost of living,  discretionary
annual  increases as  determined by the Board of Directors of the Company and an
annual  bonus  equal to 1% of the net  income  from  operations  of the  Company
(excluding Ovonic Battery) or Ovonic Battery.

      Mr.  Ovshinsky's  employment  agreement with Ovonic  Battery  additionally
contains a power of attorney and proxy from the Company  providing Mr. Ovshinsky
with  the  right  to vote the  shares  of  Ovonic  Battery  held by the  Company
following a change in control of the  Company.  For  purposes of the  agreement,
change in control means (i) any sale,  lease,  exchange or other transfer of all
or substantially all of the Company's assets; (ii) the approval by the Company's
stockholders  of any plan or  proposal  of  liquidation  or  dissolution  of the
Company; (iii) the consummation of any consolidation or merger of the Company in
which the  Company is not the  surviving  or  continuing  corporation;  (iv) the
acquisition by any person of 30 percent or more of the combined  voting power of
the then  outstanding  securities  having the right to vote for the  election of
directors;  (v)  changes in the  constitution  of the  majority  of the Board of
Directors;  (vi) the holders of the Class A Common Stock  ceasing to be entitled
to  exercise  their  preferential  voting  rights  other than as provided in the
Company's  charter  and (vii)  bankruptcy.  In the  event of mental or  physical
disability or death of Mr. Ovshinsky,  the foregoing power of attorney and proxy
will be exercised by Dr. Iris M. Ovshinsky.

      Pursuant to his employment  agreement with Ovonic Battery,  Mr.  Ovshinsky
was  granted  stock  options,  exercisable  at a price of  $16,129  per share to
purchase 186 shares  (adjusted  from a price of $50,000 per share to purchase 60
shares  pursuant to the  anti-dilution  provisions  of the option  agreement) of
Ovonic Battery's common stock, representing approximately 6% of Ovonic Battery's
outstanding  common stock.  The Ovonic Battery stock options vest on a quarterly
basis over six years  commencing  with the  quarter  beginning  October 1, 1993,
subject to Mr.  Ovshinsky's  continued  performance of his obligations to Ovonic
Battery  under his  employment  agreement.  Vesting  of the stock  options  will
accelerate in the event of Mr. Ovshinsky's death,  mental or physical disability
or  termination  of  employment  without  cause  and in the event of a change in
control of the Company.

      In February  1998,  the  Compensation  Committee of the Board of Directors
recommended and the Board of Directors approved an Employment  Agreement between
the Company and Dr. Iris M. Ovshinsky.  The purpose of the Employment  Agreement
is to clearly define Dr. Ovshinsky's duties and compensation  arrangements.  The
Employment  Agreement  also provides for the Company to have the benefits of Dr.
Ovshinsky's services as a consultant to the Company following the termination of
her active  employment for consulting fees equal to 50% of the salary payable to
Dr.  Ovshinsky  at the date of the  termination  of her active  employment.  Dr.
Ovshinsky  shall have the right to retire at any time  during her  services as a
consultant and receive retirement  benefits equal to the consulting fees for the
remainder of Dr. Ovshinsky's life.


                               -76-

<PAGE>



      The initial term of Dr.  Ovshinsky's  employment period is until September
2, 1999 and is  automatically  renewed for  successive  one-year  periods unless
terminated  by Dr.  Ovshinsky  or the Company upon 120 days notice in advance of
the renewal date. Dr.  Ovshinsky's  employment  agreement provides for an annual
salary of not less than $250,000,  annual increases to reflect  increases in the
cost of living and discretionary annual increases, as determined by the Board of
Directors of the Company.

                     COMPENSATION OF DIRECTORS

      Directors who are officers of the Company  receive no payment for  service
as a director.  The  other directors  of the Company  are  issued  approximately
$5,000  per year in the Company's Common Stock  based  on the closing  price  of
Common Stock on the first  business day of each year and are  paid $500 for each
Board meeting  attended (in person  or via  telephone  conference  call) as well
as $500 for  each  committee  meeting  if  not coincident  with a Board meeting.
Directors are also reimbursed  for all  expenses  incurred  for the  purpose of
attending  board of directors  and  committee  meetings,   including  airfare, 
mileage, parking, transportation and hotel.

                   COMPENSATION COMMITTEE REPORT

Compensation Committee.

      The Compensation  Committee  is  composed of  Mr. McCarthy  (Chairman) and
Dr. Metz.  Neither of the  Compensation Committee members are or were during the
last  fiscal  year  an  officer  or  employee  of  the  Company  or  any  of its
subsidiaries,  or had any business  relationship with the Company  or any of its
subsidiaries.

      The Compensation  Committee is responsible for  administering the policies
which govern both annual  compensation  of executive  officers and the Company's
stock option plans.  The  Compensation  Committee meets several times during the
year to review  recommendations  from  management  regarding  stock  options and
compensation.  Compensation  and stock  option  recommendations  are based  upon
performance,  current compensation, stock option ownership, and years of service
to the Company. The Company does not have a formal bonus program for executives,
although it has awarded bonuses to its executives from time to time.

Base Salary.

      The Compensation  Committee considers the Company's financial position and
other factors in determining the compensation of its executive  officers.  These
factors include remaining competitive within the relevant hiring market--whether
scientific,  managerial or otherwise--so as to enable the Company to attract and
retain high quality employees,  and, where  appropriate,  linking a component of
compensation  to the  performance  of the Company's  Common  Stock--such as by a
granting  of stock  option  or  similar  equity-based  compensation--to  instill
ownership thinking and align the employees' and stockholders' objectives.  The
Company has been successful at recruiting, retaining and motivating executives
who are highly talented, performance-focused and entrepreneurial.

                               -77-

<PAGE>





Chief Executive Officer Compensation.

      In  September  1993,  Mr.  Ovshinsky  entered  into  separate   employment
agreements  with each of the  Company and Ovonic  Battery.  The purpose of these
agreements,  which provide for the payment to Mr.  Ovshinsky of an annual salary
of not less than  $250,000 by the Company and by Ovonic  Battery,  was to define
clearly Mr. Ovshinsky's  duties and compensation  arrangements and to provide to
each company the benefits of his management efforts and future  inventions.  See
"Employment  Agreements." Mr. Ovshinsky's  compensation for fiscal year 1997 was
determined in accordance  with his  Employment  Agreements  with the Company and
Ovonic Battery.


