<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 September 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    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
                                                               October 31, 1997

 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 - September 30, 1997
               and March 31, 1997......................................................   3

               Consolidated Statements of Operations -
                  Three and six months ended September 30, 1997
                  and 1996.............................................................   4

               Consolidated Statements of Cash Flows -
                  Six months ended September 30, 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.......................................................   15

Item 4.        Submission of Matters to a Vote of Security Holders.....................   15-16

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

                      SEPTEMBER 30, 1997 AND MARCH 31, 1997

                                     ASSETS


<TABLE>
<CAPTION>
                                                 September 30,         March 31,
                                                     1997                 1997
                                                 -------------       -------------
<S>                                              <C>                 <C>          
Current Assets:                                  (Unaudited)
   Cash and cash equivalents                      $ 11,740,923        $ 15,052,804
   Securities available for sale                    19,218,873          38,990,371
   Trade receivables                                 2,491,934           3,158,729
   Inventories                                       6,415,940           5,078,257
   Other current assets                                758,294             548,558
                                                  ------------       -------------
        Total current assets                        40,625,964          62,828,719

Property and equipment, net                         11,552,991          13,183,854
Restricted cash equivalents                          9,000,000                   -
Other assets                                           176,675             111,124
                                                  ------------        ------------
        Total assets                              $ 61,355,630        $ 76,123,697
                                                  ============        ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Current portion of long-term debt              $    115,040        $    149,750
   Accounts payable                                    649,880             991,297
   Accrued liabilities                               2,290,066           3,852,349
   Accrual for litigation claim and costs           15,177,827          17,000,000
                                                  ------------        ------------
        Total current liabilities                   18,232,813          21,993,396

Long-term debt, net of current portion                 149,788             152,943
                                                       
Other liabilities                                    1,196,710           1,196,710
                                                  ------------        ------------
        Total liabilities                           19,579,311          23,343,049
                                                  ------------        ------------

Stockholders' equity:
   Common stock                                         14,515              14,487
   Additional paid-in capital                      169,702,857         169,556,157
   Foreign currency translation                       (253,495)           (173,315)
   Net unrealized gain(loss) on securities
        available for sale                              15,059             (80,331)
   Accumulated deficit                            (127,702,617)       (116,536,350)
                                                  ------------        ------------
        Total stockholders' equity                  41,776,319          52,780,648
                                                  ------------        ------------

        Total liabilities and stockholders'
            equity                                $ 61,355,630        $  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 SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                         Three months ended                    Six months ended
                                             September 30,                       September 30,
                                  ------------------------------       ------------------------------
                                      1997              1996               1997              1996
                                  ------------       -----------       ------------       -----------
<S>                               <C>                  <C>             <C>                  <C>      
 Product sales                    $  2,448,034       $ 1,923,263       $  4,923,345       $ 3,921,223
 Contract and other revenue             92,028             5,961            169,636            13,814
                                  ------------       -----------       ------------       -----------

      Total revenues                 2,540,062         1,929,224          5,092,981         3,935,037
                                  ------------       -----------       ------------       -----------

 Costs and expenses:
   Cost of product sales             1,048,212         1,074,994          2,307,017         2,295,610
   Other cost of sales               1,395,390                 -          1,395,390                 -
   Research and development          3,442,957         3,802,301          6,933,152         7,475,328
   Selling, general and
     administrative                  3,035,066         3,267,079          6,571,656         5,916,270
                                  ------------       -----------       ------------       -----------

      Total costs and expenses       8,921,625         8,144,374         17,207,215        15,687,208
                                  ------------       -----------       ------------       -----------

       Loss from operations         (6,381,563)       (6,215,150)       (12,114,234)      (11,752,171)
                                  ------------       -----------       ------------       -----------

 Other income (expense):
   Interest income                     631,492           976,030          1,290,388         1,959,138
   Interest expense                     (6,767)          (12,857)           (14,236)          (26,660)
   Other, net                         (327,484)          141,062           (328,185)          100,585
                                  ------------       -----------       ------------       -----------

       Total other income              297,241         1,104,235            947,967         2,033,063
                                  ------------       -----------       ------------       -----------

              Net loss            $ (6,084,322)      $(5,110,915)      $(11,166,267)      $(9,719,108)
                                  ============       ===========       ============       ===========

 Net loss per share               $      (0.42)      $     (0.36)      $      (0.77)      $     (0.68)
                                  ============       ===========       ============       ===========

 Weighted average number of
   shares outstanding during
   the period                       14,514,390        14,393,595         14,507,064        14,384,069
                                  ============       ===========       ============       ===========
</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

