<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-Q
(Mark One)

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

For the quarterly period ended      December 31, 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             0-19472
                      -------------------------------


                              CELLPRO, INCORPORATED
             (exact name of registrant as specified in its charter)


        Delaware                                        94-3087971
   -------------------------------                    ----------------
   (State or other jurisdiction of                    (I.R.S. Employer
   incorporation or organization)                     Identification No.)

              22215 - 26th Avenue, S.E., Bothell, Washington 98021
              -----------------------------------------------------
              (Address of registrant's principal executive offices)
                                   (Zip Code)

                                 (425) 485-7644
              ----------------------------------------------------
              (Registrant's telephone number, including area code)

                                 Not Applicable
        ----------------------------------------------------------------
        (Former name, former address, and former fiscal year, if changed
                               since last report)

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [x] No [ ]

                                                     Outstanding at
                                                    January 30, 1998

 Common Stock, $0.001 par value                        14,526,782


Page 1 of 17


<PAGE>   2
                                      INDEX


<TABLE>
<CAPTION>
PART I:        FINANCIAL INFORMATION                                                    PAGE
                                                                                        ----
<S>                                                                                    <C>
Item 1.        Financial Statements:


               Consolidated Balance Sheets - December 31, 1997
               and March 31, 1997......................................................   3

               Consolidated Statements of Operations -
                  Three and nine months ended December 31, 1997
                  and 1996.............................................................   4

               Consolidated Statements of Cash Flows -
                  Nine months ended December 31, 1997 and 1996.........................   5

               Notes to Consolidated Financial Statements..............................   6-7


Item 2.        Management's Discussion and Analysis of
               Financial Condition and Results of Operations...........................   7-15


PART II:       OTHER INFORMATION

Item 1.        Legal Proceedings.......................................................   16

Item 6.        Exhibits and Reports on Form 8-K........................................   16

               All other items under Part II are inapplicable or have a negative
               response and are therefore omitted.


SIGNATURES     ........................................................................   17
</TABLE>


Page 2 of 17


<PAGE>   3
                          PART I: FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                     CELLPRO, INCORPORATED AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

                      DECEMBER 31, 1997 AND MARCH 31, 1997

                                     ASSETS


<TABLE>
<CAPTION>
                                                   December 31,          March 31,
                                                      1997                 1997
                                                  -------------        -------------
Current Assets:                                  (Unaudited)
<S>                                              <C>                   <C>          
   Cash and cash equivalents                      $  12,763,529        $  15,052,804
   Securities available for sale                     12,872,086           38,990,371
   Trade receivables                                  3,223,657            3,158,729
   Inventories                                        6,694,695            5,078,257
   Other current assets                                 637,267              548,558
                                                  -------------        -------------
        Total current assets                         36,191,234           62,828,719

Property and equipment, net                          10,859,798           13,183,854
Restricted cash equivalents                           9,000,000                   --
Other assets                                            148,121              111,124
                                                  -------------        -------------
        Total assets                              $  56,199,153        $  76,123,697
                                                  =============        =============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Current portion of long-term debt              $     113,932        $     149,750
   Accounts payable                                     508,435              991,297
   Accrued liabilities                                3,457,249            3,852,349
   Accrual for litigation claim and costs            14,396,686           17,000,000
   Other current liabilities                            119,671                   --
                                                  -------------        -------------
        Total current liabilities                    18,595,973           21,993,396
Long-term debt, net of current portion                  166,002              152,943
Other liabilities                                     1,077,039            1,196,710
                                                  -------------        -------------
        Total liabilities                            19,839,014           23,343,049
                                                  -------------        -------------

Stockholders' equity:
   Common stock                                          14,527               14,487
   Additional paid-in capital                       169,751,469          169,556,157
   Foreign currency translation                        (227,128)            (173,315)
   Net unrealized loss on securities
        available for sale                              (17,784)             (80,331)
   Accumulated deficit                             (133,160,945)        (116,536,350)
                                                  -------------        -------------
        Total stockholders' equity                   36,360,139           52,780,648
                                                  -------------        -------------

        Total liabilities and stockholders'
        equity                                    $  56,199,153        $  76,123,697
                                                  =============        =============
</TABLE>


See accompanying notes to consolidated financial statements.


