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

                               FORM 10-K/A (Amendment No. 1)

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

For the fiscal year ended                June 30, 1997
                         ---------------------------------------------------
                                              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
12, 1997) was approximately $173 million.  As of September 12, 1997, there were
219,913 shares of the Company's  Class A Common Stock and  10,608,763  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.  The complex  chemical and structural  composition of Ovonic materials
makes 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,  and
has developed  proprietary  products and technology  which have  established its
leadership in three industry sectors: non-fossil fuel energy generation,  energy
storage and information.  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 designing and building production machinery.
The Company has  recognized  the need to protect its technology and maintains an
extensive  patent  portfolio  consisting  currently of 352 issued  United States
patents and 825 foreign  counterparts.  The patent portfolio  includes  numerous
basic and fundamental  patents covering  amorphous and related materials as well
as patents covering products,  including a recently-issued basic patent in Japan
recognizing the fundamentals  that make nickel metal hydride ("NiMH")  batteries
commercially feasible, and production technologies.

     The  Company   conducts  its  battery   business  through  its  93.5%-owned
subsidiary,  Ovonic Battery Company,  Inc. ("Ovonic Battery").  Sanoh Industrial
Co., Ltd. ("Sanoh") and

                                -2-

<PAGE>



Honda  Motor  Company,   Ltd.  ("Honda")  own  approximately  6.5%  of  the
outstanding  stock of Ovonic  Battery.  Sanoh has been a  shareholder  in Ovonic
Battery since 1993 and Honda acquired its interest in 1996.

      The  Company  formed  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 batteries for electric  vehicle ("EV")  applications.
Ovonic  Battery  owns a 40%  equity  interest  in GM Ovonic and  General  Motors
Corporation ("General Motors") owns a 60% equity interest. 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. Mrs. Haru
Reischauer, a director of both the Company and United Solar, owns the balance of
the outstanding shares of United Solar.

     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 compact disk-rewritable ("CD-RW") systems, has been chosen for use in
the emerging digital versatile disk-random access memory ("DVD-RAM")  rewritable
optical disk systems. The international standards for DVD-RAM and DVD-Rewritable
("DVD-RW") 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"),  Toshiba Corporation  ("Toshiba"),  Asahi Chemical Industry Co.,
Ltd. ("Asahi"),  Hitachi,  Ltd. ("Hitachi"),  Plasmon Limited ("Plasmon"),  Sony
Corporation ("Sony"), Toray Industries, Inc. ("Toray") and TDK Corporation
("TDK").

      The Company is also developing  thin-film  semiconductor memory technology
which can have a wide  variety  of  computer  applications  and is  intended  to
replace conventional DRAM, SRAM 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 has  invented and  developed  Ovonic  materials,  products and
production  technology for use in the fields of energy,  information  technology
and  synthetic  materials.  The  Company's  goals have been to  develop  unique,
proprietary  and  cost-effective  products to address  important  environmental,
energy and new materials needs.

Energy Generation and Storage.

      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   photovoltaic
technologies  continue to gain worldwide  recognition,  particularly in light of
recent  concerns  about  air  pollution,  global  climate  change,  ozone  layer
depletion,  dependence on imported oil and related concerns  involving  military
action  and   international   stability,   balance  of  payments   and  economic
development.

      Rechargeable  Batteries.  The  Company's  Ovonic  Battery  subsidiary  has
developed a 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  47  issued  United  States  patents  and  214  foreign
counterparts,  including  a  recently-issued  patent  in  Japan  specifying  the
fundamentals that make NiMH batteries commercially  feasible.  Additional United
States and foreign patent  applications are in various stages of preparation and
prosecution.

      The Ovonic NiMH batteries are being  manufactured  and sold throughout the
world under licensing and joint venture arrangements.  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 can be
made in a wide range of sizes and have a wide range of  applications,  including
hand-held  consumer  electronics,  power tools,  utility  applications,  EVs and
hybrid electric  vehicles  ("HEVs"),  including  electric two- and three-wheeled
vehicles, and industrial batteries.

     During  the  fiscal  year  ended June 30,  1997,  Ovonic  Battery  produced
negative and positive electrodes for sale to certain licensees for assembly into
complete batteries for consumer, EV and HEV applications.  Additionally,  Ovonic
Battery  has  produced  batteries  for EV and HEV  applications  engineered  and
designed for volume production. The Ovonic

                                -4-

<PAGE>



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.

      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.  The  push  toward  portable   electronic   products--such   as  cellular
telephones,  portable  computers and cordless  tools--has created a large market
for  rechargeable  batteries and has fueled research to investigate  new, 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  have an energy density of over 80 watt-
hours/kilogram.  Technology  improvements have demonstrated an energy density of
over 95  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 from Ni-Cd  batteries  represents a serious
health problem,  if improperly  disposed of, 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 Asia Pacific Investment
Co. ("APIC"),  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
applications by three consumer battery manufacturers based in Japan.


                                -5-

<PAGE>



      Electric and Hybrid Electric 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.

      Several 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 has announced that Ovonic NiMH batteries  manufactured  by GM Ovonic will
become available  in limited quantities in the EV1  and the Chevrolet S-10 elec-
tric pickup in late 1997.  Since Ovonic NiMH battery technology provides two to
two-and-a-half times the driving  range as the same mass of lead acid batteries,
several major automobile  manufacturers are  testing and  validating Ovonic NiMH
battery technology as they prepare to commercialize and market EVs and HEVs.

      Honda, in addition to its investment in Ovonic  Battery,  used Ovonic NiMH
batteries in a test fleet of EVs during 1997 and Hyundai Motor Co. Ltd. of Korea
("Hyundai") introduced a test vehicle in 1997 powered by Ovonic NiMH batteries.

      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  currently  engaged  in  low-volume  manufacturing  of NiMH
batteries at its facility in Troy,  Michigan.  Production  volume is expected to
increase during 1998 at a larger facility.

      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,  Varta, APIC, GP Batteries and Sovlux.  Hyundai,  GP Batteries and
Sovlux 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.

      The United States Advanced  Battery  Consortium  ("USABC"),  a partnership
among Ford Motor Company, General Motors and Chrysler Corporation,  with funding
participation  from the  United  States  Department  of Energy  ("DOE")  and the
Electric  Power  Research  Institute,  was formed in 1991 to  develop  promising
battery technologies for EVs. In 1992,

                                -6-

<PAGE>



Ovonic Battery was awarded a cost-sharing contract by USABC for development of a
"mid-term"  NiMH  battery for EVs.  This  contract has been amended and extended
several  times since 1992 and was completed in May 1996.  Ovonic  Battery and GM
Ovonic have also  collaborated  in a program funded by USABC to reduce the costs
of manufacturing NiMH EV batteries.

      During the past year,  Ovonic  Battery  developed a "Family of  Batteries"
that covers the full  spectrum  of EVs and HEVs,  including  bicycles,  two- and
three-wheel 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-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 ("PNGV"),  a program among Chrysler,  Ford, General Motors and the U.S.
Department of Commerce. Ovonic NiMH batteries tested for HEVs have the following
present  performance  characteristics  with  the  ability  to be  increased,  if
desired:

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

      USABC 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 been  designing  and  building  cells and  modules  for  independent
evaluation  by  USABC  as well as  testing  advanced  prototype  batteries  with
favorable results.


                                -7-

<PAGE>



<TABLE>
<CAPTION>
                              USABC Mid-Term
                              Major Technical                 Current Ovonic               Next Generation Battery
Characteristic                Goals                           Performance(1)               Performance(2)(3)
--------------                ---------------                 --------------               ------------------------ 
<S>                           <C>                             <C>                          <C>  
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)

----------
</TABLE>


(1)   Indicates  independently  verified performance with the exception of life,
      which is  projected  based on cycle  life  results  and  history  of small
      portable  batteries  using the same materials and  manufacturing  process.
      Based  on  this  battery  performance,   purpose-built  EVs  have  already
      achieved:

              -    More than 370 miles on a single charge
              -    0 to 60 mph acceleration in 8 seconds
              -    Battery lifetime projected  to be equal to the life of
                   the vehicle
              -    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 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.



     EVs  powered by Ovonic  NiMH  batteries  continue  to set  records  and win
electric vehicle races. The Ovonic NiMH battery powered the first-place  winning
Solectria  Force  electric  vehicle  to a range of 249 miles on a single  charge
during  the  May  1997  American  Tour  de Sol  race,  outdistancing  all  other
production  competitors  and surpassing  the  year-earlier  first-place  winning
range, also set with the Ovonic NiMH battery.

      In July 1997,  the Chevrolet  S-10 electric  pickup,  powered by GM Ovonic
NiMH  batteries,  set a record for  electric  vehicles in winning the Pikes Peak
International  Hill  Climb in 15 minutes  and 32  seconds,  surpassing  previous
records.

      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

                                -8-

<PAGE>



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  APIC,  an  affiliate  of  Taiwan's  largest
industrial conglomerate, the Formosa Plastics Group.

      Sanoh,  a  licensee  in Japan,  is  accelerating  its  production  of NiMH
batteries for electric scooter applications. Among Sanoh's customers are several
large  manufacturers of electric  scooters and bicycles such as Honda and Yamaha
Motor Co. Ltd., who have announced plans to introduce new products.

      Ovonic  Battery  and Sanoh are also  engaged  in the  planning  of a joint
venture  to  manufacture  NiMH  batteries  for two- and  three-wheeled  electric
vehicles in Europe.

      Other Large 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.

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 American joint
venture,   United  Solar,  are  leaders  in  thin-film  amorphous   photovoltaic
technology  and  have  pioneered  a  unique   approach  to  the  manufacture  of
photovoltaic   products.   Compared  to  PV   products   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. 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.

      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

                                -9-

<PAGE>



processing  steps are needed to  manufacture  the modules.  Crystalline  silicon
solar cell modules also are bulky and break easily.

      The Company has developed  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 50 to 100
times less, thereby  significantly  reducing material cost. 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.

      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  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 typically 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's 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 $55 million in United Solar,  provided $10 million
in loan  guarantees  and in 1997  entered  into an  agreement  with United Solar
whereby, in

                               -10-

<PAGE>



consideration  of  an $11.5 million  payment  to  United  Solar,  Canon has been
permitted,  in addition to its rights under a 1986  agreement  between Canon and
the  Company  whereby  Canon  was  granted   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.

      The Company and United Solar have been  producing a variety of PV products
and selling PV modules and systems throughout the world.  United Solar presently
manufactures   products  for  remote  power  applications,   telecommunications,
PV-powered lighting systems,  building-integrated  photovoltaic systems,  marine
applications and grid-integrated  systems at its facilities in Troy,  Michigan.
The Company and United  Solar have also  developed,  and are making 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 and 1997, United Solar upgraded its manufacturing facility and has
more than tripled its  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  production  capacity of solar  cells  capable of  producing 5 megawatts  of
electricity on an annual basis.

      In 1996,  United Solar received the Popular Science's 1996 "Best of What's
New" Grand Award and, in 1997,  received the Discover Magazine's 1997 Technology
Innovation Award for its flexible solar shingles.

      In 1990,  the Company also formed Sovlux,  a joint venture with Kvant,  to
manufacture the Company's  photovoltaic  products 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  has agreed to provide  operating  capital to enable
Sovlux to  commence  production  of  photovoltaic  products  as well as  provide
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  has 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
had no  significant  activity  in 1997 due to  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

                               -11-

<PAGE>



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. The building industry offers a large opportunity for PV
applications.  The Company  believes that the PV roofing  products  represent an
important  opportunity  for  large-volume  production  and sale to the  building
industry, both domestically and abroad.

      Other Energy  Technologies.  The Company is  conducting  various  research
programs  sponsored  by  U.S.  Government  agencies  to  continue  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.

      Under a DOE-sponsored  program, the Company is investigating 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.

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  (active  matrix  flat panel
displays); 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  has  licensed  its  phase-change
rewritable  optical memory technology to Matsushita,  Toshiba,  Plasmon,  Asahi,
Hitachi,  Sony,  Toray and TDK.  The  license  agreements  provide  for  royalty
payments  to the Company  based upon sales of  phase-change  rewritable  optical
memory disks.

      The   international   standards   designed  by  the  major   optical  disk
manufacturers  specify the use of  phase-change  materials.  Under its Panasonic
brand name, Matsushita introduced PD function disk drive in mid 1995, which uses
rewritable  optical  disk media that employ the  Company's  Ovonic  phase-change
rewritable optical memory technology. The Matsushita drive can read conventional
CD-ROM  disks  now  widely  used  for  software   distribution   and  multimedia
applications  as well as read and write to  650-megabyte  capacity  phase-change
optical  memory  disks.  Toray,  Plasmon and Asahi have been  manufacturing  and
selling PD storage  media  which have been met with  enthusiastic  industry  and
consumer acceptance. Commercial manufacturing and sales of CD-RW

                               -12-

<PAGE>



storage media, also incorporating Ovonic phase-change  rewritable optical memory
technology, began in mid-1997.