                  SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                         Six months ended
                                                           September 30,
                                                   ------------------------------
                                                      1997               1996
                                                   ------------       -----------
<S>                                                <C>                <C>          
Net cash used in operating
   activities                                      $(13,834,201)      $(8,929,735)
                                                   ------------       -----------
Investing activities:
   Purchase of property and equipment                  (307,700)         (359,600)
   Proceeds from sales and maturities
      of securities available for sale               27,997,905        16,874,876
   Purchase of securities available
      for sale                                       (8,131,017)       (6,904,843)
   Deposit of restricted cash
      equivalents                                    (9,000,000)                -
   Change in other assets                               (65,551)             (406)
                                                   ------------       -----------
    Net cash provided by investing activities        10,493,637         9,610,027
                                                   ------------       -----------

Financing activities:
   Proceeds from long-term debt                          20,500            32,000           
   Principal payments on                                                           
      long-term debt                                    (58,365)         (144,629)
   Issuance of Common Stock, net
      of issuance costs                                 146,728           462,245
   Other                                                (80,180)                -
                                                   ------------       -----------
 Net cash provided by financing activities               28,683           349,616
                                                   ------------       -----------
 Net increase (decrease) in cash
   and cash equivalents                              (3,311,881)        1,029,908

Cash and cash equivalents:
   Beginning of period                               15,052,804        17,076,098
                                                   ------------       -----------
   End of period                                   $ 11,740,923       $18,106,006
                                                   ============       ===========
</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
                       SIX MONTHS ENDED SEPTEMBER 30, 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 as part of posting an appeal bond in response to a
     legal judgment issued July 24, 1997. See "Investment Considerations - Legal
     Proceedings," below.

4.   Inventories - Inventories consist of the following:


<TABLE>
<CAPTION>
                                            September 30, 1997             March 31, 1997
                                                 ---------                    ---------
<S>                                             <C>                          <C>       
               Raw materials                    $1,418,987                   $1,520,000
               Work in process                   1,490,342                      918,632
               Finished goods                    3,506,611                    2,639,625
                                                 ---------                    ---------
                                                $6,415,940                   $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 six months
     ended September 30, 1997, $1.8 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 due to
     plaintiffs for the period March 12, 1997 through September 30, 1997,
     pursuant to 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 amounts to $1,075 per CEPRATE(R) SC
     Disposable Kit sold. This cost will continue as long as the injunction
     remains in force. It is refundable in the event that CellPro prevails in
     its appeal.


Page 6 of 17


<PAGE>   7
7.   Supplemental Disclosures of Cash Flow Information - Cash paid for interest
     was $14,236 for the six months ended September 30, 1997 and $26,660 for the
     six months ended September 30, 1996. The Company had an unrealized gain on
     securities available for sale of $15,059 for the six months ended September
     30, 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 10Q, 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.

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, 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
ultimately prohibits the Company from selling or manufacturing its principal
products in the U.S., as presently constituted, and from conducting 

Page 7 of 17

<PAGE>   8
certain related research activities in the U.S. during the term of the patents
in question. Under a partial stay of such injunction, the Company is permitted
to continue selling the CEPRATE(R) SC System subject to payment of a substantial
amount per unit to the plaintiffs in the litigation described hereinafter. See
"Investment Considerations - Legal Proceedings." Absent procuring a stay of the
injunction or obtaining 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 SEPTEMBER 30, 1997 AND 1996

PRODUCT SALES

Product sales increased to $2.4 million for the three months ended September 30,
1997, from $1.9 million in the three months ended September 30, 1996. European
sales were $1.3 million for the three months ended September 30, 1997 and $1.4
million for the three months ended September 30, 1996. CEPRATE(R) SC System unit
sales were 9% higher in the three months ended September 30, 1997 than during
the three months ended September 30, 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 amount of
dollar denominated sales does not reflect the increase in the unit sales due to
unfavorable exchange rates in the current quarter. International sales were also
subject to restrictions included in an injunction issued July 24, 1997 issued by
the U.S. District Court in Wilmington, Delaware (the "Injunction"). 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 September 30, 1997, combined U.S. and export sales
to the Asia-Pacific region, Canada and South America totaled $1.2 million,
compared to $0.5 million during the three months ended September 30, 1996. The
increase primarily resulted from U.S. commercial sales of CEPRATE(R) SC Systems.

COST OF PRODUCT SALES

Cost of product sales was $1.0 and $1.1 million for the fiscal quarters ended
September 30, 1997 and 1996, respectively. The Company's gross margin percentage
improved in the quarter ended September 30, 1997 compared to the quarter ended
September 30, 1996. Unit costs were lower in the quarter ended September 30,
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.