Page 3 of 17


<PAGE>   4
                          PART I: FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS (CONTINUED)

                     CELLPRO, INCORPORATED AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS

             THREE AND NINE MONTHS ENDED DECEMBER 31, 1997 AND 1996
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                           Three months ended                      Nine months ended
                                               December 31,                            December 31,
                                     --------------------------------        --------------------------------
                                         1997                1996               1997                 1996
                                     ------------        ------------        ------------        ------------
<S>                                  <C>                 <C>                 <C>                 <C>      
Product sales                        $  3,165,489        $  2,466,533        $  8,088,834        $  6,387,756
Contract and other revenue                 84,011              52,017             253,647              65,831
                                     ------------        ------------        ------------        ------------
      Total revenues                    3,249,500           2,518,550           8,342,481           6,453,587
                                     ------------        ------------        ------------        ------------

Costs and expenses:
  Cost of product sales                 1,402,817           1,268,884           3,709,834           3,564,494
  Other cost of sales                     834,013                  --           2,229,403                  --
  Research and development              3,748,657           4,580,142          10,681,789          12,055,470
  Selling, general and
    administrative                      3,367,412           4,467,720           9,939,068          10,383,990
                                     ------------        ------------        ------------        ------------
      Total costs and expenses          9,352,899          10,316,746          26,560,094          26,003,954
                                     ------------        ------------        ------------        ------------

      Loss from operations             (6,103,399)         (7,798,196)        (18,217,613)        (19,550,367)
                                     ------------        ------------        ------------        ------------

Other income (expense):
  Interest income                         509,579             852,293           1,799,967           2,811,431
  Interest expense                         (6,132)            (11,980)            (20,368)            (38,640)
  Other, net                              141,605            (129,560)           (186,580)            (28,975)
                                     ------------        ------------        ------------        ------------

      Total other income                  645,052             710,753           1,593,019           2,743,816
                                     ------------        ------------        ------------        ------------

                Net loss             $ (5,458,347)       $ (7,087,443)       $(16,624,594)       $(16,806,551)
                                     ============        ============        ============        ============

Net loss per share                   $      (0.38)       $      (0.49)       $      (1.15)       $      (1.17)
                                     ============        ============        ============        ============

Weighted average number of
  shares outstanding during
  the period                           14,526,782          14,440,759          14,513,637          14,402,965
                                     ============        ============        ============        ============
</TABLE>


See accompanying notes to consolidated financial statements.


Page 4 of 17


<PAGE>   5
                          PART I: FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS (CONTINUED)

                     CELLPRO, INCORPORATED AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                  NINE MONTHS ENDED DECEMBER 31, 1997 AND 1996
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                           Nine months ended
                                                             December 31,
                                                    --------------------------------
                                                        1997               1996
                                                    ------------        ------------
<S>                                                 <C>                 <C>          
Net cash used in operating
   activities                                       $(19,162,089)       $(14,664,505)
                                                    ------------        ------------
Investing activities:
   Purchase of property and equipment                   (389,800)           (509,600)
   Proceeds from sales and maturities
      of securities available for sale                34,370,391          23,374,876
   Purchase of securities available
      for sale                                        (8,189,559)         (7,723,307)
   Deposit of restricted cash
      equivalents                                     (9,000,000)                 --
   Change in other assets                                (36,997)            (32,284)
                                                    ------------        ------------
    Net cash provided by investing activities         16,754,035          15,109,685
                                                    ------------        ------------

Financing activities:
   Proceeds from long-term debt                           40,900              64,990
   Principal payments on
      long-term debt                                     (63,659)           (208,351)
   Issuance of Common Stock, net
      of issuance costs                                  195,352             962,926
   Other                                                 (53,814)                 --
                                                    ------------        ------------
 Net cash provided by financing activities               118,779             819,565
                                                    ------------        ------------
 Net increase (decrease) in cash
   and cash equivalents                               (2,289,275)          1,264,745

Cash and cash equivalents:
   Beginning of period                                15,052,804          17,076,098
                                                    ------------        ------------
   End of period                                    $ 12,763,529        $ 18,340,843
                                                    ============        ============
</TABLE>


See accompanying notes to consolidated financial statements.


Page 5 of 17


<PAGE>   6
                          PART I: FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS (CONTINUED)

                     CELLPRO, INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       NINE MONTHS ENDED DECEMBER 31, 1997
                                   (UNAUDITED)


1.   Basis of Presentation - The accompanying unaudited financial statements
     should be read in conjunction with the audited financial statements and
     notes thereto contained in the Annual Report of CellPro, Incorporated (the
     "Company") on Form 10-K for the year ended March 31, 1997. In the opinion
     of management, all adjustments necessary for a fair presentation of the
     interim operating results are reflected herein. All such adjustments are
     normal and recurring in nature.