                                        COMPENSATION COMMITTEE

                                        Walter J. McCarthy, Jr.
                                        Florence I. Metz

                               -78-

<PAGE>



                                 PERFORMANCE GRAPH

      The line graph below compares the cumulative total  stockholder  return on
the Company's Common Stock over a five-year period with the return on the NASDAQ
Stock Market - US Index and the Hambrecht & Quist Technology Index.

<TABLE>
<CAPTION>

                                                COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
                                            AMONG ENERGY CONVERSION DEVICES, INC., THE NASDAQ STOCK
                                         MARKET--U.S. INDEX AND THE HAMBRECHT & QUIST TECHNOLOGY INDEX


    
                                                                         Cumulative Total Return
                                                         ------------------------------------------------------
                                                         6/93      6/94      6/95      6/96      6/97      6/98
                                                         ----      ----      ----      ----      ----      ----

<S>                                                     <C>       <C>       <C>       <C>       <C>       <C>   
Energy Conversion Devices, Inc.                         100.00    112.64    149.43    209.20    117.24     89.08
Nasdaq Stock Market (U.S.)                              100.00    100.96    134.77    173.03    210.38    277.61
Hambrecht & Quist Technology                            100.00    102.21    180.82    211.32    275.98    349.59


</TABLE>



      The total  return with  respect to NASDAQ  Stock Market - US Index and the
Hambrecht & Quist  Technology  Index  assumes that $100 was invested on June 30,
1993, including reinvestment of dividends.

      ECD has  paid no cash  dividends  in the past  and no cash  dividends  are
expected to be paid in the foreseeable future.

      The Report of the Compensation Committee on Executive Compensation and the
Performance  Graph are not deemed to be filed with the  Securities  and Exchange
Commission under the Securities Act of 1933, as amended,  or Securities Exchange
Act of 1934, as amended, or incorporated by reference in any documents so filed.


                               -79-

<PAGE>



Item 12: Security Ownership of Certain Beneficial Owners and Management
-------- --------------------------------------------------------------

                           CLASS A COMMON STOCK

      Mr.  Stanford R. Ovshinsky and his wife, Dr. Iris M. Ovshinsky  (executive
officers,  Directors and founders of the Company),  own of record 153,420 shares
and   65,601   shares,   respectively   (or   approximately   69.8%  and  29.8%,
respectively),  of the outstanding shares of Class A Common Stock.  Common Stock
is  entitled  to one vote per  share and each  share of Class A Common  Stock is
entitled to 25 votes per share.  Class A Common Stock is convertible into Common
Stock on a share-for-share basis at any time and from time to time at the option
of the  holders,  and will be  deemed to be  converted  into  Common  Stock on a
share-for-share  basis on September  14, 1999.  As of  September  18, 1998,  Mr.
Ovshinsky  also had the right to vote 126,500 shares of Common Stock (the "Sanoh
Shares") owned by Sanoh  Industrial  Co., Ltd.  ("Sanoh")  under the terms of an
agreement  dated as of  November 3, 1992  between  the Company and Sanoh  which,
together with the Class A Common Stock and 10,574 shares of Common Stock Mr. and
Dr.  Ovshinsky  own,  give Mr. and Dr.  Ovshinsky  voting  control  over  shares
representing approximately 31.1% of the combined voting power of the Company.

      The  following  table  sets  forth,  as  of  June  30,  1998,  information
concerning the beneficial ownership of Class A Common Stock by each Director and
all executive  officers and Directors of the Company as a group.  All shares are
owned directly except as otherwise indicated.  Under the rules of the Securities
and Exchange Commission, Stanford R. Ovshinsky and Iris M. Ovshinsky may each be
considered to beneficially own the shares held by the other.

<TABLE>
<CAPTION>
                                  Class A            
                                Common Stock           Total Number               
  Name of                       Beneficially            of Shares                 Percentage
Beneficial Owner                Owned(1)(2)          Beneficially owned            of Class
----------------                ------------         ------------------           ----------  
<S>                               <C>                      <C>                      <C>
Stanford R. Ovshinsky             153,420                  153,420                  69.8%

Iris M. Ovshinsky                  65,601                   65,601                  29.8%

All other executive
officers and directors as
a group (13 persons)                __                        __                      __

Total                             219,021                  219,021                  99.6%


</TABLE>

--------------
(1)  The balance of the 219,913 shares of Class A Common Stock outstanding, 892
     shares, or approximately 0.4%, are owned by other members of Mr. and Dr.
     Ovshinsky's family.  Neither Mr. nor Dr. Ovshinsky has voting or investment
     power with respect to such shares.

(2)  On November 10, 1995, the Compensation Committee recommended, and the Board
     of Directors approved, an amendment to Mr. and Dr. Ovshinsky's Stock Option
     Agreements dated November 18, 1993 (the "Agreements") to permit Mr. and Dr.
     Ovshinsky to exercise a portion (126,082 and 84,055 shares, respectively)
     of their existing Common Stock option for Class A Common Stock on the same
     terms and conditions as provided in the Agreements.  The shares of Class A
     Common Stock issuable upon exercise of the options under the Agreements, as
     amended, are not included in the number of shares indicated.

                               -80-

<PAGE>



                                   COMMON STOCK

      Directors and Executive  Officers.  The following  table sets forth, as of
September 18, 1998,  information  concerning the beneficial  ownership of Common
Stock by each director and executive officer and for all directors and executive
officers  of the  Company as a group.  All shares are owned  directly  except as
otherwise indicated.

                                 Amount and Nature of
Name of Beneficial Owner        Beneficial Ownership(1)            % of Class(2)
------------------------        -----------------------            -------------


 Stanford R. Ovshinsky               839,811 (3)                        6.28%

 Iris M. Ovshinsky                   420,268 (4)                        3.21%

 Robert C. Stempel                   383,404 (5)                        2.95%

 Nancy M. Bacon                      248,715 (6)                        1.93%

 Subhash K. Dhar                      68,928 (7)                         *

 Haru Reischauer**                    42,105 (8)                         *

 Hellmut Fritzsche                    31,490 (9)                         *

 Walter J. McCarthy, Jr.              22,056 (10)                        *

 Stanley K. Stynes                    20,753 (11)                        *

 Nathan J. Robfogel                   16,986 (12)                        *

 Umberto Colombo                      12,020 (13)                        *

 Florence I. Metz                     10,753 (14)                        *

 Joichi Ito                            7,924 (15)                        *

 Seymour Liebman                       7,396 (16)                        *

 Stephan W. Zumsteg                    6,600 (17)                        *

 All executive officers and
 directors as a group              2,139,209                           14.71%
 (15 persons)


----------------------
 *     Less than 1%.
 **    Mrs. Reischauer died on September 23, 1998.

