FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549


(Mark One)

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

         For the quarterly period ended March 31, 1997

                                       OR

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


                         Commission file number 0-14306

                              INTERCELL CORPORATION
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)


          Colorado                                     84-0928627
-------------------------------           --------------------------------------
(State or other jurisdiction of           (I.R.S employer identification number)
incorporation or organization


                      999 West Hastings Street, Suite 1750
                        Vancouver, B.C., Canada, V6C 2W2
               ---------------------------------------------------
               (Address of principal executive offices) (Zip Code)

       Registrant's telephone number, including area code: (604) 684-1533


                                    No Change
               ---------------------------------------------------
               (Former name, former address or former fiscal year,
                          if changed since last report)

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

As of April 25, 1997 there were 18,472,606 shares of the registrant's sole class
of common shares, 111 Class B Preferred Shares and 525 Series C Preferred Shares
outstanding.


<PAGE>



                     INTERCELL CORPORATION AND SUBSIDIARIES

                                      INDEX



PART I.    FINANCIAL INFORMATION

Item 1.    Financial Statements

              Condensed Consolidated Balance Sheets
                    March 31, 1997 and September 30, 1996                    1

              Condensed Consolidated Statement of Operations
                    For the Three Months Ended March 31, 1997 and 1996
                    and the Six Months Ended March 31, 1997 and 1996         2

              Condensed Consolidated Statement of Cash Flows
                    For the Six Months Ended March 31, 1997 and 1996         3

              Notes to Condensed Consolidated Financial Statements
                    March 31, 1997                                           4

Item 2.    Management's Discussion and Analysis of Financial
             Condition and Results of Operations                             6


PART II.   OTHER INFORMATION

Item 1.    Legal Proceedings                                                 10

Item 2.    Changes in Securities                                             10

Item 6.    Exhibits and Reports on Form 8-K                                  11


           SIGNATURES                                                        12


<PAGE>
<TABLE>
<CAPTION>
PART 1 - FINANCIAL INFORMATION


ITEM 1.  FINANCIAL STATEMENTS

                                          INTERCELL CORPORATION AND SUBSIDIARIES
                                           Condensed Consolidated Balance Sheet

                                                                                     (Unaudited)
                                                                                   March 31, 1997         September 30, 1996
                                      ASSETS                                       --------------         ------------------  
                                      ------
<S>                                                                               <C>                      <C>
Current assets
    Cash and cash equivalents                                                     $   7,029,000            $   4,224,000
    Short term investments                                                                    -                3,063,000
    Accounts receivable, net                                                            967,000                  746,000
    Inventories                                                                       1,398,000                1,066,000
    Prepaid expenses and other current assets                                           137,000                  102,000
    Investment land held for sale                                                     1,424,000                1,424,000
                                                                                     ----------               ----------
        Total current assets                                                         10,955,000               10,625,000

Property, plant and equipment, net                                                    2,248,000                1,418,000
Goodwill and other intangible assets, net                                             1,438,000                1,583,000
Other assets                                                                             54,000                  200,000
                                                                                     ----------               ----------

                                                                                   $ 14,695,000             $ 13,826,000
                                                                                     ==========               ==========

                      LIABILITIES AND STOCKHOLDERS' EQUITY
                      ------------------------------------
Current liabilities:
    Note payable                                                                   $          -             $    266,000
    Notes payable to related parties                                                          -                  932,000
    Current portion of long-term debt                                                         -                  120,000
    Accounts payable and accrued liabilities                                            868,000                  742,000
                                                                                     ----------               ----------
        Total current liabilities                                                       868,000                2,060,000

Long term debt, less current portion                                                          -                   86,000
                                                                                     ----------               ----------

        Total liabilities                                                               868,000                2,146,000
                                                                                     ----------               ----------

Commitments

Stockholders' equity:
    Convertible preferred stock: 10,000,000 shares authorized
        Series B; 186 and 787 issued and outstanding as of March 31, 1997
           and September 30, 1996 respectively                                        1,308,000                5,533,000
        Series C; 525 issued and outstanding as of March 31, 1997                     3,492,000                        -
    Warrants to acquire common stock                                                  3,051,000                1,870,000
    Common stock; no par value; 100,000,000 shares authorized
        18,019,508 and 15,734,229 shares outstanding as of March 31, 1997
           and September 30, 1996 respectively                                       17,135,000               12,187,000
    Deferred compensation                                                           (   199,000)             (   331,000)
    Accumulated deficit                                                             (10,960,000)             ( 7,579,000)
                                                                                     ----------               ----------