      An even higher  capacity data storage  rewritable  optical memory product,
the DVD- RAM disk, is planned for commercial introduction in late calendar 1997.
The Company's optical memory licensees now producing PD and CD-RW media, as well
as other storage media  manufacturers,  are expected to become  manufacturers of
DVD-RAM  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.

      The Company is working toward commercialization of its technology for high
storage  capacity  rewritable  optical  memory  material  produced  by  low-cost
continuous web- embossing processes.  In a related activity,  the Company, along
with  several  industry  partners,  is  participating  in a U.S.  Department  of
Commerce,   National   Institute  of  Standards  and   Technology,   multi-year,
multi-million  dollar  cost-sharing  program for the  development  of tape-based
rapid access  affordable  mass storage  products.  The Company's  optical memory
materials  technology is being  utilized in this program due to its high storage
capacity and low-cost manufacturability.

      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 that eliminate the data
transfer  bottlenecks  caused by the  current  computer  memory  hierarchy.  The
Company believes its Ovonic 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.

      While the  Company  licensed  its  previous  flat panel  display and image
processing  technology to its former  subsidiary,  OIS Optical Imaging  Systems,
Inc., the Company intends to continue its activities in this field employing new
technology.


                               -13-

<PAGE>



Synthetic Materials.

      The  Company has  developed  a new  low-cost,  transparent  vapor  barrier
coating for flexible  plastic  beverage  containers  and  packaging  films.  The
Company  has  also  developed  and  demonstrated  manufacturing  technology  and
processes  for  depositing  these  coatings  with  cost-effective,  roll-to-roll
continuous  production.  The  Company's  vapor  barrier  coating  technology  is
environmentally  friendly  and can be used to  extend  the  shelf  life of food,
beverages,  pharmaceutical and other types of sensitive commercial products. The
vapor  barrier  coating  production  process  deposits  an  amorphous  film that
significantly  improves the barrier  properties of commodity  polymer films. The
Company  has  expanded  the  scope  of  this   technology  to  optical   coating
applications.

      In April 1997, the Company entered into a license agreement with Southwall
Technologies,  Inc., a leading supplier of high performance coatings on flexible
substrates.  This royalty-bearing  license also provides for a joint development
program for  high-volume  production  of  high-performance  coatings on flexible
substrates.

        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.

                     RESEARCH AND DEVELOPMENT

     The nature of the  Company's  business has  required,  and will continue to
require,  expenditures  for research and  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.


                               -14-

<PAGE>



      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, 1997.  All of the Company's  research and  development  costs are
expensed as incurred.

                               Direct Research and Development Expenditures

<TABLE>
<CAPTION>
                                              Year Ended June 30,
                       ----------------------------------------------------------------
                       1997          1996           1995          1994          1993
                       ----          ----           ----          ----          ----
<S>               <C>            <C>            <C>            <C>           <C>    
Sponsored         $ 4,996,632    $ 6,732,570    $ 9,154,263    $6,927,883    $5,306,030
by Licensees,
Government
Agencies and
Industrial Partners

Sponsored by
the Company       $11,735,861      6,214,848     2,808,219      1,357,341     1,958,328
                  -----------    -----------    ----------     ----------     ---------

                  $16,732,493    $12,947,418   $11,962,482     $8,285,224    $7,264,358
                  ===========    ===========   ===========     ==========    ========== 

</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.

                  PATENTS AND PROPRIETARY RIGHTS

      Since its founding in 1960, the Company's research and development efforts
have focused on amorphous,  disordered  and related  materials.  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 352 United States  patents and 825 foreign  counterparts,
including a recently  issued patent in Japan  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.


                               -15-

<PAGE>



      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. See "Item 3: Legal  Proceedings" on page 22 of this
Report.  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 48 of
this Report.

                              BACKLOG

      The Company has a  $3,700,000  backlog of orders as of August 31, 1997 for
electrodes.  The backlog at August 31, 1996 was  $6,300,000  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 include its products,
production technology,  extensive patent portfolio,  inventions and research and
development  activities.  In the areas of consumer  rechargeable  batteries,  EV
batteries,  large batteries,  photovoltaics  and information  technologies,  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.

      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 staffs 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.



                               -16-

<PAGE>



                             EMPLOYEES

      As of  September  12,  1997,  the  Company  had a total of 345  employees,
including  183  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.

      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

                               -17-

<PAGE>



products  using  similar   technologies   or  processes.   See  "Item  3:  Legal
Proceedings."  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.






                               -18-

<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.

                               -19-

<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.

      Phase-Change  Rewritable - an optical  memory  technology 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.

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

      SRAM (Static  Random  Access  Memory) - A type of very fast  semiconductor
      memory  device  used for high speed  transfers  of  relatively  small data
      blocks to the main processor in a computer.

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

      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.

      Vapor Permeation  Barrier Coating - a coating that prevents the passage of
      oxygen and water vapor.



                               -20-

<PAGE>



Item 2: Properties

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


                                       No. Of                  Date
                                       Square                  Leased Or
            Location                   Feet                    Acquired
            --------                   ----                    --------
 
The Company:
1675 West Maple Road, Troy, MI         31,550                   October 1965
1050 East Square Lake Road,            11,000                   August 1981
    Bloomfield Township, MI
1621 Northwood, Troy, MI               24,900                   January 1991
Ovonic Battery:
1864 Northwood, Troy, MI               12,480                   March 1982
1826 Northwood, Troy, MI               12,480                   October 1982
1707 Northwood, Troy, MI               27,400                   October 1992
1334 Maplelawn, Troy, MI               28,100                   December 1994
1414 Combermere, Troy, MI               9,870                   February 1997
                                   ----------
            TOTAL                     157,780
                                   ========== 

      The  foregoing  properties,  which  are  generally  of  brick  and  block
construction,  are devoted primarily to the product development,  pre-production
and production activities and administrative and other operations of the Company
and Ovonic  Battery.  The Company's  Bloomfield  Township  facility is currently
leased to a third party on a  month-to-month  basis as an  educational  facility
with the Company retaining rights to use this facility. Management believes that
the above facilities are generally adequate for present operations.

      The Company and Ovonic Battery  utilize a variety of testing,  analytical,
research and development and production  equipment in their  operations.  During
the  fiscal  year ended June 30,  1997,  the  Company  and  Ovonic  Battery  had
$3,600,000 of capital  expenditures,  primarily for expansion and improvement of
electrode  manufacturing,  laboratory  equipment,   environmental  and  safety
equipment  and a  pilot  nickel  hydroxide  manufacturing  plant.  The  testing,
analytical  and research and  development  equipment  used in the  Company's and
Ovonic Battery's development programs are being fully utilized.



                               -21-

<PAGE>



Item 3: Legal Proceedings

      The Company is involved  in  litigation  initiated  by MBI,  Toyota  Motor
Corporation  and  Toyota  Motor  Sales,  U.S.A.,  Inc.  (collectively  "Toyota")
concerning  certain  Ovonic  Battery U.S.  patents which MBI thought the Company
might assert against it, including U.S. Patent No. 5,348,822 (the "'822 Patent")
covering  advanced  electrodes for NiMH batteries.  MBI and Toyota initiated the
litigation  seeking  to  have  the  Ovonic  Battery  patents  declared  invalid,
unenforceable and/or not infringed. Prior to the initiation of the litigation by
MBI and Toyota,  the Company had been engaged in discussions  with MBI regarding
electric  vehicle  batteries  and had informed MBI that the Company  intended to
enforce  its  patents.  Toyota  is  involved  in the  litigation  in view of the
importation and use in the United States of Toyota  electric  vehicles using MBI
NiMH batteries.

      The Company filed a counterclaim charging MBI and Toyota with infringement
of the '822 Patent.  After an extended  delay of about one year after the filing
of the action,  MBI produced  samples of a nickel metal hydride  battery  design
which it represented is the only nickel metal hydride  battery design it intends
to sell in the  United  States for  electric  vehicle  propulsion  applications.
Testing by the Company's  experts of these samples  produced by MBI has revealed
them to be of a  conventional  design which does not utilize any of the advanced
features covered by the '822 Patent.

      The Company has therefore moved to dismiss the litigation initiated by MBI
based on MBI's  representations that the design embodied in the samples produced
by MBI is the only NiMH  electric  vehicle  battery  design which MBI intends to
sell in the United  States and the  Company's  finding that this design does not
utilize any of the advanced features covered by the '822 Patent.

      MBI has opposed in part the  Company's  motion to dismiss the case and has
asked the Court to award costs and attorneys' fees to MBI. The Company  believes
that MBI's  opposition to the Company's  motion to dismiss and MBI's request for
damages and attorneys'  fees are without merit and that the Company's  motion to
dismiss the case will ultimately be granted.  The Company has  cross-claimed for
an award of its costs and attorneys'  fees based on, among other matters,  MBI's
prolonged delay in the production of its battery samples.

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



                               -22-

<PAGE>


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

      Not applicable.

                               -23-

<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  As  of  September  12,  1997,  there  were
approximately  2860 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:

<TABLE>
<CAPTION>

                                                     For the Fiscal Year Ended June 30
                                                          (in Dollars Per Share)


                                             1998                  1997                  1996
                                         High     Low          High     Low          High     Low
                                         ----     ---          ----     ---          ----     --- 
<S>                                     <C>      <C>          <C>      <C>          <C>      <C>
First Quarter                           $17.00   $10.50       $22.75   $15.50       $20.125  $16.25
 through
 September 12,
 1997

Second Quarter                                                $17.00   $12.375      $18.875  $15.625

Third Quarter                                                 $15.50   $11.25       $22.875  $16.25

Fourth Quarter                                                $17.25   $  7.25      $30.625  $19.50

</TABLE>


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



                               -24-

<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:                                  1997         1996         1995         1994         1993
---------                                  ----         ----         ----         ----         ----

<S>                                   <C>           <C>          <C>          <C>          <C>        
Product sales                         $ 14,897,144  $14,828,133  $10,298,019  $ 7,366,668  $ 2,731,342
Royalties                                1,394,872    1,321,117    1,205,036      228,630      103,224
Revenues from R&D agreements             5,738,877    7,349,195   11,365,708    9,608,224    6,773,192
Revenues from license agreements         5,828,648   12,524,262   17,931,852    1,925,000    2,475,000
Other                                    1,718,933    1,289,667      543,143      228,853      315,620
                                      ------------  -----------  -----------  -----------  -----------
   TOTAL REVENUES                       29,578,474   37,312,374   41,343,758   19,357,375   12,398,378
                                      ------------  -----------  -----------  -----------  -----------
Net Income(Loss)                      $(17,954,612) $ 1,054,269  $ 5,605,664  $(3,892,656) $(5,520,606)
                                      ============  ===========  ===========  ===========  ===========

Net Income(Loss) per Common Share
 and Common Equivalent Share          $      (1.67) $       .10  $       .63  $      (.51) $      (.75)

Net Income(Loss) per Common Share
 Assuming Full Dilution               $      (1.67) $       .10  $       .56  $      (.51) $      (.75)

At year end:
 Total Assets                         $ 37,729,097  $57,129,439  $23,331,019  $10,494,363  $ 8,746,932
 Capitalized Lease Obligations        $    585,795  $ 1,853,728  $ 3,012,079  $ 3,484,234  $ 3,183,528
 Working Capital (Deficit)            $ 23,161,108  $43,524,927  $ 9,310,685  $(2,330,209) $(3,120,850)
 Stockholders' Equity (Deficit)       $ 26,418,659  $43,734,040  $ 7,899,667  $(4,930,135) $(7,500,323)


</TABLE>






                                     -25-

<PAGE>



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

                       Results of Operations

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  Company 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 Nickel Metal Hydride ("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 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 from  $14,828,000 in the year ended June
30,  1996 to  $14,897,000  in the year ended June 30,  1997 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  from  $1,321,000  in the year ended June 30, 1996 to
$1,395,000  in the year ended  June 30,  1997,  primarily  due to  increases  in
royalties from battery  technology,  partially  offset by decreases in royalties
from phase-change  rewritable optical memory products, as prices of the products
decreased. (See Note B - Notes to Consolidated Financial Statements).  Royalties
from licensees based in Japan were also  negatively  impacted by the weakness in
the  Japanese  yen.  The  Company  has audit  rights to verify  the  amounts  of
royalties being reported and paid by its licensees. The Company plans to enforce
these audit rights. The amount of additional royalty payments, if any, that will
result from these audits is undeterminable.

      Revenues  from  research  and  development  agreements  ("R&D  Agreements)
decreased 22% to  $5,739,000 in the year ended June 30, 1997 from  $7,349,000 in
the year ended June 30, 1996 due to reductions  in 1997  revenues  recognized in
government

                                     -26-

<PAGE>



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.)