 (1)   Under  the  rules  and   regulations   of  the  Securities  and  Exchange
       Commission,  a person is deemed to be the beneficial  owner of a security
       if that  person has the right to  acquire  beneficial  ownership  of such
       security  within sixty days,  whether  through the exercise of options or
       warrants or through the conversion of another security.


                               -81-

<PAGE>

 (2)   Under  the  rules  and   regulations   of  the  Securities  and  Exchange
       Commission,  shares of Common Stock issuable upon exercise of options and
       warrants  or  upon  conversion  of  securities  which  are  deemed  to be
       beneficially  owned by the holder thereof (see Note (1) above) are deemed
       to be  outstanding  for  the  purpose  of  computing  the  percentage  of
       outstanding  securities  of the class  owned by such  person  but are not
       deemed to be  outstanding  for the purpose of computing the percentage of
       the class owned by any other person.
 (3)   Includes  550,491  shares  (adjusted as of June 30, 1998)  represented by
       options  exercisable  within 60 days, the 126,500 Sanoh Shares over which
       Mr.  Ovshinsky has voting power,  153,420  shares of Class A Common Stock
       which are convertible  into Common Stock,  and 750 shares  represented by
       warrants  exercisable within 60 days.  Under the rules and regulations of
       the Securities  and Exchange  Commission,  Mr.  Ovshinsky may be deemed a
       beneficial  owner of the shares of Common  Stock and Class A Common Stock
       owned by his wife,  Iris M.  Ovshinsky.  Such shares are not reflected in
       Mr. Ovshinsky's share ownership in this table.
 (4)   Includes  351,993  shares  (adjusted as of June 30, 1998)  represented by
       options exercisable within 60 days, 65,601 shares of Class A Common Stock
       which are  convertible  into Common Stock and 750 shares  represented  by
       warrants  exercisable  within 60 days. Under the rules and regulations of
       the Securities  and Exchange  Commission,  Dr.  Ovshinsky may be deemed a
       beneficial  owner of the shares of Common  Stock and Class A Common Stock
       owned  by her  husband,  Stanford  R.  Ovshinsky.  Such  shares  are  not
       reflected in Dr. Ovshinsky's share ownership in this table.
 (5)   Includes 323,000 shares represented by options exercisable within 60 days
       and 14,000 shares represented by warrants exercisable within 60 days.
 (6)   Includes 225,200 shares represented by options exercisable within 60 days
       and 6,000 shares represented by warrants exercisable within 60 days.
 (7)   Includes 68,928 shares represented by options exercisable within 60 days.
 (8)   Includes 20,000 shares represented by options exercisable within 60 days,
       and 17,885 shares of Common Stock held in a trust.
 (9)   Includes 18,980 shares represented by options exercisable within 60 days
       and 1,980 shares represented by warrants exercisable within 60 days.
 (10)  Includes 10,000 shares represented by options exercisable within 60 days.
 (11)  Includes 9,000 shares represented by options exercisable within 60 days.
 (12)  Includes 15,000 shares represented by options exercisable within 60 days.
 (13)  Includes 10,000 shares represented by options exercisable within 60 days.
 (14)  Includes 5,000 shares represented by options exercisable within 60 days.
 (15)  Includes 6,743 shares represented by options exercisable within 60 days.
 (16)  Includes 7,000 shares represented by options exercisable within 60 days.
 (17)  Includes 5,600 shares represented by options exercisable within 60 days.




                               -82-

<PAGE>



      Principal  Shareholders.  The following  table sets forth, as of September
 18, 1998, to the knowledge of the Company,  the beneficial holders of more than
 5% of the  Company's  Common  Stock  (see  footnotes  for  calculation  used to
 determine "percentage of class" category):



 Name and Address of                  Amount and Nature of         Percentage of
 Beneficial Holder                    Beneficial Ownership           Class(1)
--------------------                  --------------------         -------------

 Stanford R. and Iris M. Ovshinsky        1,260,079(2)                 9.14 %
 1675 West Maple Road
 Troy, Michigan 48084

---------------

 (1)  Under the rules and regulations of the Securities and Exchange Commission,
      shares of Common Stock  issuable  upon exercise of options and warrants or
      upon conversion of securities which are deemed to be beneficially owned by
      the  holder  thereof  are  deemed to be  outstanding  for the  purpose  of
      computing the percentage of  outstanding  securities of the class owned by
      such  person  but are not  deemed to be  outstanding  for the  purpose  of
      computing the percentage of the class owned by any other person.

 (2)  Includes  219,021  shares  of Class A Common  Stock  owned by Mr.  and Dr.
      Ovshinsky  (which shares are convertible at any time into Common Stock and
      will be deemed to be converted  into Common Stock on September  14, 1999),
      10,574  shares of Common  Stock  owned by Mr. and Dr.  Ovshinsky,  126,500
      shares of Sanoh Shares over which Mr. Ovshinsky has voting rights, 902,484
      (adjusted as of June 30, 1998) shares  represented by options  exercisable
      within 60 days and 1,500 shares represented by warrants exercisable within
      60 days held by Mr. and Dr. Ovshinsky.


 Item 13: Certain Relationships and Related Transactions
--------- ----------------------------------------------

     Canon/United Solar. In June, 1990, the Company formed United Solar, a joint
venture  with  Canon,  in which  Canon and the  Company  each own  49.98% of the
outstanding shares,  with the balance held by Mrs. Haru Reischauer,  a member of
the Company's  Board of Directors  until her death on September  23, 1998.  Mrs.
Reischauer was also a director of United Solar. In the year ended June 30, 1998,
the Company performed various laboratory, shop, patent and research services for
United Solar for which United Solar was charged  approximately  $315,000. In the
year ended June 30, 1998, United Solar billed ECD for approximately $180,000 for
work performed in accordance with the DOE PV
Bonus contract.