2.   Principles of Consolidation - The consolidated financial statements include
     the accounts of CellPro, Incorporated and its wholly owned subsidiaries.
     Intercompany transactions and balances have been eliminated in
     consolidation.

3.   Restricted Cash Equivalents - On August 1, 1997, $9.0 million was deposited
     in a collateral account in anticipation of the posting of an appeal bond in
     response to a judgment for patent infringement damages entered against the
     Company on July 24, 1997, and amended on September 26, 1997. See
     "Investment Considerations Legal Proceedings," below.

4.   Inventories - Inventories consisted of the following:


<TABLE>
<CAPTION>
                             December 31, 1997      March 31, 1997
                                ----------            ----------
          <S>                <C>                    <C>       
          Raw materials         $1,687,161            $1,520,000
          Work in process        1,769,743               918,632
          Finished goods         3,237,791             2,639,625
                                ----------            ----------
                                $6,694,695            $5,078,257
                                ==========            ==========
</TABLE>


5.   Accrual for Litigation Claim and Costs - At March 31, 1997, the Company
     established a liability of $17 million to cover potential losses from, and
     future expenses for pursuing, ongoing patent litigation as discussed below
     under "Investment Considerations - Legal Proceedings." For the nine months
     ended December 31, 1997, $2.6 million has been charged against the
     liability, representing expenses related to this matter.

6.   Other Cost of Sales - Other cost of sales represents the amount payable for
     the period March 12, 1997 through December 31, 1997, to Plaintiffs (as
     defined in the section titled "Investment Considerations - Legal
     Proceedings") in the ongoing patent litigation under the terms of a partial
     stay of an injunction as discussed below under "Investment Considerations -
     Legal Proceedings." This case and the terms of the injunction have been
     appealed. The amount is based on the quantity of product sold by the
     Company, and, in general, equals $1,075 per CEPRATE(R) SC disposable kit
     sold commercially and $750 per kit sold on a cost 


Page 6 of 17


<PAGE>   7
     recovery basis. Certain amounts may be refundable in the event that CellPro
     prevails in its appeal.

7.   Supplemental Disclosures of Cash Flow Information - Cash paid for interest
     was $20,368 for the nine months ended December 31, 1997 and $38,640 for the
     nine months ended December 31, 1996. The Company had an unrealized gain on
     securities available for sale of $62,547 for the nine months ended December
     31, 1997.

8.   Net Loss Per Share - Net loss per share is based upon the weighted average
     number of shares of Common Stock outstanding. Common stock equivalents have
     not been included because the effect would be anti-dilutive.

9.   Reclassifications - Certain prior period amounts have been reclassified to
     conform to the current year presentation.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

Except for disclosures that report the Company's historical results, the
statements set forth in this section are forward-looking statements. Actual
results may differ materially from those projected in the forward-looking
statements. Additional information concerning factors that may cause actual
results to differ materially from those in the forward-looking statements are
set forth below in the section entitled "Investment Considerations" of this
quarterly report on Form 10-Q, in the section entitled "Investment
Considerations" in the Company's Annual Report on Form 10-K for the year ended
March 31, 1997 and in the Company's other filings with the Securities and
Exchange Commission. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof and which
must be understood in the context of the aforementioned SEC filings.

Since the commencement of operations in 1989, the Company has primarily engaged
in developing, manufacturing and marketing proprietary continuous-flow,
cell-selection systems. These systems may be used for a variety of therapeutic,
diagnostic and research applications. On December 6, 1996, the U.S. Food and
Drug Administration ("FDA") granted marketing approval for CellPro's CEPRATE(R)
SC System for purification of stem cells for bone marrow transplantation. The
CEPRATE(R) SC System has also received marketing approval throughout the
18-nation European Economic Area and Canada.

The Company's activities have been funded primarily by raising approximately
$153 million through the sale of Common Stock, including two public offerings
and two private offerings to Corange International Limited ("Corange"), and $9.7
million through private sales of Preferred Stock prior to the Company's initial
public offering. The Company has been unprofitable since inception and expects
to incur additional operating losses for at least the next few years.