        Total stockholders' equity                                                   13,827,000               11,680,000
                                                                                     ----------               ----------

                                                                                   $ 14,695,000             $ 13,826,000
                                                                                     ==========               ==========


                          See accompanying notes to condensed consolidated financial statements.
</TABLE>

                                                           1
<PAGE>
<TABLE>
<CAPTION>

                                         INTERCELL CORPORATION AND SUBSIDIARIES
                                     Condensed Consolidated Statement of Operations
                                                    (Unaudited)


                                                          Three Months Ended                      Six Months Ended
                                                               March  31                              March 31
                                                              ----------                              --------
                                                        1997              1996                 1997              1996
                                                        ----              ----                 ----              ----

<S>                                                <C>             <C>                   <C>               <C>
Net sales                                          $   1,849,000   $      773,000        $   3,448,000     $   1,626,000
Cost of goods sold                                     1,298,000          779,000            2,441,000         1,350,000
                                                     -----------      -----------          -----------       -----------

    Gross profit                                         551,000     (      6,000)           1,007,000           276,000

Selling, general and administrative expenses           1,226,000        1,119,000            3,290,000         1,660,000
Research and development                                 815,000           20,000            1,189,000            32,000
                                                     -----------      -----------          -----------       -----------

    Operating loss                                  (  1,490,000)    (  1,145,000)        (  3,472,000)     (  1,416,000)

Other income (expense)                                    31,000           20,000               91,000                 -
                                                      ----------      -----------          -----------       -----------

    Loss before income taxes                        (  1,459,000)    (  1,125,000)        (  3,381,000)     (  1,416,000)

Income taxes                                                   -                -                    -                 -
                                                      ----------      -----------          -----------       -----------

    Net loss                                       $(  1,459,000)   $(  1,125,000)        (  3,381,000)     (  1,416,000)

Deemed Preferred Stock Dividend relating to
    in-the-money conversion terms                        496,000                -              717,000                 -

Accretion on Preferred Stock                             155,000                -              295,000                 -
                                                      ----------       ----------           -----------       ----------

Net loss applicable to common stockholders         $(  2,110,000)   $(  1,125,000)       $(  4,393,000)    $(  1,416,000)
                                                     ===========      ===========          ===========       ===========

Net loss per common share                          $(       0.12)   $(       0.09)       $(       0.26)    $(      0.12)
                                                     ===========      ===========          ===========       ==========

Weighted average number of shares of
    common stock outstanding                          17,789,405       12,096,054           16,996,221        12,145,428
                                                      ==========       ==========           ==========        ==========









                          See accompanying notes to condensed consolidated financial statements.
</TABLE>
                                                        2

<PAGE>
<TABLE>
<CAPTION>

                                          INTERCELL CORPORATION AND SUBSIDIARIES
                                      Condensed Consolidated Statement of Cash Flows
                                                       (Unaudited)

                                                                                              Six Months Ended
                                                                                                  March 31
                                                                                                  --------
                                                                                        1997                     1996
                                                                                        ----                     ----
<S>                                                                               <C>                      <C>
Cash flows from operating activities
    Net loss                                                                      $(  3,381,000)           $(  1,416,000)
    Adjustments to reconcile net loss to cash used in
      operating activities:
        Depreciation and amortization                                                   277,000                   24,000
        Amortization of deferred compensation                                           662,000                  897,000
        Common stock issued for interest                                                 43,000                        -
    Changes in operating assets and liabilities
        Accounts receivable                                                        (    221,000)                 186,000
        Inventory                                                                  (    332,000)            (    143,000)
        Prepaid expenses                                                           (     35,000)                   7,000
        Current liabilities                                                             126,000                   87,000
                                                                                    -----------              -----------

      Net cash used in operating activities                                        (  2,861,000)            (    358,000)
                                                                                    -----------              ----------

Cash flows from investing activities
    Proceeds from maturities of short-term investments                                3,063,000                        -
    Acquisition of property, plant and equipment                                   (    962,000)            (     20,000)
    Other assets                                                                        146,000                        -
                                                                                    -----------              -----------
      Net cash provided by (used in) investing activities                             2,247,000             (     20,000)
                                                                                    -----------              -----------

Cash flows from financing activities
    Proceeds from issuance of common stock                                              150,000                  360,000
    Proceeds from issuance of Series C preferred stock and warrants                   4,673,000                        -
    Repayments of notes payable                                                    (  1,198,000)            (      1,000)
    Repayment of long term debt                                                    (    206,000)                       -
                                                                                    -----------              -----------
      Net cash provided by financing activities                                       3,419,000                  359,000
                                                                                    -----------              -----------