      GM Ovonic.  During the year ended June 30, 1998, the Company had revenues
of $4,871,000 for sales of battery packs, electrodes, machine building and other
services performed for GM Ovonic.

                               -83-

<PAGE>


      Sovlux Battery.   During the fiscal year ended June 30, 1998,  the Company
recorded revenues of $1,500,000 and received cash of $1,200,000 for license fees
relating to a technology transfer agreement.

     Miscellaneous.  Herbert  Ovshinsky,  Stanford R.  Ovshinsky's  brother,  is
employed by the Company as Director  of the  Production  Technology  and Machine
Building Division working principally in the design of manufacturing  equipment.
He received $122,712 in salary during the year ended June 30, 1998.

     HKO Media,  Inc., owned by Harvey Ovshinsky,  Stanford R.  Ovshinsky's son,
performed video production  services on behalf of the Company.  HKO Media,  Inc.
was paid  $99,030 by the Company for its  services  during the fiscal year ended
June 30, 1998.

      Compliance  with  Section  16(a) of the  Securities  Exchange Act of 1934.
 Section  16(a) of the  Securities  Exchange Act of 1934  requires the Company's
 directors  and officers to file  reports of ownership  and changes in ownership
 with  respect to the  securities  of the  Company and its  affiliates  with the
 Securities  and Exchange  Commission  and to furnish copies of these reports to
 the  Company.  Based on a review of these  reports and written  representations
 from the Company's  directors and officers  regarding the necessity of filing a
 report,  the Company  believes that during fiscal year ended June 30, 1998, all
 filing requirements were met on a timely basis.


                               -84-

<PAGE>


                                        PART IV

Item 14: Exhibits, Financial Statement Schedules and Report on Form 8-K
-------- --------------------------------------------------------------
<TABLE>
<S>                                                                                   <C>
(a)   1.    Financial statements:                                                     Page
                                                                                      ----

      The following financial statements are included in Part II, Item 8:

            Independent Auditors' Report.............................................. 37

            Consolidated balance sheets - June 30, 1998 and 1997...................... 38

            Consolidated statements of operations - years ended
                  June 30, 1998, 1997 and 1996........................................ 40

            Consolidated statements of stockholders' equity 
                   years ended June 30, 1998, 1997 and 1996........................... 41

            Consolidated statements of cash flows - years ended
                  June 30, 1998, 1997 and 1996........................................ 43

            Notes to consolidated financial statements................................ 45

</TABLE>

          Individual financial statements and schedules of the Company have been
omitted as permitted by the instructions.


(b)     Reports on Form 8-K

          No  reports  on Form 8-K were  filed  during  the last  quarter of the
period covered by this Report.


(c)     Exhibits

<TABLE>
<CAPTION>

                                                                                       Page or
                                                                                      Reference
                                                                                      ---------
<S>                                                                                      <C>
3.1     Restated Certificate of Incorporation filed September 29, 1967                   (a)

3.2     Certificate of Amendment to Certificate of Incorporation filed                   (b)
        February 24, 1998,  increasing authorized shares of the Company's Common
        Stock from 15,000,000 shares to 20,000,000 shares

3.3     Certificate of Incorporation of United Solar Systems Corp.                       (c)

3.4     Bylaws of United Solar Systems Corp.                                             (d)


                                      -85-
</TABLE>

<PAGE>


<TABLE>

<S>                                                                                      <C>
3.5     Certificate  of  Amendment to  Certificate  of  Incorporation  filed             (e)
        September 13, 1993  extending  voting  rights of the  Company's  Class A
        Common Stock

3.6     Bylaws in effect as of July 17, 1997                                             (f)

3.7     Amendment to Article VIII of the Bylaws effective as of February                 (g)
        19, 1998

4.1     Agreement  among the  Company,  Stanford  R.  Ovshinsky  and Iris M.             (h) 
        Ovshinsky  relating to the automatic  conversion of Class A Common Stock
        into the Company's  Common Stock upon the occurrence of certain  events,
        dated September 15, 1964

10.1    Patent License Agreement between the Company and Hitachi,                        (i)
        Ltd. dated October 29, 1984

10.2    Patent License Agreement dated September 10, 1985 between                        (j)
        the Company and Sony Corporation relating to optical memory
        technology

10.3    License Agreement effective as of June 18, 1985 between the                      (k)
        Company and Canon Inc., as restated on September 20, 1985

10.4    Non-Assertion Agreement dated June 16, 1986 between the                          (l)
        Company and Canon Inc.

10.5    Amendment to the Patent License Agreement dated December 5,                      (m)
        1986 between the Company and Matsushita Electric Industrial
        Co., Ltd.

10.6    Energy Conversion Devices, Inc. 1987 Stock Option and Incentive                  (n)
        Plan

10.7    Agreement dated October 24, 1983 between the Company and                         (o)
        Asahi Chemical Industry Co. Ltd.

10.8    License Agreement and Supplemental Understanding dated                           (p)
        February 10, 1989 between Varta Batterie AG and the Company
        and Ovonic Battery Company

10.9    Charter of the Soviet-American Joint Venture, Sovlux, dated                      (q)
        January 11, 1990

10.10   Agreement on the Establishment and Activity of the Soviet-                       (r)
        American Joint Venture, Sovlux, dated January 11, 1990

10.11   License and Joint R&D Agreement entered into as of February 20, 1990             (s) 
        by and between  Hitachi  Maxell,  Ltd.,  the Company and Ovonic  Battery
        Company, Inc.