The Company's first commercial product, the CEPRATE(R) LC System, was introduced
in October 1991 and has been sold on a world-wide basis for various research
applications. Additionally, the Company commenced sales of its CEPRATE(R) SC
System for certain therapeutic purposes in Europe in August 1993 and in the U.S.
in January 1997. The CEPRATE(R) SC System is also being sold in Canada, 


Page 7 of 17


<PAGE>   8
South America and the Asia-Pacific region. However, sale of the Company's
products is subject to an injunction against the Company issued July 24, 1997
which by its terms will, among other things, ultimately prohibit the Company
from selling or manufacturing in the U.S. its principal products, as presently
constituted, and from conducting certain related research activities in the U.S.
during the term of the patents which are the subject of the hereinafter
described legal proceedings. Under a partial stay of such injunction, the
Company is permitted to continue the U.S. manufacture and sale of disposable
products for use in the CEPRATE(R) SC System subject to various conditions,
including payment of a substantial amount per unit to the Plaintiffs in the
litigation described hereinafter. See "Investment Considerations - Legal
Proceedings." Unless the injunction is reversed on appeal or the Company obtains
a reasonable license to sell its products, the injunction will have a material
adverse effect on the Company's business, prospects, financial condition and
results of operations. The Company expects to continue to incur substantial
expenses to support its operations, including the costs of preclinical and
clinical studies, manufacturing scale-up costs and its sales and marketing
organization. The Company's results of operations may vary significantly from
quarter to quarter during this period of development and the Company expects to
continue to incur net operating losses during this period.

RESULTS OF OPERATIONS

THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996

PRODUCT SALES

Product sales increased to $3.2 million for the three months ended December 31,
1997, from $2.5 million in the three months ended December 31, 1996. European
sales were $1.7 million for the three months ended December 31, 1997 and $2.0
million for the three months ended December 31, 1996. CEPRATE(R) SC System
disposable kit unit sales in Europe were 5% lower in the three months ended
December 31, 1997 than during the three months ended December 31, 1996. European
sales are denominated in various European currencies. As a result, product sales
have been and will continue to be affected by changing currency exchange rates.
The decrease in dollar denominated sales is higher than the decrease in the unit
sales due to unfavorable exchange rates in the current quarter. International
sales were also subject to a phase-out over a one year period ending July 24,
1998 included in an injunction issued July 24, 1997 by the U.S. District Court
in Wilmington, Delaware (the "Injunction"). The phase-out provisions of the
Injunction were stayed pending appeal, by the U.S. Court of Appeals for the
Federal Circuit (the "Appeals Court") on January 30, 1998. See "Investment
Considerations - Legal Proceedings." During January 1997, the Company commenced
commercial shipments of the CEPRATE(R) SC System in the U.S. During the three
months ended December 31, 1997, combined U.S. and export sales to the
Asia-Pacific region, Canada and South America totaled $1.5 million, compared to
$0.5 million during the three months ended December 31, 1996. The increase
primarily resulted from U.S. commercial sales of disposable kits for use in the
CEPRATE(R) SC System.


Page 8 of 17


<PAGE>   9
COST OF PRODUCT SALES

Cost of product sales was $1.4 million and $1.3 million for the fiscal quarters
ended December 31, 1997 and 1996, respectively. The Company's gross margin
percentage improved in the quarter ended December 31, 1997 compared to the
quarter ended December 31, 1996. Unit costs were lower in the quarter ended
December 31, 1997 due to increased production volumes. This was partially offset
by lower average sales prices in the European market resulting from the strength
of the U.S. dollar.

OTHER COST OF SALES

Other cost of sales of $0.8 million for the quarter ended December 31, 1997
represents the amount due to Plaintiffs pursuant to a partial stay of the
Injunction. In general, the Company must pay Plaintiffs $1,075 for each
CEPRATE(R) SC disposable kit it sells on a commercial basis and $750 per kit it
sells on a cost recovery basis. Certain amounts may be refundable in the event
that CellPro prevails in its appeal. See "Investment Considerations - Legal
Proceedings."

RESEARCH AND DEVELOPMENT

Research and development expenses totaled $3.7 million in the fiscal quarter
ended December 31, 1997, compared to $4.6 million in the fiscal quarter ended
December 31, 1996.

The reduction was primarily due to lower product samples expense in the quarter
ended December 31, 1997. The Company has been prohibited from conducting certain
research and development activities as a result of the Injunction. The
prohibition includes research and certain clinical trials which utilize the
CEPRATE(R) SC System.

