<PAGE>
 
                                  FORM 10-QSB

                       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 June 30, 1998

                                       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 small business issuer as specified in its charter)


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

                      370 Seventeenth Street, Suite 3580
                             Denver Colorado 80202
              (Address of principal executive offices) (Zip Code)

       Registrant's telephone number, including area code: (303) 592-1010

                                   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 November 16, 1998 there were 39,064,533 shares of the registrant's
sole class of common shares outstanding.

Transitional Small Business Disclosure Format (Check one):  Yes__     No X
                                                                         -
<PAGE>
 
                    INTERCELL CORPORATION AND SUBSIDIARIES
                                     INDEX

<TABLE>
<CAPTION>
                                                                                                  Page
<S>                                                                                               <C>   
PART 1 - FINANCIAL INFORMATION....................................................................   1
Item 1. Financial Statements......................................................................   1
        Consolidated Balance Sheet................................................................   1
        Consolidated Statements of Operations.....................................................   2
        Consolidated Statements of Cash Flows.....................................................   3
        Statement of Changes in Stockholders' Equity..............................................   4
        Computation of Net Loss Per Share.........................................................   5
        Intercell Corporation and Subsidiaries Notes to Consolidated Financial Statements.........   5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.....   7
        General...................................................................................   7
        Revenues..................................................................................   9
        Research And Development..................................................................   9
        General And Administrative................................................................   9
        Other Income/Expense......................................................................   9
        Income Taxes..............................................................................   9
        Liquidity And Capital Resources...........................................................  10
PART II - OTHER INFORMATION.......................................................................  11
Item 2. Changes in Securities.....................................................................  11
Item 6. Exhibits and Reports on Form 8-K..........................................................  12
SIGNATURES........................................................................................  13
LIST OF EXHIBITS..................................................................................  14
EXHIBIT 11  COMPUTATION OF NET LOSS PER SHARE
EXHIBIT 27  FINANCIAL DATA SCHEDULE
</TABLE>

<PAGE>
 
                        PART 1 - FINANCIAL INFORMATION
Item 1.  Financial Statements

                    Intercell Corporation and Subsidiaries
                          Consolidated Balance Sheet
                                  (Unaudited)
                                 June 30, 1998
 
<TABLE>
<CAPTION>
<S>                                                                            <C>
ASSETS
Current assets:
   Cash in banks                                                               $     46,000
   Cash in escrow                                                                   200,000
   Accounts receivable, net of reserves                                               8,000
   Notes receivable                                                                  12,000
   Land available for sale                                                        1,424,000
   Current assets of discontinued operations                                        235,000
                                                                               ------------
   Total current assets                                                           1,925,000
                                                                           
Other assets:                                                              
   Notes receivable non-currant portion                                             527,000
   Deposits and other assets                                                         52,000
   Non current assets of discontinued operations                                    302,000
                                                                              -------------
   Total other assets                                                               881,000
                                                                              -------------
Total assets                                                                   $  2,806,000
                                                                              =============
                                                                           
LIABILITIES AND STOCKHOLDERS' EQUITY                                       
Current liabilities:                                                       
   Notes payable, short term                                                   $  2,330,000
   Notes payable, related party                                                      80,000
   Accounts payable and accrued liabilities                                       1,940,000
                                                                              -------------
   Total current liabilities                                                      4,350,000
                                                                           
Long-term liabilities:                                                     
   Convertible debentures                                                           826,000
   Long-term debt, less current portion                                              16,000
                                                                               ------------
   Total long-term liabilities                                                      842,000
                                                                           
Stockholders' equity:                                                      
   Convertible preferred stock; 10,000,000 shares authorized:              
    Series C; 147 shares issued and outstanding as of                      
     June 30, 1998                                                                1,148,000
     (liquidation preference of $1,653,750)                                
    Series D; 1,080 shares issued and outstanding as of                    
     June 30, 1998                                                                2,520,000
     (liquidation preference of $2,700,000)                                
   Warrants to acquire common stock                                               3,075,000
   Common stock; no par value; 100,000,000 shares authorized;              
    36,010,229 shares outstanding as of June 30, 1998                            21,327,000
   Additional paid in capital                                                     3,690,000
   Accumulated deficit                                                          (34,146,000)
                                                                              -------------
   Total stockholders' equity                                                    (2,386,000)
                                                                              -------------
Total liabilities and stockholders' equity                                     $  2,806,000
                                                                              =============
</TABLE>
                                                                                