Net increase (decrease) in cash and cash equivalents                                  2,805,000             (     19,000)

Cash and cash equivalents at beginning of period                                      4,224,000                   57,000
                                                                                    -----------              -----------

Cash and cash equivalents at end of period                                         $  7,029,000             $     38,000
                                                                                    ===========              ===========

Cash paid during the period for interest                                           $          -             $     25,000
                                                                                    ===========              ===========

Non-cash investing and financing activities
    Series B preferred stock converted to common stock                             $  4,225,000             $          -
                                                                                    ===========              ===========
    Transfer of stock options from principal shareholders to
        Company officer                                                            $    530,000             $          -
                                                                                    ===========              ===========





                          See  accompanying notes to condensed consolidated financial statements.
</TABLE>
                                                          3

<PAGE>


                     INTERCELL CORPORATION AND SUBSIDIARIES
              Notes to Condensed Consolidated Financial Statements



1.       BASIS OF PRESENTATION

         The accompanying consolidated financial statements include the accounts
         of  Intercell  Corporation  and  its  wholly-owned   subsidiaries  (the
         "Company"). All intercompany transactions have been eliminated.

         The condensed  consolidated  financial statements are unaudited (except
         for the balance sheet  information  as of September 30, 1996,  which is
         derived from the Company's  audited  financial  statements) and reflect
         all adjustments (consisting only of normal recurring adjustments) which
         are, in the opinion of management, necessary for a fair presentation of
         the financial position and operating results for the periods presented.
         The  condensed  consolidated  financial  statements  should  be read in
         conjunction with the September 30, 1996 audited financial statements of
         Intercell  Corporation and the notes thereto. The results of operations
         for the three  months  and six  months  ended  March  31,  1997 are not
         necessarily  indicative  of the  results  for  the  entire  year  ended
         September 30, 1997, or any future period.

2.       NET LOSS PER SHARE

         Net loss applicable to common  stockholders is computed by dividing the
         sum of net loss,  deemed  preferred  stock  dividends  and accretion on
         preferred  stock by the weighted  average  number of common  shares and
         dilutive  common   equivalent   shares   outstanding  for  each  period
         presented.  Common stock equivalent shares consist of stock options and
         are computed using the treasury stock method.

3.       INVENTORIES

         Inventories consist of:           March 31, 1997     September 30, 1996
                                           --------------     ------------------

                  Raw materials            $    594,000         $    422,000
                  Work in process               612,000              453,000
                  Finished goods                192,000              191,000
                                             ----------           ----------
                                            $ 1,398,000          $ 1,066,000
                                              =========            =========

4.       SERIES C PREFERRED SHARES

         In December  1996, the Company issued 525 shares of no par value Series
         C preferred  stock (Series C preferred)  and  detachable  warrants in a
         private placement for $4,672,500 (net of issuance costs of $577,500).

         Each share of Series C preferred  is  convertible  into common stock at
         the exchange rate in effect at the time of the conversion, as described
         in the  preferred  stock  agreements,  and is  subject  to  appropriate
         adjustment for common stock splits, stock dividends,  and other similar
         transactions.  Conversion  of the Series C preferred is automatic  upon
         the  expiration of three years from the original  date of issuance.  At
         the date of issuance,  the exchange  rate was less than the  prevailing
         market  rate,  resulting  in a deemed  dividend of  $932,000,  of which
         $81,000 and  $496,000  has been  recognized  on a pro rata basis in the
         first and second  quarters of the 1997 fiscal  year  respectively.  The
         Series C  preferred  are  junior to the  Company's  Series B  preferred
         shares and contain a liquidation preference equal to the original issue
         price  plus 8% of the  original  issue  price  per annum to the date of
         liquidation.  Series C  preferred  shares  are not  entitled  to voting
         rights.

         Shares of Series C preferred  purchased in excess of certain quantities
         as  described  in the  preferred  stock  agreements,  or  purchased  in
         addition  to  previous  purchases  of  Series B  preferred  shares  are
         accompanied  by  detachable  warrants to purchase a number of shares of
         common  stock  of the  Company  equal  to  between  20%  and 50% of the
         original  aggregate  purchase  price of the Series C  preferred  shares
         divided by a fixed conversion rate of $3.25 per share,  exercisable 105
         days after original issuance.