SELLING, GENERAL AND ADMINISTRATIVE

Selling, general and administrative expenses were $3.4 million in the fiscal
quarter ended December 31, 1997 compared to $4.5 million for the fiscal quarter
ended December 31, 1996. The Company successfully completed the recruiting of
its sales force in the U.S. during the quarter ended December 31, 1997. Higher
sales and marketing expenditures were offset by decreases in administrative
expense attributable to legal fees. Current year legal fees related to ongoing
patent litigation have been charged against an accrual established at the end of
the prior fiscal year.

INTEREST INCOME

The Company also reported interest income totaling $510,000 for the fiscal
quarter ended December 31, 1997 compared to $852,000 for the quarter ended
December 31, 1996. The decrease was due to lower average cash balances available
for investment in the quarter ended December 31, 1997.

The above factors resulted in net operating losses of $5.5 million and $7.1
million in the fiscal quarters ended December 31, 1997 and 1996, respectively.


Page 9 of 17


<PAGE>   10
NINE MONTHS ENDED DECEMBER 31, 1997 AND 1996

PRODUCT SALES

Product sales increased to $8.1 million for the nine months ended December 31,
1997, from $6.4 million in the comparable prior year nine month period. The
increase was attributable to increased sales of the CEPRATE(R) SC System in the
United States. European sales were $4.5 million for the nine months ended
December 31, 1997 compared to $4.8 million for the nine months ended December
31, 1996. CEPRATE(R) SC System unit sales in Europe increased by 8% in the
current year period. As mentioned above, the increase in unit sales is not
reflected in the dollar denominated sales due to the unfavorable impact of
exchange rates. International sales became subject to a one year phase-out on
July 24, 1997 pursuant to the Injunction. This phase-out provision of the
Injunction was stayed by the Appeals Court on January 30, 1998. During the nine
months ended December 31, 1997, combined U.S. and export sales to the
Asia-Pacific region, Canada and South America totaled $3.6 million, compared to
$1.6 million during the nine months ended December 31, 1996.

COST OF PRODUCT SALES

Cost of product sales was $3.7 million and $3.6 million for the nine month
periods ended December 31, 1997 and 1996, respectively. The impact of lower
European average sales prices was offset by lower unit costs resulting in an
improved gross margin for the nine months ended December 31, 1997.

OTHER COST OF SALES

As mentioned previously, other cost of sales is related to payments required
pursuant to a partial stay of the Injunction. The amount for the nine months
ended December 31, 1997 represents the total amount payable for sales from March
12, 1997 through December 31, 1997.

RESEARCH AND DEVELOPMENT

Research and development expense decreased to $10.7 million during the nine
months ended December 31, 1997 from $12.1 million for the nine months ended
December 31, 1996. The decrease is largely due to the fact that the Company's
second Phase III clinical trial was accruing patients during the nine months
ended December 31, 1996. Patient accrual was completed during January 1997, and
therefore the current year period did not include any patient expense related to
this clinical trial. In addition, the Injunction has restricted the Company's
ability to conduct certain research and development programs.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses were $9.9 million in the nine
months ended December 31, 1997 and $10.4 million in the nine months ended
December 31, 1996. This decrease was attributable to lower legal fees related to
ongoing patent litigation in the current year period. The current year legal
fees have been charged against a reserve established at the end of the prior
fiscal year. This was partially offset by higher sales and marketing expenses
due to the expansion of the U.S. sales force during the nine months ended
December 31, 1997.


Page 10 of 17


<PAGE>   11
INTEREST INCOME

Interest income totaled $1.8 million and $2.8 million for the nine month periods
ended December 31, 1997 and 1996, respectively. The decrease was due to lower
average cash balances available for investment during the nine month period
ended December 31, 1997.

The above factors resulted in net operating losses of $16.6 million and $16.8
million in the nine month periods ended December 31, 1997 and 1996,
respectively.

LIQUIDITY AND CAPITAL RESOURCES

The Company has financed its operations since inception primarily through the
sale of Common Stock and Preferred Stock, generation of interest income and
arrangements for equipment financing. Through December 31, 1997, the Company has
raised $73.3 million through two public offerings and $79.7 million through two
private sales of Common Stock, and $9.7 million from the sale of Preferred
Stock. It has generated $18.4 million in interest income, $30.3 million in
product sales and $9.4 million in contract and related party revenues.

During the nine months ended December 31, 1997, the Company has used $19.2
million of cash in operating activities and invested $390,000 in equipment and
leasehold improvements.

The Company expects to incur substantial expenses in support of ongoing research
and development activities, including the costs of preclinical and clinical
studies, expansion of manufacturing activities and new product development.
Selling, general and administrative expenses are also expected to increase as
the Company expands its sales and marketing organization, continues to pursue
ongoing litigation, and expands administrative activities.