      The Company has $9,945,000 in unrecognized  revenues outstanding under R&D
agreements with U.S.  government or other agencies or companies.  Based on these
R&D Agreements,  and on scheduled funding and performance, without giving effect
to any new R&D  agreements  which may be entered into in the year ended June 30,
1998,  $8,398,000 is expected to be recorded in Revenues from R&D Agreements for
the year ending June 30, 1998.

      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,   sporadic,   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 increase in other  revenues was due to increased  billings in 1997 for
services performed by ECD'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 from  $15,504,000  in the year
ended  June  30,  1996 to  $16,964,000  in the  year  ended  June  30,  1997 was
principally  due to  $945,000  in  inventory  adjustments  for  Ovonic  Battery,
principally 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. To address
the Company's  recent  history of negative  margins,  the Company is:  improving
quality control through increased automation,  on-line gauging, improved process
monitoring and control,  early  identification  of  non-conforming  material and
operator  training;  investing in equipment and  equipment  upgrades to minimize
downtime and increase  capability;  and  improving  the  preventive  maintenance
program to reduce unplanned downtime.

      The  decrease in cost of revenues  from R&D  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 United  States
Advanced Battery  Consortium  ("USABC"),  National  Renewable Energy  Laboratory
("NREL") and Department of Energy ("DOE").

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


                                     -27-

<PAGE>



      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  Matsushita  Battery  Industrial Co., Ltd.  ("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 ("SAFT") 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.


Year Ended June 30, 1996 Compared to Year Ended June 30, 1995

      The Company  had net income in the year ended June 30, 1996 of  $1,054,000
compared  to net income of  $5,606,000  for the year ended  June 30,  1995.  The
change in  profitability  was  primarily  due to reduced  license  fees in 1996,
partially  offset  by a gain on the  sale of  Ovonic  Battery  common  stock  of
$4,500,000.  Net income for the year ended June 30, 1995 was due  principally to
$10,500,000  of  non-recurring  payments  received  by the  Company  under three
consumer  battery  agreements  entered into in 1995 in  settlement  of an action
initiated by the Company with the  International  Trade Commission  ("ITC"),  as
well as agreements with other major companies.

      Product sales  increased 44% from  $10,298,000  in the year ended June 30,
1995  to  $14,828,000  in  the  year  ended  June  30,  1996  due  to  increased
machine-building revenues for both ECD and Ovonic Battery and increased sales by
Ovonic Battery of negative electrodes and battery packs to GM Ovonic.

      Royalties  increased from $1,205,000 (which included $390,000 of royalties
reported by a licensee in 1995 relating to prior periods) in the year ended June
30,  1995 to  $1,321,000  in the year  ended  June 30,  1996,  primarily  due to
royalties  earned  for  use of  ECD's  phase-change  rewritable  optical  memory
technology.  The  Company has audit  rights to verify the  amounts of  royalties
being  reported and paid by its  licensees.  The Company,  based on  information
received, plans to enforce these audit rights.

      Revenues from R&D Agreements decreased 35% to $7,349,000 in the year ended
June 30, 1996 from $11,366,000 in the year ended June 30, 1995 due to reductions
in 1996 revenues  recognized  under  agreements in the  photovoltaic and battery
technologies.  (See NOTE B - Notes to Consolidated  Financial  Statements.)  The
reduction  in  1996  in  revenues  under  government  contracts  is  due  to the
completion  of R&D  agreements  and  the  U.S.  Government's  deficit  reduction
program.

      Revenues from license agreements  decreased 30% to $12,524,000 in the year
ended June 30,  1996 from  $17,932,000  in the year  ended June 30,  1995 due to
non-

                                     -28-

<PAGE>



recurring  revenues  related  to  agreements  with  three  consumer  battery
manufacturers in settlement of the aforementioned ITC action in 1995.  (See NOTE
B - Notes to Consolidated Financial Statements.)

      The increase in other  revenues was due to increased  billings in 1996 for
services  performed  by the ECD's  Production  Technology  and Machine  Building
Division, as well as miscellaneous work performed for Ovonic Battery licensees.

      The  increase in the cost of product  sales from  $10,391,000  in the year
ended  June  30,  1995 to  $15,504,000  in the  year  ended  June  30,  1996 was
principally  due  to the  increased  machine-building  activities  for  ECD  and
increased sales of Ovonic negative electrodes.

      The  decrease in cost of revenues  from R&D  agreements  in the year ended
June 30, 1996  compared to the year ended June 30, 1995 was  principally  due to
decreases in activities in 1996 under the agreements with USABC, NREL and DOE.

      The increase in product  development and research expenses from $4,636,000
in the year ended June 30,  1995 to  $9,151,000  in the year ended June 30, 1996
was due to the  aforementioned  reduced  funding under the agreements with USABC
and related increased Ovonic Battery product development and research expenses.

      Patent  defense  costs of  $2,625,000  in the year ended June 30, 1995 and
$2,467,000  in the year  ended  June 30,  1996 was due to payment in 1995 of the
contingent fees paid to the law firm representing the Company in the ITC action,
which  led to the  three  consumer  battery  agreements  in 1995,  and  expenses
incurred in 1996 in connection  with the defense and  prosecution  of litigation
involving SAFT and MBI with respect to certain of Ovonic Battery's United States
patents covering its proprietary  technology for NiMH batteries.  The litigation
involving SAFT was settled in June 1996.

      The change from other  expense-net  of $190,000 in the year ended June 30,
1995 compared to other  income-net of $5,233,000 in the year ended June 30, 1996
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, 1997, the Company had  unrestricted  consolidated  cash and
cash  equivalents and  investments,  consisting of commercial  paper maturing in
four to six months,  of  $15,040,000,  a decrease of  $19,061,000  from June 30,
1996.  In  addition,  the Company had  accounts  receivable  at June 30, 1997 of
$10,801,000  compared to $9,986,000  at June 30, 1996. As of June 30, 1997,  the
Company  had  consolidated  working  capital  of  $23,161,000,  compared  with a
consolidated working capital of $43,525,000 as of June 30, 1996.

      During  the year  ended  June 30,  1997,  $14,023,000  of cash was used in
operations.  The difference between the net loss of $17,955,000 and the net cash
used in operations

                                     -29-

<PAGE>



was  principally due to depreciation expense.  In addition, during this period
$3,577,000 of machinery and equipment was purchased or constructed for the
Company's operations.

      During the next 12 months,  Ovonic Battery is considering  the purchase of
up to $1,900,000 of machinery and equipment.  The machinery and equipment  would
be utilized principally for Ovonic Battery's manufacturing operation.

      The Company expects increased  revenues related to R&D Agreements 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.  The
Company also has a multi-year, multi-task program with General Motors,  which is
currently funded on a monthly basis, that is expected to be of significant value
to the Company  and is intended  to provide  next  and  future  generation  NiMH
batteries  that will be manufactured  by GM Ovonic.  Generally,  the agreed-upon
fees  for  these  R&D 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).

      The Company is actively pursuing its strategy to form strategic  alliances
to  commercialize  its  products.  While the Company is in  negotiations  with a
number of  companies  which  could  provide  additional  revenue  under  license
agreements  for the  Company in the  coming  year,  it is unable to predict  the
amount of such revenue for the year ending June 30, 1998.

      The Company has  recently  been  issued a patent in Japan  specifying  the
fundamentals  that make NiMH batteries  commercially  feasible.  The issuance of
this patent is expected to result in the payment of additional  royalties in the
future.  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 year ending  June 30, 1998  than those royalty revenues
for the year ended June 30, 1997.

      The  Company  is also  actively  negotiating  additional  machine-building
contracts   that  could  provide   revenues  in  the  coming  year  and  beyond.
Machine-building is cyclical but a growing part of the Company's business. As of
June 30, 1997, the Company had a backlog of machine  contracts of $149,000,  all
of which was  scheduled for  completion in the coming fiscal year.  Revenues for
machine building were $1,732,000 in the year ended June 30, 1997.

      The Company is dependent  upon a relatively few customers for its revenues
(See Note B - Notes to Consolidated Financial Statements).

      The Company has entered  into a  third-party  leasing  arrangement  with a
third party leasing company for the financing for certain  equipment used by the
Company.  As of June 30, 1997, the Company has remaining lease payments totaling
$1,910,000. The Company has agreed to purchase certain equipment leased upon the
expiration of the applicable  leases for 10% of the lessor's  acquisition  cost.
For other equipment, the Company has an option to purchase the equipment for its
then market value (but no less than 10% nor
 
                                     -30-

<PAGE>


more than 20% of its acquisition cost).  The Company  has an option  to purchase
certain other leased equipment upon the expiration  of the applicable leases for
its then fair market value. If the Company  exercises the option to purchase all
of the equipment  for leases  expiring  during the next  12 months,  the capital
requirement is from $268,000 to $537,000.

      While certain  programs have a limited term, the equipment  being utilized
for these programs has  alternative  future uses for other programs if, in fact,
the programs are not continued beyond their respective terms.

      Based upon the above information,  the amount of cash to be received under
existing R&D  Agreements in the year ending June 30, 1998 is  anticipated  to be
approximately  $8,300,000 compared to $5,464,000 received from R&D Agreements in
the year ended June 30, 1997. The amount of cash for royalties to be received in
the  year  ending  June 30, 1998  is expected to be, based on historical trends,
approximately $1,500,000  compared to $1,145,000  received  in  the  year  ended
June 30, 1997.

      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, 1998.

      Management believes that funds generated from operations and existing cash
and investment  balances will be adequate to support and finance planned growth,
capital  expenditures and  company-sponsored  research and 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.

                                     -31-


<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, 1997 and
1996,  and the related  consolidated  statements  of  operations,  stockholders'
equity (deficit), and cash flows for each of the three years in the period ended
June 30, 1997. 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, 1997 and
1996, and the results of its operations and its cash flows for each of the three
years in the period ended June 30, 1997 in conformity  with  generally  accepted
accounting principles.

/s/ Deloitte & Touche LLP


Detroit, Michigan
September 26, 1997



                               -32-

<PAGE>



          ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

                    CONSOLIDATED BALANCE SHEETS

                              ASSETS
<TABLE>
<CAPTION>

                                                             June 30,
                                                    ----------------------------
                                                        1997         1996
                                                        ----         ----
<S>                                                 <C>          <C>
CURRENT ASSETS (NOTE A)
   Cash, including cash equivalents of
     $14,265,000 as of June 30, 1997 and
     $23,769,000 as of June 30, 1996                $ 14,270,145 $ 23,773,742
   Investments (including restricted investments
     of $290,000 at June 30, 1997)                     1,059,933   10,327,352
   Accounts receivable (net of allowance for
     uncollectible accounts of approximately
     $140,000 at June 30, 1997 and $29,000
     at June 30, 1996)                                10,800,813    9,985,722
   Amounts due from related parties                    1,809,414    2,901,509
   Inventories                                         1,626,065    3,275,135
   Prepaid expenses and other current assets             404,204      362,558
                                                    ------------ ------------
     TOTAL CURRENT ASSETS                             29,970,574   50,626,018

PROPERTY, PLANT AND EQUIPMENT (NOTE E)
   Land and land improvements                            312,588      312,588
   Buildings and improvements                          3,785,827    3,595,009
   Machinery and other equipment(including
     construction in progress of approximately
     $1,647,000 at June 30, 1997)                     19,517,585   17,249,435
   Capitalized lease equipment                         5,699,048    5,802,806
                                                    ------------ ------------
                                                      29,315,048   26,959,838
   Less accumulated depreciation
     and amortization                                (22,346,615) (21,260,424)
                                                    ------------ ------------
     TOTAL PROPERTY, PLANT AND EQUIPMENT               6,968,433    5,699,414

JOINT VENTURES (NOTE D)
   United Solar                                           --           --
   GM Ovonic                                              --           --

OTHER ASSETS                                             790,090      804,007
                                                    ------------ ------------
           TOTAL ASSETS                             $ 37,729,097 $ 57,129,439
                                                    ============ ============
</TABLE>





See notes to consolidated financial statements.