                                       4

<PAGE>

5.        Recent Accounting Pronouncements

          The Financial  Accounting Standards Board recently issued Statement of
          Financial  Accounting  Standards (SFAS) No. 128, "Earnings Per Share".
          SFAS No. 128 requires  the  presentation  of basic  earnings per share
          ("EPS") and, for companies with complex  capital  structures,  diluted
          EPS. SFAS No. 128 is effective for annual and interim  periods  ending
          after  December 31, 1997.  Adoption of SFAS No. 128 is not expected to
          have a material  impact on net loss per common  share as  presented in
          the accompanying consolidated statements of operations.




                                       5
<PAGE>


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


GENERAL

The  following  discussion  should  be read in  conjunction  with  the  attached
condensed  consolidated  financial  statements and notes  thereto,  and with the
Company's audited  consolidated  financial  statements and notes thereto for the
year ended September 30, 1996. This report contains  forward-looking  statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 31E of the Securities  Exchange Act of 1934, as amended.  Actual results
could differ materially from those anticipated in forward-looking statements.

The Company is currently engaged in three lines of business: (i) the manufacture
and rebuilding of specialty  electron power tubes; (ii) the design,  development
and  production  of shielded  cellular  phone  antennas  that use the  Company's
proprietary  antenna  technology  (the  "Antenna  Technology")  as  well  as the
manufacture  of  miniature  and  subminiature  coils,   transformers  and  other
electronic  assemblies;  and (iii) the design,  development  and  production  of
patented particle interconnect products that use the Company's patented particle
interconnect  technology (the "PI  Technology")  and a proprietary  trade secret
electroplating process (the "Proprietary Electroplating Process").

The  Company's  operations  are  conducted  by  and  through  its  wholly  owned
subsidiaries, California Tube Laboratory, Inc. ("CTL"), Cellular Magnetics, Inc.
("Cellular  Magnetics"),  Intercell  Wireless Corp. , and Particle  Interconnect
Corporation ("PI Corp.").

CTL is a  manufacturer  and rebuilder of a wide variety of electron power tubes.
Currently,  CTL  provides  rebuilt and new  electron  tubes to a wide variety of
customers  who use  microwave  technology  in  various  types  of  applications,
including AM and VHF radio,  television,  linear accelerators,  radar,  electron
guns and industrial microwave and heating use.

The  Company  has the  rights to certain  patent  applications  relating  to the
Antenna    Technology   that   the   Company   jointly    developed   with   the
Telecommunications  Research  Center at Arizona State  University  ("ASU").  The
Antenna Technology is designed to reduce actual or perceived health hazards that
may be associated with exposure to electromagnetic signals by using a "shielded"
antenna.  The  Antenna  Technology  has been  tested in  working  prototypes  in
cellular  phones by ASU.  These  tests  indicated  a  significant  reduction  in
radiation  emissions  caused  by  wireless  devices,   and  cellular  phones  in
particular. The tests also indicated several other benefits, including increased
range and reception, and improved battery life.

In  September,  1996,  the Company  formed a wholly owned  subsidiary,  Cellular
Magnetics,  which acquired all the assets and  liabilities of M.C. Davis Company
("M.C.  Davis")  in  exchange  for  277,778  shares  of Common  Stock  valued at
$1,000,000 and $800,000 in cash. This acquisition, accounted for by the purchase
method  of  accounting,  provides  the  Company  with  both a  facility  for the
immediate production of its Antenna Technology and an established  manufacturing
facility.  The Company has continued to produce the  miniature and  subminiature
electronic  components previously produced by M.C. Davis and does not anticipate
that the  production of the Antenna  Technology  will  significantly  impact its
ability to manufacture these electronic assemblies.

In September,  1996,  the Company  formed a wholly owned  subsidiary,  PI Corp.,
which  merged  with  Particle  Interconnect,   Inc.,  a  California  corporation
("Particle California").  The Company exchanged 1,400,000 shares of Common Stock
for all of the  outstanding  stock of Particle  California.  The transaction was
accounted for as an immaterial  pooling-of-interest  as the prior  operations of
Particle  California  are not material to the Company's  consolidated  financial
position,  results of operations or cash flows.  From the date of the merger, PI
Corp. has been engaged primarily in the construction of production  capabilities
at its plant  and the  continuing  development  of the PI  Technology.  PI Corp.
expects to commence commercial  production of Particle  Interconnect Products in
1997.