</TABLE>

                                      -86-

<PAGE>


<TABLE>

<S>                                                                                      <C>
10.12   Joint Venture Agreement dated as of June 27, 1990 by and                         (t)
        between Canon Inc. and the Company filed confidentially
        pursuant to Rule 24b-2

10.13   Exclusive License Agreement dated July 6, 1990 made by and                       (u)
        between the Company and United Solar Systems Corp. filed
        confidentially pursuant to Rule 24b-2

10.14   Know-How Cross-License Agreement dated July 6, 1990 made by                      (v)
        and between Canon Inc., the Company and United Solar Systems
        Corp. filed confidentially pursuant to Rule 24b-2

10.15   Option License Agreement dated July 6, 1990 made by and                          (w)
        between the Company and Canon Inc. filed confidentially
        pursuant to Rule 24b-2

10.16   Option License Agreement dated July 6, 1990 made by and                          (x)
        between the Company and United Solar Systems Corp. filed
        confidentially pursuant to Rule 24b-2

10.17   Amended Master Agreement made and entered into by and                            (y)
        between the Company and Matsushita Electric Industrial Co., Ltd.
        dated January 24, 1991

10.18   Memory Patent License Agreement made and entered into by and                     (z)
        between the Company and Matsushita Electric Industrial Co., Ltd.
        dated January 24, 1991

10.19   Memory Patent License Agreement by and between the Company                       (aa)
        and Asahi Chemical Industry Co., Ltd. dated April 26, 1991

10.20   License Agreement by and between the Company, Ovonic Battery                     (bb)
        and Samsung Electronics Co., Ltd. dated June 10, 1991

10.21   License  Agreement  between the Company,  Ovonic  Battery and  Sylva             (cc)
        Industries Limited dated June 14, 1991

10.22   License Agreement by and between the Company and Ovonic                          (dd)
        Battery and Harding Energy Systems, Inc. dated August 28, 1991

10.23   License Agreement made as of November 20, 1991 by and                            (ee)
        between the Company, Ovonic Battery and Hyundai Motor
        Company

10.24   Agreement effective as of March 9, 1992 by and between the  Company,             (ff)
        Ovonic Battery and Mitsubishi Materials Corporation

10.25   Memory Patent License Agreement effective as of April 1, 1992 by                 (gg)
        and between the Company and Plasmon Limited


</TABLE>

                                      -87-

<PAGE>

<TABLE>

<S>                                                                                      <C>
10.26   Option License Agreement effective as of September 8, 1992 by                    (hh)
        and between the Company, Ovonic Battery and Sylva Industries
        Limited

10.27   Memorandum Agreement dated as of April 22, 1993 between the                      (ii)
        Company and Sanoh Industrial Co., Ltd. filed confidentially
        pursuant to Rule 24b-2

10.28   Memory Patent License Agreement dated as of February 3, 1993                     (jj)
        between the Company and Toshiba Corporation

10.29   Investment Agreement dated as of July 9, 1993 among the                          (kk)
        Company, United Solar Systems Corp. and Canon, Inc.

10.30   Amendment to Exclusive License Agreement dated as of July 22,                    (ll)
        1993 between the Company and United Solar Systems Corp. filed
        confidentially pursuant to Rule 24b-2

10.31   License Agreement dated as of July 22, 1993 between the                          (mm)
        Company and United Solar System Corp. filed confidentially
        pursuant to Rule 24b-2

10.32   Amendment  to Option  License  Agreement  dated as of July 22,  1993             (nn)
        between the Company and United Solar Systems Corp.

10.33   License  Agreement  between  the  Company  and a Japanese Battery                (oo) 
        Manufacturer filed confidentially pursuant to Rule 24b-2

10.34   Intercompany Services Agreement dated as of September 2, 1993                    (pp)
        between the Company and Ovonic Battery Company, Inc.

10.35   Amended and Restated License Agreement and Assignment                            (qq)
        dated as of September 2, 1993 between the Company and
        Ovonic Battery Company, Inc.

10.36   Intercompany Agreement Concerning Battery License dated as of                    (rr)
        September 2, 1993 between the Company and Ovonic Battery
        Company, Inc.

10.37   Executive Employment Agreement dated as of September 2, 1993                     (ss)
        between the Company, Ovonic Battery Company, Inc. and
        Stanford R. Ovshinsky

10.38   Executive Employment Agreement dated as of September 2, 1993                     (tt)
        between the Company and Stanford R. Ovshinsky

10.39   Stock Option Agreement by and between Ovonic Battery                             (uu)
        Company, Inc. and Stanford R. Ovshinsky dated as of
        November 18, 1993


</TABLE>

                                      -88-

<PAGE>

<TABLE>

<S>                                                                                      <C> 
10.40   Stock Option Agreement by and between the Company and                            (vv)
        Stanford R. Ovshinsky dated as of November 18, 1993

10.41   Stock Option Agreement by and between the Company and Iris                       (ww)
        M. Ovshinsky dated as of November 18, 1993

10.42   Stock Purchase Agreement by and between Sanoh Industrial Co.,                    (xx)
        Ltd., the Company and Ovonic Battery dated December 31, 1993

10.43   Stakeholder Agreement between Ovonic Battery Company, Inc.                       (yy)
        and General Motors Corporation for the organization of GM
        Ovonic L.L.C. dated June 14, 1994 filed confidentially pursuant to
        Rule 24b-2

10.44   Letter Agreement dated June 20, 1994 between Sanoh Industrial                    (zz)
        Co., Ltd. and the Company

10.45   Consumer  Battery License  Agreement  effective as of December 15,               (aaa)
        1994 by and between the Company,  Ovonic Battery Company, Inc. and Sanyo
        Electric Co., Ltd., filed confidentially pursuant to Rule 24b-2.

10.46   Consumer  Battery License  Agreement  effective as of December 20,               (bbb)
        1994 by and  between the  Company,  Ovonic  Battery  Company,  Inc.  and
        Toshiba Battery Co., Ltd., filed confidentially pursuant to Rule 24b-2.

10.47   Second Amendment to Sylva/ECD/OBC  License  Agreement effective as               (ccc)
        of January 1, 1995 by and between the Company,  Ovonic Battery  Company,
        Inc.  and Sylva  Industries,  Ltd.,  portions  of which  have been filed
        confidentially pursuant to Rule 24b-2.

10.48   Consumer battery agreement effective as of January 10, 1995 by and               (ddd)
        between the Company, Ovonic Battery Company, Inc. and a consumer battery
        manufacturer,  portions of which have been filed confidentially pursuant
        to Rule 24b-2.

10.49   Battery  License  Agreement  dated March 28,  1995 by and between                (eee)
        Ovonic Battery Company,  Inc. and Walsin Technology  Corp.,  portions of
        which have been filed confidentially pursuant to Rule 24b-2.