                               -33-

<PAGE>




          ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

                    CONSOLIDATED BALANCE SHEETS

               LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>

                                                               June 30,
                                                    ------------------------------
                                                         1997           1996
<S>                                                 <C>             <C>
CURRENT LIABILITIES
   Accounts payable and accrued expenses            $    3,669,167  $     3,911,122
   Salaries, wages and amounts withheld
     from employees                                      1,144,446        1,175,102
   Deferred revenues under business
     agreements (NOTE A)                                   671,531          711,894
   Current installments on capitalized lease
     obligations (NOTE E)                                1,324,322        1,302,973
                                                    --------------  ---------------
       TOTAL CURRENT LIABILITIES                         6,809,466        7,101,091

CAPITALIZED LEASE OBLIGATIONS (NOTE E)                     585,795        1,853,728

DEFERRED GAIN (NOTE E)                                     223,691          686,351

NON-REFUNDABLE ADVANCE ROYALTIES (NOTE C)                3,691,486        3,754,229
                                                    --------------  ---------------
       TOTAL LIABILITIES                                11,310,438       13,395,399

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 - 15,000,000  shares
       Issued & outstanding - 10,603,251  shares
       at June 30, 1997 and 10,489,591 shares
       at June 30, 1996                                    106,033          104,896
   Additional paid-in capital                          202,004,599      200,757,697
   Accumulated deficit                                (175,085,364)    (157,130,752)
   Treasury stock at cost - 42,000 shares                 (608,808)           --
                                                    --------------  ---------------
  
     TOTAL STOCKHOLDERS' EQUITY                         26,418,659       43,734,040
                                                    --------------  ---------------
     TOTAL LIABILITIES & STOCKHOLDERS'
       EQUITY                                       $   37,729,097  $    57,129,439
                                                    ==============  ===============


</TABLE>



See notes to consolidated financial statements.

                               -34-

<PAGE>




                ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>

                                                              Years ended June 30,
                                               ---------------------------------------------------
                                                    1997               1996                1995
                                                    ----               ----                ----
<S>                                            <C>                 <C>                 <C> 
REVENUES (NOTES A and B)
   Product sales                               $ 14,897,144        $14,828,133         $10,298,019
   Royalties                                      1,394,872          1,321,117           1,205,036
   Revenues from research and development
     agreements                                   5,738,877          7,349,195          11,365,708
   Revenues from license agreements               5,828,648         12,524,262          17,931,852
   Other                                          1,718,933          1,289,667             543,143
                                               ------------        -----------         -----------
         TOTAL REVENUES                          29,578,474         37,312,374          41,343,758

EXPENSES

   Cost of product sales (NOTE A)                16,964,429         15,504,385          10,390,794
   Cost of revenues from research and
     development agreements (NOTE A)              5,870,725          7,581,904          11,013,975
   Product development and research (NOTE A)     15,550,775          9,151,167           4,636,158
   Patent Defense (NOTE A)                        3,011,133          2,467,295           2,625,000
   Patents (NOTE A)                                 429,980            381,186             407,583
   Operating, general and administrative          6,779,003          6,405,162           6,474,064
                                               ------------        -----------         -----------
         TOTAL EXPENSES                          48,606,045         41,491,099          35,547,574
                                               ------------        -----------         -----------
   INCOME (LOSS) FROM OPERATIONS                (19,027,571)        (4,178,725)          5,796,184

OTHER INCOME (EXPENSE):

   Gain on sale of Ovonic Battery Company stock      --              4,500,000              --
   Interest expense                                (384,468)          (445,933)           (545,738)
   Interest income                                1,308,344          1,090,952             244,722
   Other nonoperating income - net                  149,083             87,975             110,496
                                               ------------        -----------         -----------
         TOTAL OTHER INCOME (EXPENSE)             1,072,959          5,232,994            (190,520)
                                               ------------        -----------         -----------
     NET INCOME (LOSS)                         $(17,954,612)       $ 1,054,269         $ 5,605,664
                                               ============        ===========         ===========

     NET INCOME (LOSS) PER COMMON
       SHARE AND COMMON EQUIVALENT
       SHARE (NOTE H)                          $      (1.67)       $       .10         $       .63
                                               ============        ===========         ===========

     NET INCOME (LOSS) PER COMMON
       SHARE ASSUMING FULL DILUTION (NOTE H)   $      (1.67)        $      .10         $       .56
                                               ============        ===========         ===========

</TABLE>


See notes to consolidated financial statements.

                                     -35-

<PAGE>



                 ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY
    CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (NOTES F and G)
<TABLE>
<CAPTION>

                         Three years ended June 30, 1997

                         Class A
                         Convertible
                         Common Stock      Common Stock                                          Treasury Stock       
                         ---------------   -------------------                                   -------------------  Total
                         Number            Number                Additional                      Number               Stockholders'
                         of                of                    Paid-In       Accumulated       of                   Equity
                         Shares   Amount   Shares     Amount     Capital       Deficit           Shares     Amount    (Deficit)
                         ------   ------   ------     ------     ----------    -----------       ------     ------    -------------
<S>                      <C>      <C>      <C>        <C>        <C>           <C>               <C>        <C>        <C> 
Balance at
   July 1, 1994          219,913  $2,199   7,563,224  $ 75,632   $158,782,719  $(163,790,685)                          $(4,930,135)
Net income for year
   ended June 30, 1995                                                             5,605,664                              5,605,664
Issuance of stock to
   directors and
   consultants                                 3,733        38         87,275                                                87,313 
Private placement of
   common stock and
   warrants                                  175,000     1,750      2,667,425                                             2,669,175
Common stock issued in
   connection with
   exercise of stock
   options and
   conversion of
   certain securities                        336,710     3,367      4,464,283                                             4,467,650
                         -------  ------   ---------  --------  -------------  -------------     --------    -------    ----------
Balance at June 30,
   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>

See notes to consolidated financial statements.

                                      -36-

<PAGE>



                ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

                                                                              Years ended June 30,
                                                                 --------------------------------------------
                                                                     1997            1996             1995
                                                                     ----            ----             ----
<S>                                                              <C>             <C>              <C>
OPERATING ACTIVITIES:
 Net income (loss)                                               $(17,954,612)   $   1,054,269    $ 5,605,664
 Adjustments to reconcile net income (loss) to net
    cash used in operating activities:
      Depreciation and amortization                                 2,312,661        1,890,484      1,367,870
      Gain on sale of Ovonic Battery stock                             --           (4,500,000)        --
      Non-cash revenue                                                 --               --           (330,000)
      Creditable royalties                                            (62,743)        (144,148)      (392,430)
      Warrants issued to employees and consultants
         for services rendered and employee stock options             453,000          453,000      2,053,000
      Stock issued for services rendered                              119,203           59,464        193,838
      Loss (gain) on sale of equipment                                (13,544)          52,429          2,062
      Amortization of deferred gain                                  (462,660)        (462,660)      (254,329)
 Changes in working capital:
      Accounts receivable and amounts due from
         related parties                                              277,004       (4,727,022)    (5,719,477)
      Inventories                                                   1,649,070       (1,220,385)    (1,630,640)
      Prepaid expenses and other current assets                       (27,729)         (72,765)         5,074
      Accounts payable and accrued expenses                          (272,611)          81,336        (69,049)
      Deferred revenues under business agreements                     (40,363)        (172,257)       266,002
                                                                 ------------    -------------    -----------  
NET CASH PROVIDED BY (USED IN) OPERATIONS                         (14,023,324)      (7,708,255)     1,097,585
                                                                 ------------    -------------    -----------
INVESTING ACTIVITIES:
 Purchases of capital equipment                                    (3,577,478)      (1,887,118)    (1,138,972)
 Purchase of investments                                           (3,903,820)     (10,327,352)        --
 Sales of investments                                              13,171,239          --              --
 Proceeds from sale of capital equipment                                9,342            7,600          1,256
                                                                 ------------    -------------    -----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES                 5,699,283      (12,206,870)    (1,137,716)
                                                                 ------------    -------------    -----------
FINANCING ACTIVITIES:
 Purchase of treasury stock                                          (608,808)         --              --
 Principal payments under short-term and long-term debt
    obligations and capitalized lease obligations                  (1,259,511)      (1,505,385)    (2,043,340)
 Proceeds from capital lease transactions                              12,927          167,161      1,250,000
 Proceeds from sale of stock of subsidiary                            --             4,500,000         --
 Proceeds from sale of stock and exercise of stock options
    and warrants                                                      675,836       34,267,640      4,977,300
                                                                 ------------    -------------    -----------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES                (1,179,556)      37,429,416      4,183,960
                                                                 ------------    -------------    -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS               (9,503,597)      17,514,291      4,143,829

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                   23,773,742        6,259,451      2,115,622
                                                                 ------------    -------------    -----------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                       $ 14,270,145    $  23,773,742    $ 6,259,451
                                                                 ============    =============    ===========


</TABLE>



See notes to consolidated financial statements.

                                     -37-

<PAGE>



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

                                                  Years Ended June 30,
                                            -------------------------------
                                              1997          1996        1995
                                              ----          ----        ----


SUPPLEMENTAL DISCLOSURES OF CASH FLOW
 INFORMATION:

    Cash paid for interest                $ 384,468     $ 445,933   $ 612,094







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

        Sale and lease back of
           capitalized equipment
           and deferred gain                 --            --      $1,250,000








See notes to consolidated financial statements.



                                     -38-

<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
research  and  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 (97% as of June 30, 1995) 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.  See Note D for a
discussion  of these  ventures.  In addition,  ECD has a 50% owned joint venture
("Sovlux") in Russia (which had no  significant  activity in 1997 due to current
economic  conditions  in Russia)  and has  agreed to form a new 45% owned  joint
venture in Europe with Sanoh Industrial Co. Ltd. ("Sanoh").

      Upon  consolidation,   all  intercompany  accounts  and  transactions  are
eliminated.

      Certain  items  for the  years  ended  June 30,  1996 and 1995  have  been
reclassified to be consistent with the classification of items in the year ended
June 30, 1997.

      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

                               -39-

<PAGE>


          ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

            Notes to Consolidated Financial Statements


NOTE A - Summary of Accounting Policies - (Continued)

is impacted by other factors such as the continued receipt of contracts from the
U.S. government and industrial partners, its ability to protect and maintain the
proprietary  nature of its technology,  its continued  product and technological
advances  and the  strength  and ability of the  Company's  licensees  and joint
venture partners to commercialize the Company's products and technologies.

      In March 1995, the Financial  Accounting  Standards  Board ("FASB") issued
Statement  of  Financial  Accounting  Standards  No.  121,  "Accounting  for the
Impairment of Long-Lived  Assets,"  which  requires  adoption of the  disclosure
provisions no later than fiscal years beginning after December 15, 1995. The new
standard  requires the  impairment of property and  intangibles to be considered
whenever evidence suggests a lack of recoverability. The Company adopted the new
standard in the year ended June 30, 1997. Since adoption,  no impairment  losses
have been incurred.

      In  October  1995,  the FASB  issued  Statement  of  Financial  Accounting
Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation," which
requires  adoption of the disclosure  provisions and adoption of the recognition
and  measurement  provisions for  nonemployee  transactions no later than fiscal
years beginning  after December 15, 1995. The new standard  defines a fair value
method of accounting for stock options and other equity  instruments.  Under the
fair value method,  compensation cost is measured at the grant date based on the
fair value of the award and is  recognized  over the  service  period,  which is
usually the vesting period.

      Pursuant to the SFAS 123, companies are encouraged,  but are not required,
to  adopt  the  fair  value  method  of  accounting  for  employee   stock-based
transactions.  Companies  are also  permitted  to  continue  to account for such
transactions  under  Accounting  Principles  Board  Opinion  No. 25 ("APB  25"),
"Accounting  for Stock Issued to Employees" but would be required to disclose in
a note to the financial  statements  pro forma net income and earnings per share
as if the Company had applied the new method of accounting.

      The  accounting  requirements  of the new  method  are  effective  for all
employee  awards granted after the beginning of the fiscal year of adoption.  In
the year ended June 30, 1997,  the Company  determined  that it will continue to
apply  APB 25 to its  stock-based  compensation  awards  to  employees  and will
disclose the required pro forma effect on net income and earnings per share (see
Note G). This determination had no effect on the Company's financial statements.



                               -40-

<PAGE>


          ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

            Notes to Consolidated Financial Statements


NOTE A - Summary of Accounting Policies - (Continued)

      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 will be required to adopt the new method of  accounting in
its second quarter of fiscal 1998. 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.  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 a material  impact on the
Company's financial statements.

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.

                               -41-

<PAGE>


          ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

            Notes to Consolidated Financial Statements


NOTE A - Summary of Accounting Policies - (Continued)

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.

Financial Instruments

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

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 and other programs:
                                                            June 30,
                                                 ----------------------------  
                                                     1997           1996
                                                     ----           ---- 
      U.S. Government:
        Amounts billed                          $     572,193   $     743,482
        Unbilled                                      797,558         453,394
                                                -------------   -------------
             Total                                  1,369,751       1,196,876
                                                -------------   -------------
      Commercial Customers:
        Amounts billed                              1,701,006       1,727,291
        Related party billed
             - United Solar                            19,840          43,773
             - GM Ovonic                            1,072,546         997,672
        Due per contracts                           7,480,792       5,202,175
        Related party unbilled
             - United Solar                            --             868,649
             - GM Ovonic                              717,028         991,415
        Other unbilled                                281,580       1,222,173
                                                -------------   -------------
           Total                                   11,272,792      11,053,148
                                                -------------   -------------
      Other                                           107,684         666,207
      Allowance for Uncollectible Accounts           (140,000)        (29,000)
                                                -------------   -------------
             TOTAL                              $  12,610,227   $  12,887,231
                                                =============   =============

     Amounts due per  contracts,  related party unbilled and other unbilled from
commercial  customers  represent  revenues  recognized  for the present value of
license  payments to be received in future periods.  They also include  revenues
recognized  on the  percentage-of-completion  method of  accounting  related  to
machine-building   contracts  and  amounts   earned  under  certain   commercial
contracts, which amounts are billed in subsequent months.
                               -42-

<PAGE>


          ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

            Notes to Consolidated Financial Statements


NOTE A - Summary of Accounting Policies - (Continued)

      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, 1997 and 1996. Certain U.S. government contracts
remain subject to audit. Management believes that adjustments, if any, which may
result from an audit would not be material to the financial  position or results
of operations of the Company.