The Company is currently required to pay Plaintiffs a substantial portion of its
gross margin from the sale of disposable kits for use in the CEPRATE(R) SC
System, its principal product, as a condition for a partial stay of the
Injunction. This payment to the Plaintiffs for U.S. disposable kits sales will
continue as long as the partial stay of the Injunction remains in force. On
January 30, 1998, a further stay was issued by the Appeals Court of the
international phase-out provisions of the Injunction. As a condition of this
further stay, the Company must deposit its net revenues from CEPRATE(R) SC
System disposable kits sales outside the U.S. in an escrow account pending
further action by the Appeals Court.

At December 31, 1997, the Company had $25.6 million in cash, cash equivalents
and securities available for sale to meet its future working capital needs. In
addition, as noted previously, the Company also has $9.0 million which serves as
collateral for an appeal bond which was posted in response to a legal judgment
issued July 24, 1997 and amended September 26, 1997. See "Investment
Considerations - Legal Proceedings." The Company anticipates that its capital
resources should be sufficient to fund its cash requirements for at least the
next 12 months. The preceding forward-looking statement is subject to certain
risks and uncertainties that could cause actual results to differ materially


Page 11 of 17


<PAGE>   12
from those projected. In particular, any requirement to segregate significant
additional amounts in connection with ongoing patent litigation would have a
material impact on this projection. In addition, the amount and timing of
working capital resources consumed will depend on the Company's level of product
sales, the timing and extent of sales and marketing expenditures, including
those incurred in support of product launches, the progress of ongoing research
and development, particularly its efforts to develop an alternative antibody for
use with the CEPRATE(R) SC System, the results of preclinical testing and
clinical trials, the rate at which operating losses are incurred, the execution
of any collaborative research and development agreements, product marketing or
licensing agreements, or other corporate partner arrangements, the FDA
regulatory process, the impact of the Injunction on the Company's ability to
sell its products or retain its profits on such product sales, costs incurred in
connection with relocating antibody manufacturing operations for the Company's
products outside the U.S., and ultimately the outcome of continuing patent
litigation, as discussed below, and other factors, many of which are beyond the
Company's control.

INVESTMENT CONSIDERATIONS

The Company desires to take advantage of certain provisions of the Private
Securities Litigation Reform Act of 1995, enacted in December 1995 (the "Reform
Act") that provided a "safe harbor" for forward-looking statements made by or on
behalf of the Company. The Company hereby cautions stockholders, prospective
investors in the Company and other readers that certain important factors in
some cases have affected, and in the future could affect, the Company's stock
price or cause the Company's actual results for the fiscal year ending March 31,
1998, and for future fiscal years and quarters to differ materially from those
expressed in any forward-looking statements, oral or written, made by or on
behalf of the Company. Stockholders, prospective investors and other readers
should also refer to the more extensive discussion of investment considerations
set forth in the Company's Annual Report on Form 10-K for the year ended March
31, 1997 in the section titled "Investment Considerations." Particular attention
should be given to the Investment Considerations labeled "Legal Proceedings,"
"Patents and Proprietary Technology" and "Dependence on CEPRATE(R) SC System" in
CellPro's Annual Report on Form 10-K for the fiscal year ended March 31, 1997.

LEGAL PROCEEDINGS

The Company is engaged in litigation with Baxter Healthcare Corporation
("Baxter"), The Johns Hopkins University ("Hopkins") and Becton Dickinson and
Company ("BD") (Baxter, Hopkins and BD hereinafter being collectively referred
to as "Plaintiffs") concerning certain U.S. patents. There have been two jury
trials in the case. Following the first trial in the summer of 1995, a unanimous
seven-member jury in the U.S. District Court in Wilmington, Delaware, rendered a
verdict wholly favorable to CellPro relating to the four U.S. patents then in
suit: Patent Nos. 4,714,680, 4,965,204, 5,035,994 and 5,130,144 (hereinafter the
"`680," "`204," "`994" and "`144" patents), which had been assigned to Hopkins,
licensed to BD and sublicensed to Baxter. The `680 patent, which expires
December 22, 2004, purports to cover certain suspensions of stem cells in
isolation from a mixed cell population; the `204 patent, which expires October
23, 2007, purports to cover hybridomas that produce monoclonal antibodies having
certain characteristics relating to stem 


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<PAGE>   13
cells, and to cover such antibodies themselves; the `994 patent, which expires
July 30, 2008, purports to cover a method of stem cell isolation using such
antibodies; and the `144 patent, which expires July 14, 2009, purports to cover
a method of transplanting stem cells in a human patient.