10.50   Amendment to License and Joint R&D Agreement effective as of                     (fff)
        March 31, 1995 by and between Hitachi Maxell, Ltd., the
        Company and Ovonic Battery Company, Inc., portions of which
        have been filed confidentially pursuant to Rule 24b-2.

10.51   Energy Conversion Devices, Inc. 1995 Non-Qualified Stock                         (ggg)
        Option Plan


</TABLE>

                                      -89-

<PAGE>


<TABLE>

<S>                                                                                      <C>
10.52   Memory Patent License Agreement by and between Toray                             (hhh)
        Industries, Inc. and the Company effective as of April 1, 1995

10.53   Amendment  Agreement  by and  between  Varta  Batterie  A.G.,  the               (iii)
        Company and Ovonic  Battery  effective  as of June 8, 1995,  portions of
        which have been filed confidentially pursuant to Rule 24b-2

10.54   Amendment to License  Agreement  by and between  Samsung  Display                (jjj)
        Devices Co., Ltd.,  the Company and Ovonic Battery  effective as of June
        23, 1995, portions of which have been filed  confidentially  pursuant to
        Rule 24b-2

10.55   Amendment Agreement by and between Eveready Battery Company, Inc.,               (kkk)
        the Company and Ovonic Battery  effective as of June 23, 1995,  portions
        of which have been filed confidentially pursuant to Rule 24b-2

10.56   License  Agreement  effective  as of  September  30,  1995 by and                (lll)
        between Ovonic Battery  Company,  Inc. and Sanoh  Industrial  Co., Ltd.,
        portions of which have been filed confidentially pursuant to Rule 24b-2

10.57   Technology Transfer Agreement effective as of July 1, 1995 by                    (mmm)
        and between Ovonic Battery Company, Inc. and Sanoh Industrial
        Co., Ltd.

10.58   Consumer Battery  Agreement  effective as of September 29, 1995 by               (nnn)
        and between Ovonic Battery Company, Inc. and Furukawa Battery Co., Ltd.,
        portions of which have been filed confidentially pursuant to Rule 24b-2

10.59   Battery License Agreement by and between Ovonic Battery                          (ooo)
        Company, Inc. and Asia Pacific Investment Co. dated January 4,
        1996, filed confidentially pursuant to Rule 24b-2

10.60   Amendment No. 2 to Development Agreement between United                          (ppp)
        States Advanced Battery Consortium, the Company and Ovonic
        Battery Company, Inc. effective March 8, 1996, portions of which
        have been filed confidentially pursuant to Rule 24b-2

10.61   Stock Purchase Agreement executed May 14, 1996, by and                           (qqq)
        among Honda Motor Co., Ltd., the Company and Ovonic Battery
        Company, Inc.


</TABLE>

                                      -90-

<PAGE>


<TABLE>

<S>                                                                                      <C>
10.62   Settlement  Agreement effective as of March 28, 1996, by and among               (rrr)
        the Company,  Ovonic Battery Company,  Inc., Saft America, Inc. ("Saft")
        and certain entities  affiliated with Saft,  portions of which have been
        filed confidentially pursuant to Rule
        24b-2

10.63   Executive Employment Agreement dated as of February 19, 1998                     99
        between the Company and Iris M. Ovshinsky

11.1    Computation  of Earnings Per Share  Attributable  to Common Stock                109

22.1    List of all direct and indirect  subsidiaries of the Company                     110

23.1    Consent of Independent  Auditors                                                 111

27.1    Financial  Data  Schedule                                                        112 

28.1    Decision and Order dated May 25, 1993                                            (sss)

28.2    Order dated August 18, 1993                                                      (ttt)

</TABLE>


                              Notes to Exhibit List

(a)         Filed as  Exhibit  2-A to the  Company's  Form 8-A and  incorporated
            herein by reference.

(b)         Filed as Exhibit 3.5 to the Company's Registration Statement on Form
            S-3  (Registration   No.  333-50749)  and  incorporated   herein  by
            reference.

(c)         Filed as Exhibit 3.9 to the Company's Annual Report on Form 10-K for
            the fiscal year ended June 30, 1990,  as amended,  and  incorporated
            herein by reference.

(d)         Filed as Exhibit 3.10 to the  Company's  Annual  Report on Form 10-K
            for  the  fiscal  year  ended  June  30,  1990,   as  amended,   and
            incorporated herein by reference.

(e)         Filed as Exhibit 3.11 to the  Company's  Annual  Report on Form 10-K
            for the fiscal year ended June 30, 1993 and  incorporated  herein by
            reference.

(f)         Filed as Exhibit 3.10 to the  Company's  Annual  Report on Form 10-K
            for  the  fiscal  year  ended  June  30,  1997,   as  amended,   and
            incorporated herein by reference.

(g)         Filed as Exhibit 3.7 to the Company's Registration Statement on Form
            S-3  (Registration   No.  333-50749)  and  incorporated   herein  by
            reference.



                                      -91-

<PAGE>



(h)         Filed as Exhibit  13-D to the  Company's  Registration  Statement on
            Form S-1  (Registration  No.  2-26772)  and  incorporated  herein by
            reference.

(i)         Filed as Exhibit 28.1 to the Company's Quarterly Report on Form 10-Q
            for the quarter ended September 30, 1984 and incorporated  herein by
            reference.

(j)         Filed as Exhibit 10.33 to the  Company's  Annual Report on Form 10-K
            for the  fiscal  year  June 30,  1986  and  incorporated  herein  by
            reference.

(k)         Filed as Exhibit 10.46 to the  Company's  Annual Report on Form 10-K
            for the fiscal June 30, 1986 and incorporated herein by reference.

(l)         Filed as Exhibit 10.6 to the  Company's  Current  Report on Form 8-K
            dated June 13, 1986 and incorporated herein by reference.

(m)         Filed as Exhibit 10.8 to the Company's Quarterly Report on Form 10-Q
            for the quarter ended December 31, 1986 and  incorporated  herein by
            reference.

(n)         Filed as Exhibit 10.110 to the Company's  Annual Report on Form 10-K
            for the fiscal year ended June 30, 1988 and  incorporated  herein by
            reference.

(o)         Filed as Exhibit 10.112 to the Company's  Annual Report on Form 10-K
            for the fiscal year ended June 30, 1988 and  incorporated  herein by
            reference.