Inventories

        Inventories of raw materials, work in process and finished goods for the
manufacture  of  electrodes,  battery  packs and other  products,  together with
supplies,  are valued at the lower of cost  (moving  average)  or  market.  Cost
elements  included in inventory are  materials,  direct labor and  manufacturing
overhead.  Cost of sales are 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,
                                        --------------------------
                                            1997         1996
                                            ----         ----
        Finished products               $    --        $  263,525
        Work in process                  1,110,989      1,902,396
        Raw materials                      615,076      1,109,214
                                        ----------     ----------
                                         1,726,065      3,275,135
        Reserve                           (100,000)        --
                                        ----------     ----------
                                        $1,626,065     $3,275,135
                                        ==========     ==========

        During  the  year  ended  June  30,  1997,  the  Company  had  inventory
adjustments of $945,000.

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


                               -43-

<PAGE>


          ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

            Notes to Consolidated Financial Statements


NOTE A - Summary of Accounting Policies - (Continued)

      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, 1997 and June 30, 1996 was $3,136,000
and $2,064,000, respectively.

      Costs of  machinery  and other  equipment  acquired or  constructed  for a
particular  research and development  project,  which have no alternative future
use (in other research and  development  projects or otherwise),  are charged to
product development and research costs as incurred.

      Expenditures  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  R&D  Agreements,  were  $16,732,000,
$12,947,000  and  $11,962,000  for the three years ended June 30, 1997, 1996 and
1995, 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 R&D  Agreements  and product  development  and research
were $1,002,000,  $945,000 and $933,000 for the three years ended June 30, 1997,
1996 and 1995, 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 and were  $3,011,000,
$2,467,000  and  $2,625,000  for the three years ended June 30,  1997,  1996 and
1995, respectively.

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.

                               -44-

<PAGE>


          ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

            Notes to Consolidated Financial Statements


NOTE A - Summary of Accounting Policies - (Continued)

Royalties

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

      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 the ITC 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 research  and  development  that the
Company has undertaken  pursuant to R&D 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.

                               -45-

<PAGE>


          ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

            Notes to Consolidated Financial Statements


NOTE A - Summary of Accounting Policies - (Continued)

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

      In the second type of  agreement,  R&D  Agreements,  the Company  conducts
specified  research and  development  projects  related to one of its  principal
technology  specializations  for an agreed-upon fee. Some of these projects have
stipulated  performance  criteria and deliverables  whereas others require "best
efforts" with no specified  performance  criteria.  Revenues from R&D 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 R&D  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 R&D 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 R&D  Agreements  are recorded as cost of revenues  from R&D
Agreements.

Overhead Allocations

      The  Company  allocates  overhead  to  product  development  and  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 research and
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.






                               -46-

<PAGE>


          ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

            Notes to Consolidated Financial Statements



NOTE A - Summary of Accounting Policies - (Continued)

Other Operating Revenues

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

Other Non-operating Income

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




                               -47-

<PAGE>


          ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

            Notes to Consolidated Financial Statements



NOTE B - Product Sales, Royalties, Revenues from R&D Agreements and License
        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 revenue from such agreements follows:

                                                Years Ended June 30,
                                       --------------------------------------
                                            1997         1996         1995
                                            ----         ----         ----
Product Sales:
   Negative and positive electrodes   $ 10,832,282  $  4,902,836  $  4,038,418
   Battery packs                         2,333,276     2,257,971     2,605,342
   Machine building                      1,731,586     7,667,326     3,654,259
                                      ------------  ------------  ------------
                                      $ 14,897,144  $ 14,828,133  $ 10,298,019
                                      ============  ============  ============
Royalties:
   Battery technology                 $  1,258,633  $  1,149,198  $  1,158,623
   Optical Memory                          136,239       171,919        46,413
                                      ------------  ------------  ------------
                                      $  1,394,872  $  1,321,117  $  1,205,036
                                      ============  ============  ============

 Revenues from R&D agreements:
   Photovoltaics                      $  1,168,718  $  1,870,946  $  4,285,364
   Battery technology                    2,660,342     3,823,403     6,650,543
   Microelectronics                        824,892       900,000        --
   Hydrogen                                679,174       603,056       162,975
   Other                                   405,751       151,790       266,826
                                      ------------  ------------  ------------
                                      $  5,738,877  $  7,349,195  $ 11,365,708
                                      ============  ============  ============
License Agreements:
   Battery                            $  4,448,004  $ 11,024,262  $ 16,556,852
   Microelectronics                      1,380,644     1,500,000     1,375,000
                                      ------------  ------------  ------------
                                      $  5,828,648  $ 12,524,262  $ 17,931,852
                                      ============  ============  ============

     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 58%, 41% and 53% for the years ended
June 30, 1997, 1996 and 1995, respectively.  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.  ("APIC") of total revenue for the year ended June 30, 1996.  There are four
major customers  which include two major consumer  battery  manufacturers  which
represent  12% each, GP Batteries  International  Ltd.  ("GP  Batteries")  which
represents 11% and United States Advanced  Battery  Consortium  which represents
15% of total revenue for the year ended June 30, 1995.


                               -48-

<PAGE>


          ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

            Notes to Consolidated Financial Statements



NOTE C - Non-Refundable Advance Royalties

      At June 30,  1997  and  1996 the  Company  deferred  revenue  relating  to
non-refundable advance royalty payments which consist of the following:

                                                   June 30,
                                          --------------------------
                                               1997         1996
                                               ----         ----
       Battery                             $1,647,592    $1,704,991
       Optical Memory                       2,043,894     2,049,238
                                           ----------    ----------
                                           $3,691,486    $3,754,229
                                           ==========    ==========

      During the years ended June 30, 1997, 1996 and 1995, $62,743, $144,148 and
$392,430,  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 are recorded at zero. The
Company will continue to carry its  investment in each of its 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.

      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  original  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,
with  the  balance  held by Mrs.  Haru  Reischauer,  a  member  of the  Board of
Directors of ECD. ECD has  contributed to United Solar a license in the field of
photovoltaics,  certain solar cell  manufacturing and photovoltaic  research and
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 $55,000,000.


                               -49-

<PAGE>


          ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

            Notes to Consolidated Financial Statements


NOTE D - Joint Ventures - (Continued)

      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 rights under a 1986  agreement  between Canon and the Company  whereby Canon
was granted 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  $144,000,  $128,000 and
$68,000 in the years ended 1997, 1996 and 1995, respectively. ECD also performed
administrative  services  for the benefit of United Solar for which ECD received
approximately  $23,000 in the year ended 1995.  These  amounts  are  included in
other  revenues.  In addition,  in the years ended June 30, 1997, 1996 and 1995,
United  Solar billed ECD for  approximately  $296,000,  $289,000  and  $404,000,
respectively, for work performed in accordance with a U.S. Government contract.

      In  1995,  ECD  received  a  $7,565,000  order  (subsequently  amended  to
$7,996,000) from United Solar for solar cell manufacturing  equipment to provide
production  capacity  of  solar  cells  capable  of  producing  5  Megawatts  of
electricity  on an annual  basis.  In the three years ended June 30,  1997,  ECD
recognized revenue of $175,000, $4,702,000 and $2,847,000,  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
<TABLE>
<CAPTION>

                                            Six Months
                                           Ended June 30,          Year Ended December 31,
                                           --------------          -----------------------
                                               1997                   1996         1995
                                               ----                   ----         ----
                                           (Unaudited)
<S>                                        <C>                    <C>           <C>
Revenues
  Product sales and other revenue          $ 3,637,911            $ 5,222,970   $ 5,351,573
  License fees                              11,500,000                 --            --
                                           -----------            -----------   -----------
     Total Revenues                         15,137,911              5,222,970     5,351,573

Operating Expenses
  Cost of sales                              5,413,428              7,846,603     7,037,174
  Research and development                   1,437,422              2,029,297     2,000,611
  General and administrative                 1,024,352              1,672,706     1,610,158
  Sales and marketing                          821,765              1,590,200     1,594,228
                                          ------------            -----------   -----------
     Total                                   8,696,967             13,138,806    12,242,171
                                          ------------            -----------   -----------
Other Income (Expense)                         (80,280)              (191,577)      247,074
                                          ------------            -----------   -----------
Net Income (Loss)                         $  6,360,664            $(8,107,413)  $(6,643,524)
                                          ============            ===========   ===========
</TABLE>


                              -50-

<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,
                                                -------------  -------------
                                                     1997         1996
                                                     ----         ----
                                                  (Unaudited)
Current Assets:
  Cash and Cash Equivalents                    $  2,342,628  $  1,272,524
  Accounts Receivable - Trade                       738,378       537,822
  Accounts Receivable - NREL                        242,938       217,723
  Accounts Receivable - Stockholders              4,633,757       534,169
  Inventory                                       4,015,379     3,048,191
  Other Current Assets                              322,232       285,370
                                               ------------  ------------
    Total Current Assets                         12,295,312     5,895,799
Property, Plant and Equipment (Net)              13,676,080    13,461,135
Other Assets                                        225,913       234,998
                                               ------------  ------------
    Total Assets                               $ 26,197,305  $ 19,591,932
                                               ============  ============
Current Liabilities:
  Short-term bank debt                         $ 10,000,000  $ 11,000,000
  Accounts Payable - Trade & Stockholders         3,001,352     1,558,229
  Accrued Expenses and Other                        376,743       575,157
                                               ------------  ------------  
    Total Current Liabilities                    13,378,095    13,133,386
                                               ------------  ------------
    Total Stockholders' Equity                   12,819,210     6,458,546
                                               ------------  ------------
     Total Liabilities and Stockholders'
         Equity                                $ 26,197,305  $ 19,591,932
                                               ============  ============

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.

      GM  Ovonic  is  currently  engaged  in  low-volume  manufacturing  of NiMH
batteries at its facility in Troy,  Michigan.  Production  volume is expected to
increase in early 1998 at a larger facility.

      In October 1995, the Company received a $3,710,000 order, as amended, from
GM Ovonic for battery manufacturing  equipment. As of June 30, 1997, the Company
received  payments  of  $3,209,000  under this order and  recognized  revenue of
$3,577,000.  A receivable  in the amount of $368,000  remains to be paid at June
30, 1997.


                              -51-

<PAGE>


          ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

            Notes to Consolidated Financial Statements


NOTE D - Joint Ventures - (Continued)

      During the years  ended June 30,  1997,  1996 and 1995,  the  Company  had
revenues, including the aforementioned machine-building revenues, of $7,776,000,
$4,118,000  and  $2,372,000,  respectively,  related to sales of  products to GM
Ovonic, for reimbursement of services performed for GM Ovonic.

      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.

      The  Company  has  recorded  its  investment  in GM Ovonic at zero,  which
represents the net book value of the Company's assets  transferred to GM Ovonic.
Additionally, the Company has made no financial or other guarantees with respect
to  liabilities  incurred by GM Ovonic.  The Company will  continue to carry its
investment at zero and will recognize over a period of years its share,  if any,
of the then equity of GM Ovonic and will  recognize  its share of the  venture's
profits or losses on the equity method of accounting.

NOTE E- Capitalized Lease Obligations

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

                                                              June 30,
                                                     --------------------------
                                                       1997            1996
                                                       ----            ----
Financing Lease for headquarters building
   with interest at 8.2% and monthly payments
   of $19,250                                      $  540,057      $  720,383
Capitalized leases with Finova (with interest
   ranging between 5% and 13%)                      1,248,597       2,290,948
Other capitalized leases                              121,463         145,370
                                                   ----------      ----------
     Total                                          1,910,117       3,156,701
  Less amounts included in current liabilities      1,324,322       1,302,973
                                                   ----------      ----------
     Total Long-Term Capitalized Lease Obligation  $  585,795      $1,853,728
                                                   ==========      ==========

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 1992, the Company  entered into a third-party  leasing  arrangement for
the financing of certain equipment. The terms of the agreement require repayment
over five years at an interest rate ranging between 5% and 13%.


                              -52-

<PAGE>


          ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

            Notes to Consolidated Financial Statements


NOTE E - Capitalized Lease Obligations - (Continued)

      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 ended June 30, 1997,  1996 and 1995,  ECD amortized
approximately $463,000,  $417,000 and $208,000,  respectively,  of this deferred
gain.