The jury in the first trial determined that the Company did not literally
infringe any of these four patents; that all claims of all four patents were
invalid for obviousness under 35 U.S.C. Sections 103; and that, with the
exception of two claims of the `204 patent, all claims of all four patents were
invalid on the additional ground of failure to enable under 35 U.S.C. Sections
112. The two claims of the `204 patent as to which the jury did not render a
verdict of "nonenablement" invalidity under 35 U.S.C. Sections 112 are limited
in their literal scope to a particular antibody and its accompanying hybridoma,
an antibody and hybridoma which are not employed by the Company.

Following the first jury verdict, Plaintiffs filed post-trial motions and, on
June 28, 1996, the Delaware District Court (per Judge Roderick R. McKelvie)
partially granted Plaintiffs' motion for judgment as a matter of law as to the
issues of infringement, inducement of infringement and enablement with respect
to the `680 patent, as well as the issue of induced infringement with respect to
the `144 patent. The Court ordered a new trial on remaining liability and
infringement issues.

Subsequent to the June 28, 1996 order, Plaintiffs moved to withdraw two of the
four patents (the `994 and `144 patents) from suit, which motion was granted
upon Plaintiffs' undertaking that they would not accuse any present product of
the Company of infringing those patents. Thereafter, Judge McKelvie granted a
series of motions by the Plaintiffs to dismiss CellPro`s remaining liability and
infringement defenses.

A second jury trial was held in March 1997, at which the jury was instructed to
the effect that the Court had already determined that the Company infringed the
two patents remaining in the suit, that its defenses had been dismissed, and
that the jury was bound by those determinations. Hence, the jury at the second
trial heard evidence and arguments only as to the amount of damages to be
awarded and as to whether the Company`s conduct had been willful. On March 11,
1997, the jury reached a verdict finding willfulness and awarding some $2.3
million in damages to Plaintiffs.

After the second jury's verdict the following motions were filed and resolved:

        (1) Plaintiffs' motion for enhanced damages, whereby they asked the
        Court to treble the jury`s damage award, was granted, and on July 24,
        1997, final judgment was entered against the Company for $6,961,479.

        (2) Plaintiffs' motion for attorney fees, whereby they seek a
        determination that the Company is liable to reimburse them for some $7
        million in attorney fees and related litigation costs, has been held in
        abeyance by the Court, which may, but is not required to, reserve
        decision on it until after the case is decided on appeal.

        (3) Plaintiffs' motion for a permanent injunction, which was granted on
        July 24, 1997, and which grants relief to Plaintiffs (subject to a
        partial stay), as further described below.


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<PAGE>   14
The Court also dismissed the Company's defense that the patents are
unenforceable for misuse by reason of an attempt by the Plaintiffs to extend the
reach of the patents beyond the territory of the U.S.

The permanent injunction entered July 24, 1997 is complex in form, but it
generally prohibits the Company (subject to a stay hereinafter described) from
making, using and selling products in the U.S. which utilize the anti-stem-cell
monoclonal antibody that is essential to the Company's principal products as
they are presently constituted, and from conducting certain research activities
in the U.S. during the term of the patents. In the U.S., the injunction is
subject to a partial stay which by its terms permits CellPro to continue selling
its principal product (CEPRATE(R) SC disposable kits) until such time as another
stem cell immunoseparation product (such as Baxter's ISOLEX(R) product) gains
approval from the FDA, an event which Plaintiffs had contended would probably
occur before the end of 1997 but which has not yet occurred and may take
significantly longer. Thereafter, the Company would have to phase out sales over
a three-month period, except that the Company would be permitted to continue
supplying product to support certain U.S. clinical trials commenced before the
time an alternative device wins FDA approval. Outside the U.S., the partial stay
allowed by the Delaware District Court required the Company to phase out over a
one-year period its exports of disposable kits containing U.S. sourced antibody
found to infringe Plaintiffs' patents and to prohibit sales of such kits to new
customers. The Company filed a motion for stay of the Injunction with the
Appeals Court seeking, among other things, to eliminate certain restrictions on
sales outside the U.S. On January 30, 1998, the Appeals Court granted a stay of
the international phase-out pending review of the case on appeal. Under the
partial stay as modified pursuant to the agreement of the parties, commercial
sales and cost recovery sales (U.S. only) of disposable kits sold under the
partial stay are subject to a requirement that CellPro pay Plaintiffs $1,075 and
$750, respectively. Subsequent to January 30, 1998, the further stay issued by
the Appeals Court requires that net revenues from international sales be
deposited in an escrow account pending further action by the Appeals Court. The
Injunction has forced the Company to terminate substantially all sales of the
CEPRATE(R) LC34 Laboratory Cell Selection System.