Page 8 of 17


<PAGE>   9
OTHER COST OF SALES

Other cost of sales of $1.4 million represents the amount due to plaintiffs for
the period March 12, 1997 through September 30, 1997, pursuant to a partial stay
of the Injunction. Currently, CellPro must pay plaintiffs $1,075 for each
CEPRATE(R) SC Disposable Kit it sells. This cost will continue as long as the
Injunction remains in force. It is refundable in the event that CellPro prevails
in its appeal.

RESEARCH AND DEVELOPMENT

Research and development expenses totaled $3.4 million in the fiscal quarter
ended September 30, 1997, consistent with the $3.8 million level in the fiscal
quarter ended September 30, 1996.

SELLING, GENERAL AND ADMINISTRATIVE

Selling, general and administrative expenses were $3.0 million in the fiscal
quarter ended September 30, 1997 compared to $3.3 million for the fiscal quarter
ended September 30, 1996. The Company continued to expand its sales force in the
U.S. during the quarter ended September 30, 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 $631,000 for the fiscal
quarter ended September 30, 1997 compared to $976,000 for the quarter ended
September 30, 1996. The decrease was due to lower average cash balances
available for investment in the quarter ended September 30, 1997.

The above factors resulted in net operating losses of $6.1 million and $5.1
million in the fiscal quarters ended September 30, 1997 and 1996, respectively.

SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996

PRODUCT SALES

Product sales increased to $4.9 million for the six months ended September 30,
1997, from $3.9 million in the comparable prior year six month period. The
increase was attributable to increased sales of the CEPRATE(R) SC System in the
United States. European sales were $2.9 million for the six months ended
September 30, 1997 compared to $2.8 million for the six months ended September
30, 1996. CEPRATE(R) SC System unit sales increased by 17% 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 restrictions on July 24, 1997 pursuant to
the Injunction. During the six months ended September 30, 1997, combined U.S.
and export sales to the Asia-Pacific region, Canada and South America totaled
$2.1 million, compared to $1.1 million during the six months ended September 30,
1996.


Page 9 of 17


<PAGE>   10
COST OF PRODUCT SALES

Cost of product sales was $2.3 million for each of the six month periods ended
September 30, 1997 and 1996. The impact of lower European average sales prices
was offset by lower unit costs resulting in an improved gross margin for the six
months ended September 30, 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.

RESEARCH AND DEVELOPMENT

Research and development expense decreased to $6.9 million during the six months
ended September 30, 1997 from $7.5 million for the six months ended September
30, 1996. The decrease is largely due to the fact that the Company's second
Phase III clinical trial was accruing patients during the six months ended
September 30, 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 $6.6 million in the six months
ended September 30, 1997 and $5.9 million in the six months ended September 30,
1996. The increase was primarily due to the expansion of the U.S. sales force
during the six months ended September 30, 1997. This was partially offset by
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.

INTEREST INCOME

Interest income totaled $1.3 million and $2.0 million for the six month periods
ended September 30, 1997 and 1996, respectively. The decrease was due to lower
average cash balances available for investment during the six month period ended
September 30, 1997.

The above factors resulted in net operating losses of $11.2 million and $9.7
million in the six month periods ended September 30, 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 September 30, 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 $17.9 million in interest income, $27.2 


Page 10 of 17


<PAGE>   11
million in product sales and $9.3 million in contract and related party
revenues.

During the six months ended September 30, 1997, the Company has used $13.8
million of cash in operating activities and invested $308,000 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 builds its sales and marketing organization, continues to pursue
ongoing litigation, and expands administrative activities.

At September 30, 1997, the Company had $31.0 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 is
collateralizing an appeal bond which was posted in response to a legal judgment
issued July 24, 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 from those projected. In particular, any
requirement to segregate significant additional damages 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 


Page 11 of 17


<PAGE>   12
of investment considerations set forth in the Company's Annual Report on Form
10K 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 &
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 purports to cover certain
suspensions of stem cells in isolation from a mixed cell population; the '204
patent purports to cover hybridomas that produce monoclonal antibodies having
certain characteristics relating to stem cells, and to cover such antibodies
themselves; the '994 patent purports to cover a method of stem cell isolation
using such antibodies; and the '144 patent 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. Section 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. Section
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. Section 112 are limited in
their literal scope to the My-10 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.

In a series of decisions subsequent to the June 28, 1996 order, Judge McKelvie
granted motions by the Plaintiffs to dismiss CellPro's remaining liability and
infringement defenses. 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 CellPro of
infringing those patents.

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 CellPro infringed the two
patents remaining in the suit, that its defenses had been dismissed, and 


Page 12 of 17


<PAGE>   13
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 CellPro'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 CellPro for $6,961,479.