      The  Company  has  agreed  to  purchase  certain   equipment  leased  upon
expiration of the lease for 10% of its  acquisition  cost. For other  equipment,
the  Company has an option to purchase  the  equipment  for its then fair market
value (but no less than 10% nor more than 20% of its acquisition cost), plus any
applicable sales, excise or other taxes imposed as a result of such sale.

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, 1997,  1996 and 1995 was  approximately
$1,685,000, $1,623,000 and $941,000, respectively.

      Future  minimum   payments  on   obligations   under  capital  leases  and
noncancellable operating leases expiring in each of the five years subsequent to
June 30, 1997 are as follows:

                                      Capital Leases        Operating Leases
                                      --------------        ----------------
         1998                           $1,354,002             $1,209,232
         1999                              419,422                568,132
         2000                              165,816                416,775
         2001                               13,510                116,302
         2002                                2,290                    512
                                        ----------             ----------
           TOTAL                         1,955,040             $2,310,953
         Less interest & taxes                                 ==========
             included above                 44,923
                                        ----------
         Present value of minimum
             payments                   $1,910,117
                                        ==========


                              -53-

<PAGE>


          ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

            Notes to Consolidated Financial Statements


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

      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, 1997, 1996 and 1995, ECD issued restricted
shares of 3,040,  6,899 and 3,733,  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,  1997,  1996  and  1995  of  $119,000,   $59,000  and  $48,000,
respectively, relating to these restricted shares of Common Stock.


                              -54-

<PAGE>


          ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

            Notes to Consolidated Financial Statements


NOTE G - Warrants and Options to Purchase Stock

      The Company has Common Stock reserved for issuance as follows:

                                                      Number of Shares
                                               -------------------------------
                                               June 30, 1997     June 30, 1996
                                               -------------     -------------
    Conversion of Class A Convertible
         Common Stock                              219,913            219,913
    Stock options                                3,201,892          3,287,973
    1999 Private Placement Warrants                174,966            174,966
    Warrants issued in connection with
         services rendered                         219,000            239,000
    Convertible Investment Certificates              6,233              6,233
                                                 ---------          ---------
      TOTAL RESERVED SHARES                      3,822,004          3,928,085
                                                 =========          =========

Stock Option Plans

      The  Company's  1976 Amended and Restated  Stock Option Plan (the "Amended
Plan") which  expired in November  1996,  1987 Stock Option and  Incentive  Plan
("1987 Stock Option Plan") 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.


                              -55-

<PAGE>


          ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

            Notes to Consolidated Financial Statements



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

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

<TABLE>
<CAPTION>
  
                                 1997                   1996                   1995
                         -------------------    -------------------    -------------------
                                    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       2,129,856  $12.24      2,422,646  $10.42      1,043,311  $ 6.68
Granted                    291,030   14.93        358,190   17.71      1,646,535   12.23
Exercised                   90,420    5.99        650,650    8.46        264,299    6.96
Canceled                     2,860   15.74            330   11.75          2,901    6.31
                         ---------  ------      ---------  ------      ---------  ------
Outstanding June 30      2,327,606  $12.82      2,129,856  $12.24      2,422,646  $10.42
                         =========  ======      =========  ======      =========  ======
Exercisable June 30      1,705,546  $12.19      1,046,438  $10.79        873,458  $ 8.02
                         =========  ======      =========  ======      =========  ======
</TABLE>


  The following table summarizes information about stock options outstanding
at June 30, 1997:

<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 6/30/97  Contractual Life   Price           As of 6/30/97  Price
---------------        ------------------------------------------        -----------------------
<S>                     <C>               <C>             <C>              <C>           <C>
 $6.75 -  $8.00            262,708        1.89            $ 7.19             262,708     $ 7.19
 $9.00 - $11.50             20,630        8.93             10.55               2,630      10.90
$11.75 - $11.88          1,284,168        5.95             11.83           1,033,823      11.82
$15.13 - $15.88            519,130        8.79             15.47             278,605      15.56
$16.75 - $23.50            240,970        8.15             18.71             127,780      18.22
---------------          ---------        -----           ------           ---------     ------
$ 6.75   $23.50          2,327,606        6.38            $12.82           1,705,546     $12.19

</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
214,235 as of June 30, 1997) shares of Common Stock in the case of Mr. Ovshinsky
and 100,000 shares  (adjusted to 142,573 as of June 30, 1997) 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 $10.17 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-
 
                              -56-

<PAGE>


          ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

            Notes to Consolidated Financial Statements


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

month period following the grant; and (ii) thereafter,  the fair market value of
any additional  shares as adjusted  for the antidilution provisions,  determined
quarterly.

      As described in Note A, the Company  determined  that it will  continue 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,  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 1997 and 1996 is estimated as $1,710,000 and $3,195,000 on the date of
grant using the Black-Scholes option-pricing model with the following
assumptions:

                                        1997            1996
                                        ----            ----
             Dividend Yield               0%              0%
             Volatility %             57.96%          56.95%
             Risk Free Interest Rate   6.26%           5.83%
             Expected Life             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 to purchase 174,966 shares of Common Stock in
connection  with  private  placements  of Common  Stock as well as  warrants  to
purchase  219,000 shares of Common Stock in connection  with services  rendered.
The warrants are currently exercisable at a weighted average price of $10.65 per
share.  The  exercise  price of  certain of the  warrants  may be reduced in the
future pursuant to certain antidilution provisions.


                              -57-

<PAGE>


          ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

            Notes to Consolidated Financial Statements


NOTE H - Net Income (Loss) Per Share

      The  Company  uses the  treasury  stock  method to  calculate  primary and
fully-diluted  earnings  per share.  Common stock  equivalents  consist of stock
options and warrants.  Weighted average number of shares outstanding and primary
earnings per share for the three years ended June 30 are computed as follows:

                                          1997         1996         1995
                                          ----         ----         ----

   Weighted average number of shares
       outstanding                     10,729,802    9,370,841    8,003,742
   Pro Forma weighted average shares
       for Common Stock Equivalents        N/A       1,515,067      886,020
                                       ----------   ----------   ----------

      AVERAGE NUMBER OF SHARES
        OUTSTANDING AND EQUIVALENTS    10,729,802   10,885,908    8,889,762
                                       ==========   ==========    =========
   
   Net income (loss)                 $(17,954,612)  $1,054,269   $5,605,664
                                     
      EARNINGS (LOSS) PER SHARE      $      (1.67)  $      .10   $      .63
                                     ============   ==========   ==========


      The primary and fully-diluted  earnings per share for fiscal year 1996 are
the same since the ending  market  value of ECD Common Stock at June 30, 1996 of
$22.75 per share  approximates  the average market value per share of ECD Common
Stock of $20.23 during  fiscal year 1996.  The use of the ending market value of
$22.75 per share results in a slightly higher pro forma weighted  average number
of shares for common stock  equivalents for purposes of  fully-diluted  earnings
per  share;  however,  it does not  result  in a  different  earnings  per share
compared to primary earnings per share.

      The   difference   between  the  primary   earnings   per  share  and  the
fully-diluted  earnings  per share for  fiscal  1995 is the  result of using the
ending  market  value of $16.375 per share  versus the average  market  value of
$13.56.  This  results in pro forma  weighted  average  shares for common  stock
equivalents of 1,938,977 and a fully-diluted earnings per share of $.56.

NOTE I - Federal Taxes on Income

      At June 30, 1997 and 1996, the Company has  approximately  $40,223,000 and
$35,639,000,  respectively,  of net deferred tax assets, consisting primarily of
$38,523,000   and   $33,782,000,   respectively,   due  to  net  operating  loss
carryforwards,  $1,700,000  and  $1,857,000,  respectively,  due to  tax  credit
carryforwards.  However,  a valuation reserve of the same amount is required due
to  the  Company's  operating  history  and  uncertainty  regarding  the  future
realizability  of  the  net  tax  operating  loss  carryforwards  and tax credit
carryforwards.

                              -58-

<PAGE>


          ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

            Notes to Consolidated Financial Statements


NOTE I - Federal Taxes on Income - (Continued)

      The  Company's  valuation  reserve was  increased by  $4,584,000  in 1997,
$818,000 in 1996 and  decreased  by $505,000 in 1995 for the impact of the 1997,
1996 and 1995 net  operating  income  (losses),  temporary  differences  and the
expiration of tax carryforwards.

      At  June  30,  1997,  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
                 -----------------     --------------      ------------

      1998       $  3,360,000            $ 10,000        $   436,000
      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          5,431,000
      2012         15,749,000
               --------------            --------        -----------
                 $113,303,000            $249,000        $ 1,451,000
                 ============            ========        ===========


NOTE J - Related Party Transactions

      For the three  years  ended June 30,  1997,  1996 and 1995,  ECD  incurred
expenses of $146,000, $90,514 and $36,440,  respectively,  for services rendered
by its directors.

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


                              -59-

<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, 1997                $ 24,183     $   5,395     $ 29,578
   Year ended June 30, 1996                  26,946        10,366       37,312
   Year ended June 30, 1995                  31,945         9,399       41,344

Operating Income(Loss)
   Year ended June 30, 1997*               $(12,610)    $ (6,418)     $(19,028)
   Year ended June 30, 1996*                 (2,258)      (1,921)       (4,179)
   Year ended June 30, 1995                   9,356       (3,560)        5,796

Depreciation and Amortization Expense
   Year ended June 30, 1997                $  1,065     $  1,248      $  2,313
   Year ended June 30, 1996                     811        1,079         1,890
   Year ended June 30, 1995                     640          728         1,368

Capital Expenditures
   Year ended June 30, 1997               $   2,807    $     770     $   3,577
   Year ended June 30, 1996                     915          972         1,887
   Year ended June 30, 1995                     859          280         1,139

Identifiable Assets
   Year ended June 30, 1997                $ 18,643    $  19,086     $  37,729
   Year ended June 30, 1996                  17,501       39,628        57,129
   Year ended June 30, 1995                  13,056       10,275        23,331


 * Includes intercompany interest of $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.






                              -60-

<PAGE>


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

   Not applicable.


                              -61-

<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, 74, the founder and Chief Executive
                                                          Executive Officer     Officer of the Company, has been an executive
                                                          and Director          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, 70, 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, 64, 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.  Mr. Stempel 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 Board of
                                                                                Directors of NBD  Bank, N.A.  Mr. Stempel serves on
                                                                                the Company's Audit Committee.

Nancy M. Bacon                    1977                    Senior Vice           Mrs. Bacon, 51, joined the Company in 1976 as its
                                                          President             Vice President of Finance and Treasurer.  Mrs.
                                                          and Director          Bacon became the Senior Vice President of the 
                                                                                Company in 1993.  Mrs. Bacon also serves on the
                                                                                Boards of Directors of Sovlux and United Solar.
</TABLE>


                                      -62-

<PAGE>

<TABLE>
<S>                               <C>                     <C>                   <C>
Umberto Colombo                   1995                    Director              Prof. Colombo, 69, 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.

Jack T. Conway                    1980                    Director              Mr. Conway, 70, is President and Chief Executive
                                                                                Officer of the Community Housing Corporation of
                                                                                Sarasota.  From 1985 to 1990, Mr. Conway was a
                                                                                trustee of the Aspen Institute.  Mr. Conway was
                                                                                also formerly a management consultant to the
                                                                                Company.  Mr. Conway serves on the Audit and
                                                                                Compensation Committees of the Board.

Hellmut Fritzsche                 1969                    Vice President
                                                          and Director          Dr. Fritzsche, 70, was a professor of Physics at 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, 31, is President of Eccosys, Ltd. and
                                                                                Digital Garage KK as well as President and
                                                                                Representative Director of PSI 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, 48, currently an 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 is a 
                                                                                Director of United Solar and Zygo Corporation.

Walter J. McCarthy, Jr.           1995                    Director              Mr. McCarthy, 72, until his retirement in 1990, was
                                                                                the Chairman and Chief Executive Officer of Detroit
                                                                                Edison Company.  Mr. McCarthy 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. Mr. McCarthy is a
                                                                                member of the National Academy of Engineering.
                                                                                He serves on the Audit and Compensation
                                                                                Committees of the Board.
</TABLE>

                                      -63-

<PAGE>

<TABLE>

<S>                               <C>                     <C>                   <C>
Florence I. Metz                  1995                    Director              Dr. Metz, 68, 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 and is a member of the
                                                                                Company's Compensation Committee.

Haru Reischauer                   1990                    Director              Mrs. Reischauer, 82, was initially appointed as a
                                                                                Director to fill the unexpired term of Edwin O.
                                                                                Reischauer (former U.S. Ambassador to Japan) after
                                                                                his death in September 1990, and was re-elected to
                                                                                the Board of Directors in 1992.  Mrs. Reischauer
                                                                                also serves on the Board of Directors of United
                                                                                Solar. She is an author and lecturer.