As the Antenna  Technology and the PI Technology are in the  development  stage,
the Company does not anticipate  operating  revenues from such lines of business
until such time, if ever, as products developed using the Antenna Technology and
PI Technology are completed,  developed,  manufactured in commercial quantities,
available for commercial delivery, and accepted in the market place.

                                       6
<PAGE>


The Company  believes that a significant  requirement for  introducing  products
utilizing both the Antenna Technology and the PI Technology into the market will
be entering  into joint  venture,  co-manufacturing,  licensing or other similar
arrangements with existing manufacturers or distributors in these fields.

On July 7, 1996,  the Company  completed  an offering  pursuant to  Regulation S
under the  Securities  Act (the  "Regulation S Offering") of 1,000 shares of its
Series B Preferred Stock, with attached warrants,  pursuant to which it received
net proceeds of $8,900,000.  The Series B Preferred  Stock is  convertible  into
Common  Stock at the  exchange  rate in  effect  at the date of  conversion,  as
described  in the  preferred  stock  agreements.  At the date of  issuance,  the
exchange rate was equal to 85% of the then prevailing market rate,  resulting in
a deemed  dividend of  $1,765,000.  The Company  recognized  on a pro rata basis
$1,625,000  of the  dividend  in its  fiscal  1996  net loss  per  common  share
calculation  and the balance of $140,000 in the first quarter of the 1997 fiscal
year.

To further improve the Company's working capital position, the Company completed
an offering pursuant to Regulation D to institutional  investors on December 15,
1996, of 525 shares of its Series C Preferred  Stock,  with  attached  warrants,
pursuant to which it received net proceeds of $4,672,500. The Series C Preferred
Stock is  convertible  into Common stock at the  exchange  rate in effect at the
date of conversion,  as described in the preferred stock agreements. At the date
of  issuance,  the  exchange  rate was less  than the  prevailing  market  rate,
resulting in a deemed  dividend of $932,000,  of which  $81,000 and $496,000 has
been recognized on a pro rata basis in the first and second quarters of the 1997
fiscal year respectively.


RESULTS OF OPERATIONS

REVENUES:

Total revenues in the second quarter of 1997 were  $1,849,000 and  represented a
139% increase over the second quarter  revenues in the prior fiscal year.  Total
revenues in the six months ended March 31, 1997 were $3,448,000, a 112% increase
over revenues in the six month period ending March 31, 1996.  These increases in
revenue  were  primarily  attributable  to the  inclusion  of revenues  from the
Company's new electronic  components  operations of $536,000 and $510,000 in the
first and second  quarters of the 1997 fiscal year  respectively  and a $211,000
and  $565,000  increase  in first and  second  quarter  sales of  electron  tube
products in the current  fiscal year over the first and second  quarter sales of
the prior fiscal year.

In September,  1996, the Company,  through its wholly-owned  subsidiary Cellular
Magnetics  merged with AC Magnetics,  Inc.  doing business as M.C.  Davis.  M.C.
Davis  was  acquired  by the  Company  to  provide  industrial  engineering  and
production  capabilities for the Company's  antenna  technology.  M.C. Davis has
production  facilities located in Arizona City, Arizona and Sonora,  Mexico, and
has been engaged in the  production  of miniature  and  subminiature  electronic
components  since 1968. The 1997 fiscal year  represents the first year in which
the results of the  Company's new  electronic  components  operations  have been
consolidated with the Company's.

Sales of electron tube products  increased by 57% in the second  quarter of 1997
compared  to the  second  quarter  of 1996 and by 48% in the first six months of
1997 compared to the first six months of the 1996 fiscal year. This increase was
primarily due to new defense related contracts entered into in the final quarter
of the 1996 fiscal year for which  production  did not begin until the first and
second  quarters of the 1997 fiscal  year.  The Company  anticipates  that sales
under these  contracts  will  continue for the remainder of the year at the rate
experienced  in the second  quarter of the 1997 fiscal year.  The balance of the
Company's  operations  have  remained  stable in the  first  six  months of 1997
compared to the first six months of the 1996 fiscal year.


GROSS PROFITS

Gross  profits  were 30% in the three  months  ended  March 31, 1997 fiscal year
compared  with -1% in the second  quarter of the 1996 fiscal  year.  For the six
months  ended March 31, 1997 gross  profits were 29% compared to 17% for the six
months ended March 31, 1996. This increase in margins over the 1996  comparative
periods was primarily  attributable to higher margins experienced on the sale of
electronic  components,  and on  development  contracts  for new  electron  tube
products. In addition,  the defense contracts entered into in the fourth quarter

                                       7

<PAGE>

of 1996 are primarily for the rebuild of electron tube products which  generally
carry  higher  margins  than  the  manufacture  and  sale of new  electron  tube
products.