On July 25, 1997, the Company filed a notice of appeal of the permanent
injunction order entered by the Court. CellPro also filed a motion for judgment
as a matter of law as to the treble damages award and sought certification of
the damages judgment to permit an immediate appeal. On September 23, 1997, the
Court denied CellPro's motion, and on September 26, 1997, the Court entered an
amended final judgment, adding interest to the jury's verdict for a total award
of $7,239,833, and certified the judgment so it could be appealed. CellPro
thereafter filed a second notice of appeal from the amended final judgment.
CellPro's two appeals have been consolidated by the Appeals Court and a combined
brief was filed by CellPro on December 24, 1997. Plaintiffs response is due
February 13, 1998. Oral arguments will likely occur in May of 1998, but there is
no way to know when the appeal will be decided.

Certain antitrust and unfair competition claims filed by CellPro against the
Plaintiffs have been stayed pending completion of the patent litigation.


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<PAGE>   15
The course of litigation is inherently uncertain and there can be no assurance
of a favorable outcome. The Company expects to continue to make substantial
expenditures in connection with this litigation for the foreseeable future.
Future expenses in connection with this litigation could have a material adverse
effect on the Company's results of operations and financial position in future
periods.

If Plaintiffs should succeed both in defending their position on the amended
final judgment in the Appeals Court on appeal and in their application for an
award of attorney fees, then the Company would be required to pay a judgment for
damages and fees of approximately $15 million, which would have a substantial
adverse impact on the Company's business and financial condition. As discussed
previously, the Company has an accrual of $14.4 million as of December 31, 1997
to cover potential losses from and future expenses for pursuing this litigation.

If the Plaintiffs should succeed in defending the permanent injunction in the
form in which it has been entered, then the Company will ultimately be
prohibited from selling its principal products as presently constituted, and
from conducting certain related research activities, in the U.S. during the term
of the patents, and will need to arrange for manufacture of modified products
outside the U.S. to the extent it wishes to sell them in markets outside the
U.S. This would greatly disrupt the Company's operations and would have a
material adverse effect on the Company's business, prospects, financial
condition and results of operations. According to a declaration of its chief
financial officer filed May 28, 1997, before the Injunction and partial stay
were issued by the Delaware District Court and before the further stay was
issued by the Appeals Court, absent a reasonable license or suitable stay of
injunction, and in the absence of other alternatives which may or may not be
available, the Company would likely find it necessary to significantly restrict
operations so as to conserve capital while awaiting the outcome of the appeal.
Any such event could result in a significant decrease in the value of the
Company and therefore makes any investment in the Company inherently highly
speculative.

As a possible alternative to a litigated result on appeal, the Company could
pursue further attempts to obtain commercially reasonable licenses under the
Hopkins' patents at issue through various means, including through negotiations
with Plaintiffs. Attempts to negotiate licenses with the Plaintiffs have not
been successful to date, however, and no assurance can be given that Plaintiffs
would license the patents to the Company at all or on terms that would permit
commercialization of the Company's stem cell separation technology.


Page 15 of 17


<PAGE>   16
ITEM 1.        LEGAL PROCEEDINGS

See discussion under "Investment Considerations - Legal Proceedings" in Part I,
Item 2, above.

ITEM 6.        EXHIBITS AND REPORTS ON FORM 8-K

        (a)    Exhibits

               Exhibit 27 - Financial Data Schedule

        (b)    No reports on Form 8-K were filed during the quarter ended
               December 31, 1997.


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<PAGE>   17
                                   SIGNATURES


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


                                          CELLPRO, INCORPORATED
                                          (Registrant)


Date:  February 12, 1998

                                            /s/ Richard D. Murdock
                                          --------------------------------------
                                          Richard D. Murdock
                                          President,
                                          Chief Executive Officer
                                          and Director


                                            /s/ Larry G. Culver
                                          --------------------------------------
                                          Larry G. Culver
                                          Executive Vice President,
                                          Chief Operating Officer,
                                          Chief Financial Officer
                                          and Director
                                              (Chief Accounting Officer)


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