Nathan J. Robfogel                1990                    Director              Mr. Robfogel, 62, 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 has
                                                                                been a trustee since 1985.  From 1989 to 1995, Mr.
                                                                                Robfogel served as Chairman of the Board of Direc-
                                                                                tors of the New York State Facilities Development
                                                                                Corporation, a public benefit corporation.

Stanley K. Stynes                 1977                    Director              Dr. Stynes, 65, was Dean of the College of Engineer-
                                                                                ing 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 of Directors of the Company.

</TABLE>

                                     * * *

    Mr. Ralph F. Leach  served as Chairman of the Board of Directors  from 1977
to 1995  and was  appointed  Chairman  Emeritus  in  December  1995.  Until  his
retirement in December  1977, Mr. Leach was for more than five years Chairman of
the Executive Committee of J.P. Morgan & Co. and Morgan Guaranty Trust Company
of New York, institutional bankers, and is presently a member of that company's
Directors' Advisory Council.

     Dr. Robert R. Wilson, served as a director to the Company from 1978 to 1993
and was appointed  Director  Emeritus in January  1994.  For more than 10 years,
until his retirement in 1978, Dr. Wilson was the founder and the director of the
Fermi National Accelerator Laboratory. He was formerly President of the American
Physical Society. Since retirement,  Dr. Wilson has been a Professor Emeritus of
physics  at  Cornell  University,  Columbia  University  and the  University  of
Chicago.


                                     -64-

<PAGE>



      The executive officers of the Company are as follows:

<TABLE>
<CAPTION>
                                                                                  Served As An Executive
Name                           Age             Office                           Officer or Director Since
----                           ---             ------                           -------------------------

                                  
<S>                             <C>   <C>                                                <C>
Stanford R. Ovshinsky           74    President, Chief Executive Officer                 1960(1)
                                      and Director

Iris M. Ovshinsky               70    Vice President and Director                        1960(1)

Robert C. Stempel               64    Executive Director and Director                    1995

Nancy M. Bacon                  51    Senior Vice President and Director                 1976

Hellmut Fritzsche               70    Vice President and Director                        1969

Subhash K. Dhar                 46    President and Chief Operating                      1986
                                      Officer of Ovonic Battery

Stephan W. Zumsteg              51    Treasurer                                          1997

-------
</TABLE>

(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.





                                     -65-

<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, 1997.


                          SUMMARY COMPENSATION TABLE

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

<S>                          <C>          <C>             <C>                        <C>            <C>    
Stanford R. Ovshinsky,       1997         $276,016        $37,981(3)                    --          $10,017
President and Chief          1996         $267,800        $90,741(3)                    --          $10,017
Executive Officer (5)        1995         $256,567          --                       294,957(6)     $ 8,798

Iris M. Ovshinsky,           1997         $250,016                                     --           $ 8,939
Vice President               1996         $250,004                                     --           $ 5,726
                             1995         $153,846                                   196,888        $ 4,726

Robert C. Stempel,           1997         $270,005                        --          25,000        $  3,159
Executive Director (7)       1996         $125,008                     $50,312       125,000        $  3,159
                             1995            --                           --         179,000            --

Nancy M. Bacon,              1997         $235,019                                     --           $ 5,796
Senior Vice President        1996         $235,472                                    25,000        $ 5,794
                             1995         $225,000                                   160,200        $ 4,879

Subhash K. Dhar,             1997         $200,013          --                         --           $ 5,283
President and Chief          1996         $200,503        $15,000                     62,040        $ 5,283
Operating Officer of         1995         $165,769          --                         3,980        $ 4,267
Ovonic Battery

--------
 
</TABLE>



(1)   The Company's fiscal year is July 1 to June 30.  The Company's 1997 fiscal
      year ended June 30, 1997.
(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.



                                     -66-

<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, 1997, 1996 and 1995,  respectively,  as follows: Dr. Ovshinsky $3,269,
      $2,500  and  $1,500;  Mrs.  Bacon  $4,500  (for each of 1997 and 1996) and
      $4,096  (1995);  Mr.  Dhar  $4,500  (for each of 1997 and 1996) and $3,808
      (1995);  (ii) the dollar value of any life insurance  premiums paid by the
      Company  in  the  fiscal  years  ended  June  30,  1997,  1996  and  1995,
      respectively,  with respect to term-life insurance for the benefit of each
      of the named  executives as follows:  Mr.  Ovshinsky  $10,017 (for each of
      1997 and 1996) and $8,798 (1995);  Dr.  Ovshinsky $5,670 (1997) and $3,226
      (for each of 1996 and  1995);  Mr.  Stempel  $3,159  (for each of 1997 and
      1996); Mrs. Bacon $1,296, $1,294, and $783; and Mr. Dhar $783 (for each of
      1997 and  1996)  and  $459  (1995).  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
      are limited to 3% of a participant's  salary, up to $150,000 for 1997. The
      contributions  reported for 1997 are for the calendar year ended  December
      31, 1996.
(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)   Does  not  include  option  to  purchase  shares  of  Ovonic  Battery.
      See "Employment  Agreements."  (7) Mr.  Stempel joined the Company in
      December 1995. The salary reported for 1996 is for the six month
      period January 1996 - June 1996.  Options  indicated for 1995 were granted
      to Mr. Stempel prior to his becoming an executive officer of the Company.

                       OPTION GRANTS IN LAST FISCAL YEAR

      The following  table sets forth all options granted to the named executive
officers during the fiscal year ended June 30, 1997.

<TABLE>
<CAPTION>                                                                                         
                                                                                                   Potential Realizable Value at
                                                                                                       Assumed Annual Rates of
                                                                                                    Stock Price Appreciation for
                                         Individual Grants                                                 Option Term (1)       
                      ----------------------------------------------------------------            ----------------------------------
                                    % of Total
                                    Options
                                    Granted               Exercise
                                    to Employees          Price            Expiration
       Name            Options      in Fiscal Year        ($/Sh)           Date                    0%        5%            10%
------------------     -------      --------------        -------          ----------              ---------------------------------


<S>                    <C>             <C>                <C>              <C>                             <C>           <C>
Robert C. Stempel      25,000          8.59%              $15.125          12/18/2006               _      $237,801      $602,634


-----------

</TABLE>

(1)   The potential  realizable  value amounts shown  illustrate the values that
      might be realized upon  exercise  immediately  prior to the  expiration of
      their term using 5% and 10%  appreciation  rates as required to be used in
      this table by the Securities and Exchange Commission, compounded annually,
      and are not intended to forecast possible future appreciation,  if any, of
      the  Company's  stock price.  Additionally,  these values do not take into
      consideration    the    provisions   of   the   options    providing   for
      nontransferability  or termination of the options following termination of
      employment.




                                     -67-

<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, 1997 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         Value           Underlying Unexercised              in-the-Money Options
                           on Exercise      Realized       Options at Fiscal Year End             at Fiscal Year End
       Name                  (#)              ($)           Exercisable/Unexercisable          Exercisable/Unexercisable
      ------               -----------      --------       --------------------------          -------------------------

<S>                           <C>         <C>                   <C>                             <C>
Stanford R. Ovshinsky (1)       _              _                450,705/58,487                  $1,158,341/$51,176

Iris M. Ovshinsky (2)           _              _                280,395/44,066                  $749,485/$38,558

Robert C. Stempel (3)           _              _                236,300/113,700                 $234,013/$33,863

Nancy M. Bacon (4)            27,800      $219,300(5)           182,640/52,560                  $399,185/$32,865

Subhash K. Dhar (6)             _             _                  49,122/19,806                  $23,545/$1,045

</TABLE>


(1)   Mr. Ovshinsky's exercisable and unexercisable options are exercisable at a
      weighted  average  price of  $11.04  per  share  and  $11.875  per  share,
      respectively.

(2)   Dr. Ovshinsky's exercisable and unexercisable options are exercisable at a
      weighted  average  price of  $11.00  per  share  and  $11.875  per  share,
      respectively.

(3)   Mr. Stempel's  exercisable and unexercisable  options are exercisable at a
      weighted average price of $13.36 and $16.46 per share, respectively.

(4)   Mrs. Bacon's  exercisable and  unexercisable  options are exercisable at a
      weighted  average  price  of  $11.00  per  share  and  $14.23  per  share,
      respectively.

(5)   Of the approximately  $219,300 value realized,  approximately $133,330 was
      used to  cover  expenses,  i.e.,  purchase  price  and  withholding  taxes
      associated  with  the  exercise,  and  approximately  $85,191  was used to
      purchase 10,935 shares of ECD Common Stock.

(6)   Mr. Dhar's  exercisable  and  unexercisable  options are  exercisable at a
      weighted  average  price  of  $15.81  per  share  and  $16.46  per  share,
      respectively.


                             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


                                     -68-

<PAGE>



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 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
provides  for a 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.

                           COMPENSATION OF DIRECTORS

      Directors  who  are  neither   employees  of  the  Company  nor  otherwise
compensated  by 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. Furthermore,  as of April 18, 1996, directors who are
not employees of the Company


                                     -69-

<PAGE>



receive  $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.

     During the fiscal year ended June 30, 1997, the Compensation  Committee was
composed of Mr.  Conway,  Mr.  McCarthy and Dr. Metz.  None 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.

Stock Options.

      Stock option grants to Mr. Stempel were made by the Compensation Committee
in accordance with the Compensation  Committee's evaluation of his contributions
to the Company. See "Option Grants in Last Fiscal Year." While Mr. Ovshinsky and
Mr.  Stempel   participate  in  formulating  the  recommendation  of  management
regarding  the  grant  of  stock  options,   neither  one  participates  in  the
deliberations of the Compensation Committee.



                                     -70-

<PAGE>



      Ownership of stock  assists in the  attraction  and retention of qualified
employees  and provides  them with  additional  incentives  to devote their best
efforts to pursue and attain the achievement of corporate goals.

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  $100,000 by the  Company and not less than  $150,000 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

                                              Jack T. Conway
                                              Walter J. McCarthy, Jr.
                                              Florence I. Metz

                                     -71-

<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.

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


                                                   Cumulative Total Return
                                              - - - - - - - - - - - - - - - - - 
                                              6/92  6/93  6/94  6/95  6/96  6/97

ENERGY CONVERSION DEVICES                     100   121   136   181   253   142
NASDAQ STOCK MARKET-US                        100   126   127   169   218   265
H & Q TECHNOLOGY                              100   136   139   245   287   374


*$100 INVESTED ON 6/30/92 IN STOCK OR INDEX-
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING JUNE 30.


      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,
1992, 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.



                                     -72-

<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  12, 1997,  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 9,989 shares of Common Stock Mr. and
Dr.  Ovshinsky  own,  give Mr. and Dr.  Ovshinsky  voting  control  over  shares
representing approximately 34.89% of the combined voting power of the Company.

      The  following  table  sets  forth,  as  of  June  30,  1997,  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         
Name of                    Beneficially         Total Number of Shares
Beneficial Owner            Owned(1)(2)         Beneficially Owned         Percentage 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 (16 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.

                                     -73-

<PAGE>






                                 COMMON STOCK

      Directors and Executive  Officers.  The following  table sets forth, as of
September 12, 1997,  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                          797,927(3)                 7.0%

Iris M. Ovshinsky                              392,736(4)                 3.6%

Robert C. Stempel                              333,404(5)                 3.0%

Nancy M. Bacon                                 251,215(6)                 2.3%

Subhash K. Dhar                                 50,316(7)                  *

Haru Reischauer                                 41,709(8)                  *

Jack T. Conway                                  38,027(9)                  *

Hellmut Fritzsche                               31,490(10)                 *

Joichi Ito                                      22,534(11)                 *

Walter J. McCarthy, Jr.                         21,660(12)                 *

Stanley K. Stynes                               20,357(13)                 *

Nathan J. Robfogel                              16,590(14)                 *

Florence I. Metz                                 8,857(15)                 *

Umberto Colombo                                  8,624(16)                 *

Seymour Liebman                                  4,000(17)                 *

Stephan W. Zumsteg                               3,200(18)                 *


All executive officers and directors
as a group (16 persons)                      2,042,646                   16.4%


-------

 *      Less than 1%.
 (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.
 (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.