RESEARCH AND DEVELOPMENT

Research and development expenses increased to $815,000 in the second quarter of
fiscal  1997  compared  to $20,000 in the second  quarter of fiscal  1996 and to
$1,189,000 in the six months ended March 31, 1997 compared to $32,000 in the six
months  ended March 31,  1996.  This  increase  was  primarily  attributable  to
research and  development  activities  incurred in connection with the Company's
new PI  Technology  ($615,000  and  $956,000  in the  three  month and six month
periods  ended March 31, 1997  respectively)  as the Company  commenced  design,
assembly  and  testing  of its  production  line and  continued  testing  of the
technology.  In addition,  the Company continued its  developmental  work on its
antenna  technology  ($200,000  and  $233,000  in the three  month and six month
periods ended March 31, 1997  respectively)  in  conjunction  with Arizona State
University.


GENERAL, SELLING AND ADMINISTRATIVE

General,  selling and administrative  expenses increased by 10% to $1,226,000 in
the second  quarter of 1997 compared to $1,119,000 in the second  quarter of the
1996 fiscal year. For the six months ended March 31, 1997,  general  selling and
administrative expenses increased by 98% to $3,290,000 compared to $1,660,000 in
the six months ended March 31, 1996. This increase was primarily attributable to
the inclusion of  compensation  recognized on the transfer of stock options from
three  principal  shareholders  to  an  officer  and  director  of  the  Company
($530,000)  in the first quarter of the 1997 fiscal year,  additional  legal and
accounting costs in the 1997 fiscal year related to the filing of a Registration
Statement on Form S-1 in January,  1997,  and the inclusion of general,  selling
and  administrative  expenses for the Company's new  electronic  components  and
cellular antenna operations and particle  interconnect  operations for the first
time in the 1997 fiscal year.


OTHER INCOME/EXPENSE

Other income/expense  includes $64,000 in interest income earned on its cash and
short  term  investments  in the  second  quarter  of the 1997  fiscal  year and
$162,000 in the six months ended March 31, 1997.  In the first six months of the
1996  fiscal  year,  the amount of  interest  income  earned by the  Company was
insignificant.  The remaining  balance of other  income/expense  is comprised of
miscellaneous expense accruals.


INCOME TAXES

As of March 31, 1997 the Company had a net operating  loss carryover for federal
and  California  income tax purposes.  The benefit of these net  operating  loss
carryforwards  has not been recorded by the Company as it is uncertain  that the
Company will generate  sufficient  income in future  periods to utilize the loss
carryforwards.



LIQUIDITY AND CAPITAL RESOURCES

During the six months ended March 31, 1997, cash and cash equivalents  increased
by $2,805,000.  Net cash used in operations was $2,861,000,  due primarily to an
operating  loss of $3,381,000  and increases in accounts  receivable of $221,000
and inventories of $332,000,  partially  offset by depreciation and amortization
of $277,000,  amortization of deferred  compensation of $662,000 and an increase
in current  liabilities  of  $126,000.  Net cash  provided  by  investments  was
$2,247,000  due  primarily to the  maturity of  short-term  investments  and the
disposition of other assets,  offset by the  acquisition of property,  plant and
equipment.  Net cash provided by financing  activities was $3,419,000.  This was
due  primarily to net proceeds of $4,673,000  from the private  placement of 525
Series C Preferred  Shares and  warrants in  December,  1996. A portion of these
proceeds  were  used  to  pay  off  liabilities  of  $1,198,000  assumed  on the
acquisition of PI Corp. and M.C. Davis and to repay long-term debt of $206,000.

                                       8

<PAGE>

In the 1997 fiscal year,  the Company  intends to make capital  expenditures  of
approximately  $1,700,000.  These expenditures will be made on the Company's new
manufacturing  facility in Watsonville,  California,  establishing the Company's
initial full  production  line and facility  using its PI Technology in Colorado
Springs,  Colorado and purchasing new equipment for the Company's  manufacturing
plants in Arizona  City,  Arizona  and  Sonora,  Mexico in  connection  with the
manufacture  of the  Antenna  Systems.  In the second  quarter  of fiscal  1997,
capital expenditures totaled $672,000.