        (2) Plaintiffs' motion for attorney fees, whereby they seek a
        determination that CellPro 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.

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

The permanent injunction entered July 24, 1997 is complex in form, but it
prohibits CellPro (subject to a stay hereinafter described) from making, using
and selling products in the U.S. which utilized 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 have contended will probably
occur before the end of 1997 but which may take significantly longer.
Thereafter, sales would have to be phased out over a three-month period, except
that the Company would be permitted to continue supplying product to support FDA
studies and trials commenced before the time an alternative device wins FDA
approval. Outside the U.S., the partial stay has the effect of requiring 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. CellPro has filed a motion with
the Court seeking to modify the permanent injunction and partial stay pending
appeal to eliminate the restriction on sales outside the U.S. and to permit
CellPro to complete certain ongoing research and development projects that were
halted by the Injunction. Plaintiffs have opposed the motion to modify, and the
outcome is uncertain. In any event, under the partial stay as modified by
agreement of the parties, commercial sales and cost recovery sales (U.S. only)
of disposable kits are subject to a requirement that CellPro pay Plaintiffs
$1,075 and $750, respectively. The 


Page 13 of 17


<PAGE>   14
Injunction has forced the Company to terminate substantially all sales of the
CEPRATE(R) LC34 Laboratory Cell Selection System.

On July 25, 1997, CellPro 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 has already
filed its initial brief in the appeal from the permanent injunction, but there
is no way to know when either appeal will be heard and decided.

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

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 in their application for an award of attorney fees,
and if they should succeed in defending their position on this and the amended
final judgment in the Federal Circuit Court on appeal, 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
$15.2 million as of September 30, 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 those products
outside the U.S. to the extent it wishes to sell them in markets outside the
U.S., all of which 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. Absent a reasonable license, and if a
suitable stay of injunction cannot be negotiated or procured by court action
pending appeal, and in the absence of other alternatives which may or may not be
available, the Company, according to a declaration of its chief financial
officer filed May 28, 1997, 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.


Page 14 of 17


<PAGE>   15

As a possible alternative to a litigated result on appeal, the Company could
pursue further attempts to obtain commercially reasonable licenses under the
four Johns 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.


                           PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      (a)   The Annual Meeting of Stockholders was held on August 1, 1997.

      (c)   At the Annual Meeting of Stockholders there were three matters
            submitted to a vote of stockholders. Proxies were solicited pursuant
            to Regulation 14 of the Securities and Exchange Act of 1934 and
            there was no solicitation in opposition to management's nominees as
            listed in the proxy statement. Each director was nominated and
            proposal submitted to a vote passed and the voting outcome of each
            proposal is as follows:

            (1)   Election of Directors:


<TABLE>
<S>                                            <C>                        <C>    
                  Kenneth W. Anstey            For:  13,004,380            Withheld: 397,236
                  Larry G. Culver              For:  13,006,430            Withheld: 395,186
                  Joshua L. Green              For:  13,006,578            Withheld: 395,038
                  Joseph S. Lacob              For:  13,006,930            Withheld: 394,686
                  Charles P. Waite             For:  13,006,430            Withheld: 395,186
                  Richard D. Murdock           For:  13,005,682            Withheld: 395,934
</TABLE>


                  No abstention or broker non-votes were cast for the election
                  of directors.

            (2)   The amendment to the Company's Restated 1989 Stock Option Plan
                  to increase the number of shares of the Company's Common Stock
                  reserved for issuance thereunder by 1,000,000 shares:

<TABLE>
<S>                                           <C>      
                  For:                        4,371,895
                  Opposed:                    4,123,522
                  Abstained:                     50,739
                  Broker Non-votes:           4,855,460
</TABLE>

            (3)   Ratification of independent accountants - The Company's
                  proposal to approve the appointment of Coopers & Lybrand


Page 15 of 17

<PAGE>   16

                  L.L.P. as independent accountants for the Company for the
                  fiscal year ending March 31, 1998:

<TABLE>
<S>                                          <C>       
                  For:                       13,345,739
                  Opposed:                       28,140
                  Abstained:                     27,737
</TABLE>

                  No broker non-votes were cast in connection with this
                  proposal.

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 September
            30, 1997.


Page 16 of 17


<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:  November 12, 1997

                                          /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)

Page 17 of 17
<PAGE>   18
                                 EXHIBIT INDEX
                                 ------------- 

<TABLE>
<CAPTION>
Exhibit No.                       Description
-----------                       ----------
<S>                  <C> 
   27                Financial Data Schedule
</TABLE>