                                     -74-

<PAGE>





 (3)    Includes  509,192 shares  (adjusted as of June 30, 1997)  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  324,461 shares  (adjusted as of June 30, 1997)  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 290,000 shares represented by options exercisable within 60
        days and 14,000 shares represented by warrants exercisable within 60
        days.
 (6)    Includes 227,700 shares represented by options exercisable within 60
        days and 6,000 shares represented by warrants exercisable within 60
        days.
 (7)    Includes 50,316 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 of which Mrs.
        Reischauer is trustee.
 (9)    Includes 27,000 shares represented by options exercisable within 60 days
        and 4,000 shares represented by warrants exercisable within 60 days.
 (10)   Includes 18,980 shares represented by options exercisable within 60 days
        and 1,980 shares represented by warrants exercisable within 60 days.
 (11)   Includes 21,749 shares represented by options exercisable within 60
        days.
 (12)   Includes 10,000 shares represented by options exercisable within 60 
        days.
 (13)   Includes 9,000 shares represented by options exercisable within 60 days.
 (14)   Includes 15,000 shares represented by options exercisable within 60
        days.
 (15)   Includes 5,000 shares represented by options exercisable within 60 days.
 (16)   Includes 7,000 shares represented by options exercisable within 60 days.
 (17)   Includes 4,000 shares represented by options exercisable within 60 days.
 (18)   Includes 3,200 share represented by options exercisable within 60 days.




                                     -75-

<PAGE>



      Principal  Shareholders.  The following  table sets forth, as of September
 12, 1997, 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            1,190,663(2)             10.2%
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),
      9,989  shares of Common  Stock  owned by Mr.  and Dr.  Ovshinsky,  126,500
      shares of Sanoh Shares over which Mr. Ovshinsky has voting rights, 833,653
      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.  Mrs. Reischauer is also a director of United
 Solar.  In the  year  ended  June  30,  1997,  the  Company  performed  various
 laboratory,  shop,  patent and  research  services  for United  Solar for which
 United  Solar was charged  approximately  $267,000.  In the year ended June 30,
 1997, United Solar billed ECD for approximately  $296,000 for work performed in
 accordance with the DOE PV Bonus contract.

      GM Ovonic.  During the years ended June 30, 1997, the Company had revenues
 of $7,776,000  for sales of battery  packs,  electrodes,  machine  building and
 other services performed for GM Ovonic.

     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 $118,245 in salary during the year ended June 30, 1997.

                                      -76-

<PAGE>


      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, 1997, all
 filing requirements were met on a timely basis.


                                     -77-



<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........................................32

            Consolidated balance sheets - June 30, 1997 and 1996................33

            Consolidated statements of operations - years ended
                  June 30, 1997, 1996 and 1995..................................35

            Consolidated statements of stockholders' equity (deficit)
                   years ended June 30, 1997, 1996 and 1995.....................36

            Consolidated statements of cash flows - years ended
                  June 30, 1997, 1996 and 1995..................................37

            Notes to consolidated financial statements..........................39

</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)
        May 22, 1972 increasing  authorized shares of the Company's Common Stock
        from 2,000,000 shares to 5,000,000 shares

3.3     Certificate of Amendment to Certificate of Incorporation filed            (c)
        September  15,  1978  increasing  and  extending  voting  rights  of the
        Company's  Class A Common  Stock  and  establishing  class  voting  with
        respect to other matters


</TABLE>
                                      -78-

<PAGE>




<TABLE>
<S>                                                                               <C>
3.4     Certificate  of  Amendment to  Certificate  of  Incorporation  filed      (d)
        January 7, 1982 increasing and extending  voting rights to the Company's
        Class A Common Stock

3.5     Certificate of Amendment to Certificate of Incorporation  filed July      (e)
        23, 1982 increasing authorized shares of the Company's Common Stock from
        5,000,000 shares to 10,000,000 shares

3.6     Certificate of Amendment to Certificate of  Incorporation  filed May      (f)
        May 9, 1988 including various amendments, including increasing authorized
        shares of  the  Company's Common Stock from 10,000,000  shares to
        15,000,000 shares

3.7     Certificate of Incorporation of United Solar Systems Corp.                (g)

3.8     Bylaws of United Solar Systems Corp.                                      (h)

3.9     Certificate of Amendment to Certificate of Incorporation filed            (i)
        September 13, 1993 extending voting rights of the Company's
        Class A Common Stock

3.10    Bylaws in effect as of July 17, 1997                                      94

4.1     Agreement among the Company, Stanford R. Ovshinsky and Iris M.            (j)
        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,                 (k)
        Ltd. dated October 29, 1984

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

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

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

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

10.6    Joint Venture Agreement effective as of June 1, 1987 between the          (p)
        Company and Canon Inc.

10.7    License Agreement dated as of June 29, 1987 between the                   (q)
        Company and Ovonic Battery


                                      -79-
</TABLE>


<PAGE>


<TABLE>


<S>                                                                               <C>
10.8    Energy Conversion Devices, Inc. 1987 Stock Option and Incentive           (r)
        Plan

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

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

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

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

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

10.14   Joint Venture Agreement dated as of June 27, 1990 by and                  (x)
        between Canon Inc. and the Company filed confidentially
        pursuant to Rule 24b-2

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

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

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

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

10.19   License  agreement by and between the Company,  Ovonic  Battery and       (cc)
        Gates Energy Products dated October 25, 1990

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

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

</TABLE>



                                      -80-

<PAGE>


<TABLE>

<S>                                                                               <C>
10.22   Memory Patent License Agreement by and between the Company                (ff)
        and Asahi Chemical Industry Co., Ltd. dated April 26, 1991

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

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

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

10.26   Agreement  Supplement  entered  into as of October  31, 1991 by and       (jj)
        between Hitachi Maxell, Ltd., the Company and Ovonic Battery

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

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

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

10.30   Option License  Agreement  effective as of September 8, 1992 by and       (nn)
        between the Company, Ovonic Battery and Sylva Industries Limited

10.31   Master Equipment Lease Agreement dated as of September 28,                (oo)
        1992 between Financing for Science and Industry, Inc. and
        Ovonic Battery Company, Inc.

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

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

10.34   Master Equipment Lease Agreement dated as of March 31, 1993               (rr)
        between Ovonic Battery Company, Inc. and the Company

10.35   Joint  Business  Agreement  dated  as of May 20, 1993  among  the         (ss)
        Company, Ovonic Synthetic Materials Company and Sanoh Industrial
        Co., Ltd.
 
10.36   Investment Agreement dated as of July 9, 1993 among the                   (tt)
        Company, United Solar Systems Corp. and Canon, Inc.

</TABLE>



                                      -81-

<PAGE>



<TABLE>

<S>                                                                               <C>
10.37   Amendment to Exclusive  License Agreement dated as of July 22, 1993       (uu) 
        between the Company and United Solar Systems Corp. filed  confidentially
        pursuant to Rule 24b-2

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

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

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

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

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

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

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

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

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

10.47   Stock Option Agreement by and between the Company and                     (eee)
        Stanford R. Ovshinsky dated as of November 18, 1993

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

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

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

</TABLE>


                                      -82-

<PAGE>



<TABLE>

<S>                                                                               <C>
10.51   Letter Agreement dated June 20, 1994 between Sanoh Industrial             (iii)
        Co., Ltd. and the Company

10.52   Amendment AOO2 to United States Department of Energy                      (jjj)
        Cooperative Agreement No. DE-FC36-93CH10571, Rooftop PV
        System, dated July 5, 1994

10.53   Subcontract No. ZAN-4-13318-11 under Prime Contract No. DE-               (kkk)
        AC36-83CH10093 between Midwest Research Institute/National
        Renewable Energy Laboratory Division and the Company dated
        July 19, 1994

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

10.55   Consumer  Battery License  Agreement  effective as of December 20,        (mmm)
        1994 by and  between the  Company,  Ovonic  Battery  Company, Inc. and
        Toshiba Battery Co., Ltd., filed confidentially pursuant to Rule 24b-2
 
10.56   Second Amendment to Sylva/ECD/OBC License Agreement effective as of       (nnn)
        effective as 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

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

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

10.59   Amendment to License and Joint R&D Agreement effective as of March        (qqq)
        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

10.60   Energy Conversion Devices, Inc. 1995 Non-Qualified Stock                  (rrr)
        Option Plan

10.61   Memory Patent License Agreement by and between Toray                      (sss)
        Industries, Inc. and the Company effective as of April 1, 1995

</TABLE>

                                      -83-

<PAGE>


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

10.63   Amendment to License  Agreement  by and between  Samsung Display          (uuu)  
        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

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

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

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

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

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

10.69   Amendment No. 2 to Development Agreement between United                   (aaaa)
        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

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

10.71   Settlement Agreement effective as of March 28, 1996, by and among         (cccc) 
        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

11.1    Computation of Earnings Per Share Attributable to Common Stock            110

</TABLE>

                                      -84-

<PAGE>



<TABLE>

<S>                                                                               <C>
22.1    List of all direct and indirect subsidiaries of the Company               111

23.1    Consent of Independent Auditors                                           112

27.1    Financial Data Schedule                                                   113

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

28.2    Order dated August 18, 1993                                               (eeee)

</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-A-1  to  Amendment  No.  3  of  the  Company's
            Registration  Statement on Form S-1  (Registration  No. 2-40597) and
            incorporated herein by reference.

(c)         Filed as  Exhibit  3-A-2 to  Post-Effective  Amendment  No. 1 to the
            Company's  Registration  Statement  on Form  S-1  (Registration  No.
            2-61551) and incorporated herein by reference.

(d)         Filed as Exhibit 1 to the  Company's  Quarterly  Report on Form 10-Q
            for the quarter ended December 31, 1981 and  incorporated  herein by
            reference.

(e)         Filed as Exhibit 6 to the  Company's  Annual Report on Form 10-K for
            the  fiscal  year  ended June 30,  1982 and  incorporated  herein by
            reference.

(f)         Filed as Exhibit 3.8 to the Company's Annual Report on Form 10-K for
            the  fiscal  year  ended June 30,  1988 and  incorporated  herein by
            reference.

(g)         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.

(h)         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.

(i)         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.

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

(k)         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.

                                      -85-

<PAGE>



(l)         Filed as Exhibit 10.33 to the  Company's  Annual Report on Form 10-K
            for the  fiscal  year  June 30,  1985  and  incorporated  herein  by
            reference.

(m)         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.

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

(o)         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.

(p)         Filed as Exhibit  10.7 to the  Company's  Form 8 Amendment  No. 2 to
            Quarterly  Report on Form 10-Q for the quarter  ended March 31, 1987
            and incorporated herein by reference.

(q)         Filed as Exhibit 10.60 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 10.110 to the Company's  Annual Report on Form 10-K
            for the fiscal year ended June 30, 1988 and  incorporated  herein by
            reference.

(s)         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.

(t)         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.

(u)         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.

(v)         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.

(w)         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.

(x)         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.

                                      -86-

<PAGE>



(y)         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.

(z)         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.

(aa)        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.

(bb)        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.

(cc)        Filed as Exhibit 28.1 to the  Company's  Current  Report on Form 8-K
            dated October 25, 1990 and incorporated herein by reference.

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

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

(ff)        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.

(gg)        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.

(hh)        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.

(ii)        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.

(jj)        Filed as Exhibit 10.71 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.


                                      -87-

<PAGE>



(kk)        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.

(ll)        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.

(mm)        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.

(nn)        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.

(oo)        Filed as Exhibit 10.84 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 10.86 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 10.87 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 10.88 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 10.89 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 10.90 to the  Company's  Annual Report on Form 10-K
            for the fiscal year ended June 30, 1993 and  incorporated  herein by
            reference.

(uu)        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.

(vv)        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.

(ww)        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.

(xx)        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.

                                      -88-

<PAGE>



(yy)        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.

(zz)        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.

(aaa)       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.

(bbb)       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.

(ccc)       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.

(ddd)       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.

(eee)       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.

(fff)       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.

(ggg)       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.

(hhh)       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.

(iii)       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.

(jjj)       Filed as Exhibit 10.78 to the  Company's  Annual Report on Form 10-K
            for the fiscal year ended June 30, 1994 and  incorporated  herein by
            reference.

(kkk)       Filed as Exhibit 10.79 to the  Company's  Annual Report on Form 10-K
            for the fiscal year ended June 30, 1994 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 December 31, 1994 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 December 31, 1994 and  incorporated  herein by
            reference.


                                      -89-

<PAGE>



(nnn)       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.

(ooo)       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.

(ppp)       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.

(qqq)       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.

(rrr)       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.

(sss)       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.

(ttt)       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.

(uuu)       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.

(vvv)       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.

(www)       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.

(xxx)       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.

(yyy)       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.

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

(aaaa)      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.

(bbbb)      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.


                                      -90-

<PAGE>



(cccc)      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.

(dddd)      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.

(eeee)      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.





                                      -91-

<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.
                               -------------------------------------
                               (Registrant)




Dated:  February 2, 1998       By:   /s/ Stanford R. Ovshinsky
                               -------------------------------------
                               Stanford R. Ovshinsky,
                               President and Chief Executive Officer
                               (Principal Executive Officer)



Dated:  February 2, 1998       By:   /s/ Stephan W. Zumsteg
                               -------------------------------------
                               Stephan W. Zumsteg
                               Treasurer





                                      -92-

<PAGE>


                                     EXHIBIT INDEX


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

3.10                           Bylaws in effect as of July 17, 1997

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