The Company  believes that current and known future  capital  resources  will be
adequate  to fund its  operations  over the next 12  months.  The  Company  also
believes that sales of its Antenna Systems and Particle  Interconnect  Products,
both  anticipated to commence in the 1997 fiscal year, in  combination  with the
sales of the  electronic  assemblies  of Cellular  Magnetics  and electron  tube
products of CTL will  provide  sufficient  funds to meet the  Company's  capital
requirements  for the next two years.  This assumption is based on the Company's
belief  that  it  will  be  successful   in  entering  into  a  joint   venture,
co-manufacturing, licensing or other similar arrangement with existing connector
manufacturers  (with  respect  to  the  manufacture  of  Particle   Interconnect
Products)  and  with  existing  manufacturers  of the  internal  components  for
cellular  phones or  cellular  service  providers  (with  respect to the Antenna
Systems).  The  failure to enter  into such  relationships  could  result in the
Company  requiring  substantial  additional  capital and  resources to bring the
Particle Interconnect Products and its Antenna Systems to market.

To the extent the Company's  operations are not sufficient to fund the Company's
capital requirements, the Company may enter into a revolving loan agreement with
a financial institution, or attempt to raise additional capital through the sale
of additional capital stock or through the issuance of debt. At the present time
the  Company  does not  have a  revolving  loan  agreement  with  any  financial
institution  nor can the Company  provide any assurances that it will be able to
enter into any such  agreement  in the future or be able to raise funds  through
the issuance of debt or equity in the Company.








                                       9

<PAGE>


                           PART II - OTHER INFORMATION



ITEM 1.   LEGAL PROCEEDINGS

The Company was notified of a potential litigation matter (the "Complaint") that
was to be filed by  American  Microcell  Corp.  ("AMC") and  MicroAntenna,  Inc.
(collectively,  "Plaintiffs") against, among others, the Company, Terry Neild, a
director  and  Executive  Vice  President  of the  Company,  and Lucius  Ross, a
consultant to the Company,  in Superior Court of Maricopa County, No. CV 96-___.
The  Complaint  alleged  that  Messrs.  Ross  and  Neild,  former  directors  of
Plaintiffs,  breached their  fiduciary  duties to Plaintiffs by  appropriating a
corporate opportunity,  the acquisition of the Antenna Technology, of Plaintiffs
for their  personal  benefit  and the  benefit  of the  Company.  The  Complaint
requests both compensatory  damages,  an assignment of all rights to the Antenna
Technology and a lien or  constructive  trust on the Antenna  Technology and all
proceeds therefrom.

The Company  agreed to settle this matter  through the payment of $40,000 to the
Plaintiffs, which amount was paid subsequent to March 31, 1997.

Subsequent to the date of the Company's acquisition of Particle California,  the
Company  became  aware of a  purported  assignment  on  February  14,  1991 of a
one-half interest, title and right to the then patent application,  which is now
U.S. Patent No. 5,083,697 (a basic patent  underlying the PI Technology) made by
Louis Difrancesco, the inventor of the PI Technology, to Mr. Kenneth Bahl. Based
upon  documentation  the  Company  has been able to obtain to date,  the Company
believes  the  assignment  was  given in  consideration  of the  formation  of a
business that was never formed and, thus,  the assignment  appears to be invalid
due to a failure of  consideration  and  appears to be  voidable  for failure of
performance.  Mr. Bahl may have  licensed at least one  company,  PI  Materials,
Inc., to practice the inventions that are the subject of the assignment.  To the
extent the  assignment  is valid,  Mr.  Bahl would have a one-half  interest  in
certain  patents  based on the PI  Technology.  Any future  activity by Mr. Bahl
including  assignment,  sale or  license of these  patents by Mr.  Bahl to other
persons or entities could materially  adversely  affect the Company's  business,
financial  conditions  and  results of  operations.  The  Company  is  currently
vigorously  pursuing a resolution to this matter,  including the  possibility of
initiating  all  legal  remedies   available  to  it  to  obtain  the  full  and
unconditional rights to the PI Technology.

Other than the  complaint,  no material  legal  proceedings  (other than routine
litigation  incidental  to the business) to which the Company (or any officer or
director of the Company, or any affiliate or owners of record or beneficially of
more than 5% of the common stock) to  management's  knowledge,  is a party or to
which the  property of the Company is subject,  is pending and no such  material
proceedings are known by management of the Company to be contemplated.