(p)         Filed as Exhibit 10.71 to the  Company's  Annual Report on Form 10-K
            for  the  fiscal  year  ended  June  30,  1989,   as  amended,   and
            incorporated herein by reference.

(q)         Filed as Exhibit 10.82 to the  Company's  Annual Report on Form 10-K
            for  the  fiscal  year  ended  June  30,  1990,   as  amended,   and
            incorporated herein by reference.

(r)         Filed as Exhibit 10.83 to the  Company's  Annual Report on Form 10-K
            for  the  fiscal  year  ended  June  30,  1990,   as  amended,   and
            incorporated herein by reference.

(s)         Filed as Exhibit 10.92 to the  Company's  Annual Report on Form 10-K
            for  the  fiscal  year  ended  June  30,  1990,   as  amended,   and
            incorporated herein by reference.

(t)         Filed as Exhibit 10.94 to the  Company's  Annual Report on Form 10-K
            for  the  fiscal  year  ended  June  30,  1990,   as  amended,   and
            incorporated herein by reference.



                                      -92-

<PAGE>



(u)         Filed as Exhibit 10.96 to the  Company's  Annual Report on Form 10-K
            for  the  fiscal  year  ended  June  30,  1990,   as  amended,   and
            incorporated herein by reference.

(v)         Filed as Exhibit 10.97 to the  Company's  Annual Report on Form 10-K
            for  the  fiscal  year  ended  June  30,  1990,   as  amended,   and
            incorporated herein by reference.

(w)         Filed as Exhibit 10.98 to the  Company's  Annual Report on Form 10-K
            for  the  fiscal  year  ended  June  30,  1990,   as  amended,   and
            incorporated herein by reference.

(x)         Filed as Exhibit 10.99 to the  Company's  Annual Report on Form 10-K
            for  the  fiscal  year  ended  June  30,  1990,   as  amended,   and
            incorporated herein by reference.

(y)         Filed as Exhibit 28.1 to the  Company's  Current  Report on Form 8-K
            dated February 6, 1991 and incorporated herein by reference.

(z)         Filed as Exhibit 28.2 to the  Company's  Current  Report on Form 8-K
            dated February 6, 1991 and incorporated herein by reference.

(aa)        Filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
            for the  quarter  ended March 31,  1991 and  incorporated  herein by
            reference.

(bb)        Filed as Exhibit 10.114 to the Company's  Annual Report on Form 10-K
            for  the  fiscal  year  ended  June  30,  1991,   as  amended,   and
            incorporated herein by reference.

(cc)        Filed as Exhibit 10.115 to the Company's  Annual Report on Form 10-K
            for  the  fiscal  year  ended  June  30,  1991,   as  amended,   and
            incorporated herein by reference.

(dd)        Filed as Exhibit 10.116 to the Company's  Annual Report on Form 10-K
            for  the  fiscal  year  ended  June  30,  1991,   as  amended,   and
            incorporated herein by reference.

(ee)        Filed as Exhibit 10.72 to the  Company's  Annual Report on Form 10-K
            for  the  fiscal  year  ended  June  30,  1992  ,  as  amended,  and
            incorporated herein by reference.

(ff)        Filed as Exhibit 10.73 to the  Company's  Annual Report on Form 10-K
            for the quarter  ended June 30, 1992, as amended,  and  incorporated
            herein by reference.


                                      -93-

<PAGE>



(gg)        Filed as Exhibit 10.75 to the  Company's  Annual Report on Form 10-K
            for  the  fiscal  year  ended  June  30,  1992,   as  amended,   and
            incorporated herein by reference.

(hh)        Filed as Exhibit 10.81 to the  Company's  Annual Report on Form 10-K
            for  the  fiscal  year  ended  June  30,  1992,   as  amended,   and
            incorporated herein by reference.

(ii)        Filed as Exhibit 10.86 to the  Company's  Annual Report on Form 10-K
            for the fiscal year ended June 30, 1993 and  incorporated  herein by
            reference.

(jj)        Filed as Exhibit 10.87 to the  Company's  Annual Report on Form 10-K
            for the fiscal year ended June 30, 1993 and  incorporated  herein by
            reference.

(kk)        Filed as Exhibit 10.90 to the  Company's  Annual Report on Form 10-K
            for the fiscal year ended June 30, 1993 and  incorporated  herein by
            reference.

(ll)        Filed as Exhibit 10.91 to the  Company's  Annual Report on Form 10-K
            for the fiscal year ended June 30, 1993 and  incorporated  herein by
            reference.

(mm)        Filed as Exhibit 10.92 to the  Company's  Annual Report on Form 10-K
            for the fiscal year ended June 30, 1993 and  incorporated  herein by
            reference.

(nn)        Filed as Exhibit 10.93 to the  Company's  Annual Report on Form 10-K
            for the fiscal year ended June 30, 1993 and  incorporated  herein by
            reference.

(oo)        Filed as Exhibit 10.94 to the  Company's  Annual Report on Form 10-K
            for the fiscal year ended June 30, 1993 and  incorporated  herein by
            reference.

(pp)        Filed as Exhibit 10.96 to the  Company's  Annual Report on Form 10-K
            for the fiscal year ended June 30, 1993 and  incorporated  herein by
            reference.

(qq)        Filed as Exhibit 10.97 to the  Company's  Annual Report on Form 10-K
            for the fiscal year ended June 30, 1993 and  incorporated  herein by
            reference.

(rr)        Filed as Exhibit 10.98 to the  Company's  Annual Report on Form 10-K
            for the fiscal year ended June 30, 1993 and  incorporated  herein by
            reference.

(ss)        Filed as Exhibit 10.100 to the Company's  Annual Report on Form 10-K
            for the fiscal year ended June 30, 1993 and  incorporated  herein by
            reference.

(tt)        Filed as Exhibit 10.101 to the Company's  Annual Report on Form 10-K
            for the fiscal year ended June 30, 1993 and  incorporated  herein by
            reference.



                                      -94-

<PAGE>



(uu)        Filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
            for the quarter ended September 30, 1993 and incorporated  herein by
            reference.

(vv)        Filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q
            for the quarter ended September 30, 1993 and incorporated  herein by
            reference.

(ww)        Filed as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q
            for the quarter ended September 30, 1993 and incorporated  herein by
            reference.