ITEM 2.  CHANGES IN SECURITIES

On December 16, 1996, the Company  completed an offering of 525 shares of Series
C  Preferred  Stock (the  "Series C  Preferred  Stock").  Each share of Series C
Preferred  Stock is convertible at the option of the holder into Common Stock as
described  below  during  the  following  period:  (i) up to 20% of the Series C
Preferred  Stock  initially  issued to the holder at any time on and after April
15,  1997;  and (ii) an  additional  20% per month on the 15th day of each month
thereafter;  provided,  however, that the holder of the Series C Preferred Stock
may not  convert  more  than  25% of the  aggregate  Series  C  Preferred  Stock
initially  issued to such holder in any given one month period  beginning  April
15, 1997 and ending on April 15, 1998.

In general, each share of Series C Preferred Stock is convertible into shares of
Common Stock pursuant to the following formula (the Conversion Formula") (800) x
(N/365) +  10,000/Conversion  Price  (with N being the  number of days that have
expired  between  the  date  of  conversion  and  December  16,  1996,  and  the
"Conversion  Price" being the lessor of: $3.25 (the "Fixed Conversion Price") or
85% of average  closing bid price (the  "Closing Bid Price") of the Common Stock
for the five trading days  immediately  preceding  the date of  conversion  (the
"Variable  Conversion  Price")).  If at the  time  of  conversion  the  Variable
Conversion Price is less than the Fixed Conversion Price, the Company may elect,
in its sole discretion, to redeem the shares of Series C Preferred Stock offered
for conversion in an amount equal to $10,000 x 117.60%.

                                       10

<PAGE>

The  Company  also has the right to redeem  the Series C  Preferred  Stock on or
after December 16, 1997,  provided the Company  purchases at least $1,500,000 of
Series C Preferred  Stock (based on the Original  Issuance  Price defined below)
for a price  equal  to 130% of the  Original  Issuance  Price  for the  first 18
months. For each six months thereafter,  the redemption  percentage decreases by
5% until the expiration of three years.

Each  share of Series C  Preferred  Stock  outstanding  at  December  16,  1999,
automatically  shall  either be  converted  in  accordance  with the  Conversion
Formula or the Original  Issuance  Price plus an accrued  premium of 8% per year
(the "Accrued Premium").

The  holders  of the  Series C  Preferred  Stock  are not  entitled  to  receive
dividends  and shall have no voting power,  except as otherwise  provided by the
Colorado  Business  Corporation Act (which generally  provides voting rights for
any action  that  directly  adversely  affects  the rights of the holders of the
Series C  Preferred  Stock).  In the event of any  liquidation,  dissolution  or
winding  up of the  Company (a  "Liquidation  Event"),  the  holders of Series C
Preferred  Stock shall be entitled to  receive,  after any  distribution  to the
holders of the Series B Preferred Stock and other senior securities, if any, and
prior to any Distribution to any junior securities  (including holders of Common
Stock) the sum of $10,000 (the "Original Issue Price") and the Accrued  Premium.
At the option of each holder of Series C Preferred Stock, a sale,  conveyance or
disposition  of  substantially   all  of  the  assets  of  the  Company  or  the
effectuation  by the Company of a  transaction,  or series of  transactions,  in
which more than 50% of the voting  power of the  Company is  disposed  of,  will
generally be deemed to be a Liquidation Event.

So long as the shares of Series C Preferred Stock are  outstanding,  the Company
may not, without the written approval of the holders of at least 75% of the then
outstanding  shares of Series C Preferred  Stock (i) alter or change the rights,
preferences  or  privileges  of the  Series  C  Preferred  Stock  or any  senior
securities,  if any that  would  adversely  effect  the  holders of the Series C
Preferred  Stock;  (ii)  create  any class or series of capital  stock  having a
preference  over or on parity with the series C Preferred  Stock with respect to
Distributions;  (iii) cause the  holders of the Series C  Preferred  Stock to be
taxed  under  Section  305 of the  Internal  Revenue  Code;  or (iv)  issue  any
additional shares of Series C Preferred Stock.


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.

         (a)      Exhibits:

                  Exhibit 11.1: Statement of computation of earnings per share.
                  Exhibit 27:   Financial Data Schedule

         (b)      Reports:

                  No  reports on Form 8-K were filed  during the  quarter  ended
                  March 31, 1997

                                       11
<PAGE>



                                   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.



                                   INTERCELL CORPORATION

                                   (Registrant)


                                        /s/ Gordon Sales
Date: May 13, 1997                  By: _______________________________________
                                        Gordon Sales, President and Chief
                                        Executive Officer


                                        /s/ Alan Smith
Date: May 13, 1997                  By: ________________________________________
                                        Alan Smith, Secretary and Chief
                                        Financial Officer



                                       12