(xx)        Filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
            for the quarter ended December 31, 1993 and  incorporated  herein by
            reference.

(yy)        Filed as Exhibit 10.75 to the  Company's  Annual Report on Form 10-K
            for the fiscal year ended June 30, 1994 and  incorporated  herein by
            reference.

(zz)        Filed as Exhibit 10.76 to the  Company's  Annual Report on Form 10-K
            for the fiscal year ended June 30, 1994 and  incorporated  herein by
            reference.

(aaa)       Filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
            for the quarter ended December 31, 1994 and  incorporated  herein by
            reference.

(bbb)       Filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q
            for the quarter ended December 31, 1994 and  incorporated  herein by
            reference.

(ccc)       Filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
            for the  quarter  ended March 31,  1995 and  incorporated  herein by
            reference.

(ddd)       Filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q
            for the  quarter  ended March 31,  1995 and  incorporated  herein by
            reference.

(eee)       Filed as Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q
            for the  quarter  ended March 31,  1995 and  incorporated  herein by
            reference.

(fff)       Filed as Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q
            for the  quarter  ended March 31,  1995 and  incorporated  herein by
            reference.

(ggg)       Filed as Exhibit 10.77 to the  Company's  Annual Report on Form 10-K
            for the fiscal year ended June 30, 1995 and  incorporated  herein by
            reference.

(hhh)       Filed as Exhibit 10.78 to the  Company's  Annual Report on Form 10-K
            for the fiscal year ended June 30, 1995 and  incorporated  herein by
            reference.

(iii)       Filed as Exhibit 10.79 to the  Company's  Annual Report on Form 10-K
            for the fiscal year ended June 30, 1995 and  incorporated  herein by
            reference.


                                      -95-

<PAGE>



(jjj)       Filed as Exhibit 10.80 to the  Company's  Annual Report on Form 10-K
            for the fiscal year ended June 30, 1995 and  incorporated  herein by
            reference.

(kkk)       Filed as Exhibit 10.81 to the  Company's  Annual Report on Form 10-K
            for the fiscal year ended June 30, 1995 and  incorporated  herein by
            reference.

(lll)       Filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
            for the quarter ended September 30, 1995 and incorporated  herein by
            reference.

(mmm)       Filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q
            for the quarter ended September 30, 1995 and incorporated  herein by
            reference.

(nnn)       Filed as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q
            for the quarter ended September 30, 1995 and incorporated  herein by
            reference.

(ooo)       Filed as Exhibit 28.1 to the  Company's  Current  Report on Form 8-K
            dated January 4, 1996 and incorporated herein by reference.

(ppp)       Filed as Exhibit 10.72 to the  Company's  Annual Report on Form 10-K
            for the fiscal year ended June 30, 1996 and  incorporated  herein by
            reference.

(qqq)       Filed as Exhibit 10.73 to the  Company's  Annual Report on Form 10-K
            for the fiscal year ended June 30, 1996 and  incorporated  herein by
            reference.

(rrr)       Filed as Exhibit 10.74 to the  Company's  Annual Report on Form 10-K
            for the fiscal year ended June 30, 1996 and  incorporated  herein by
            reference.

(sss)       Filed as Exhibit 28.3 to the  Company's  Annual  Report on Form 10-K
            for the fiscal year ended June 30, 1993 and  incorporated  herein by
            reference.

(ttt)       Filed as Exhibit 28.4 to the  Company's  Annual  Report on Form 10-K
            for the fiscal year ended June 30, 1993 and  incorporated  herein by
            reference.





                                      -96-

<PAGE>



                                   SIGNATURES

       Pursuant  to the  requirements  of Section 13 or 15(d) 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.



                                       By:/S/Stanford R. Ovshinsky
                                       ----------------------------------------
                                          Stanford R. Ovshinsky,
                                          President and Chief Executive Officer
                                          (Principal Executive Officer)


Dated: October 8, 1998
---------------------------

       Pursuant to the requirements of the Securities Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
Registrant and in the capacities and on the dates indicated:



/s/ Stanford R. Ovshinsky    President, Chief Executive       October 8, 1998
-------------------------    Officer and Director             ------------------
Stanford R. Ovshinsky        (Principal Executive Officer)



/s/ Stephan W. Zumsteg       Treasurer                        October 8, 1998
-------------------------                                     ------------------
Stephan W. Zumsteg



/s/ Robert C. Stempel        Director                         October 8, 1998
-------------------------    (Chairman of the Board)          ------------------
Robert C. Stempel



/s/ Nancy M. Bacon           Director                         October 8, 1998
-------------------------                                     ------------------
Nancy M. Bacon


                                      -97-

<PAGE>



/s/ Umberto Colombo          Director                         October 8, 1998
-------------------------                                     ------------------
Umberto Colombo



/s/ Hellmut Fritzsche        Director                         October 8, 1998
-------------------------                                     ------------------
Hellmut Fritzsche



/s/ Joichi Ito               Director                         October 8, 1998
-------------------------                                     ------------------
Joichi Ito



/S/ Seymour Liebman          Director                         October 8, 1998
-------------------------                                     ------------------
Seymour Liebman                                               



/s/ Walter J. McCarthy, Jr.  Director                         October 8, 1998
--------------------------                                    ------------------
Walter J. McCarthy, Jr.                                       



/s/ Florence I. Metz         Director                         October 8, 1998
-------------------------                                     ------------------
Florence I. Metz                                              



/s/ Iris M. Ovshinsky        Director                         October 8, 1998
-------------------------                                     ------------------
Iris M. Ovshinsky                                             



/s/ Nathan J. Robfogel       Director                         October 8, 1998
-------------------------                                     ------------------
Nathan J. Robfogel



/s/ Stanley K. Stynes        Director                         October 8, 1998
-------------------------                                     ------------------
Stanley K. Stynes



                                      -98-

<PAGE>


                                   EXHIBIT INDEX


Exhibit No.                               Description
-----------                               -----------

10.63                          Executive Employment Agreement dated as of 
                               February 19, 1998 between the Company and Iris M.
                               Ovshinsky

11.1                           Computations of Earnings (Losses) per share

22.1                           List of all direct and indirect subsidiaries
                               of the Company

23.1                           Consent of Independent Auditors

27.1                           Financial Data Schedule