                See notes to consolidated financial statements

                                       1
<PAGE>
 
                    Intercell Corporation and Subsidiaries
                     Consolidated Statements of Operations
                                  (Unaudited)
<TABLE>
<CAPTION>
                                                            Three Months Ended                   Nine Months Ended 
                                                                 June 30,                             June 30,
                                                     -------------------------------------------------------------------
                                                                  1998            1997            1998            1997
<S>                                                        <C>              <C>             <C>             <C>
General and administrative expense                              596,000       1,756,000       3,347,000       4,497,000
Research and development expense                                      0         340,000               0       1,416,000
                                                     
                                                     -------------------------------------------------------------------
Loss from operations                                           (596,000)     (2,096,000)     (3,347,000)     (5,913,000)
                                                     
Other income (expense)                                           (8,000)         84,000        (200,000)        218,000
                                                     
                                                     -------------------------------------------------------------------
Loss from continuing operations                                (604,000)     (2,012,000)     (3,547,000)     (5,695,000)
                                                     
Discontinued operations:                             
  Loss from discontinued operations                            (825,000)       (446,000)     (3,414,000)       (144,000)
  Gain on sale of subsidiaries                                  544,000                         244,000
                                                     -------------------------------------------------------------------
Loss from discontinued operations                              (281,000)       (446,000)     (3,170,000)       (144,000)
                                                     
                                                     -------------------------------------------------------------------
Net loss                                                       (885,000)     (2,458,000)     (6,717,000)     (5,839,000)
                                                     
Deemed dividend on Series B, C and D preferred                  
   stock relating to in-the-money conversion terms              (15,000)       (306,000)        (45,000)     (1,023,000)
Accrued dividends Series D preferred stock                      (37,000)                        (74,000)
Accretion on Series B and C preferred stock                     (29,000)       (118,000)        (93,000)       (413,000)
                                                     -------------------------------------------------------------------
                                                     
Net loss applicable to common stockholders                    ($966,000)    ($2,882,000)    ($6,929,000)    ($7,275,000)
                                                     ===================================================================
                                                     
Net loss per share applicable to common stockholders:
   Loss from continuing operations                               ($0.02)         ($0.13)         ($0.12)         ($0.41)
   Loss from discontinued operations                             ($0.01)         ($0.02)         ($0.10)         ($0.01)
                                                     -------------------------------------------------------------------
   Net loss                                                      ($0.03)         ($0.15)         ($0.22)         ($0.42)
                                                     ===================================================================
                                                     
Weighted average number of common shares outstanding         35,848,917      18,710,850      31,291,413      17,169,353
                                                     ===================================================================
</TABLE>

              See notes to the consolidated financial statements

                                       2
<PAGE>
 
                    Intercell Corporation and Subsidiaries
                 Statement of Changes in Stockholders' Equity
                    For the Nine Months Ended June 30, 1998
                                  (Unaudited)

<TABLE> 
<CAPTION> 
                                                                      Convertible          Warrants to   
                                                                    Preferred Stock          Acquire           Common Stock   
                                                                  Shares        Amount     Common Stock    Shares        Amount 
                                                             -------------------------------------------------------------------
<S>                                                          <C>             <C>           <C>           <C>          <C>       
Balances, October 1, 1997                                            1,252    $3,658,000     $3,050,000  30,371,075   $21,285,000
Constructive retirement of treasury stock                                                                (1,100,000)     (385,000)
Warrants issued in connection with convertible debenture                                         25,000                           
Shares issued in lieu of interest                                                                         1,975,000       185,000
Shares issued for services                                                                                  516,000        40,000
Common stock issued by subsidiary for services                                                                                   
Amortization of deferred compensation                                                                               
Amortization of deemed dividend                                                   45,000                                         
Accrual of preferred stock dividend                                               74,000                                         
Accretion on preferred stock                                                      93,000                                         
Conversion of Series B preferred stock to common stock                  (5)      (40,000)                   678,761        40,000
Conversion of Series C preferred stock to common stock                 (20)     (162,000)                 3,569,393       162,000
Beneficial conversion feature related to Series A-1 and 
 A-2 debentures                                                           
Net loss                                                                                                                         
                                                             -------------------------------------------------------------------- 
Balances, June 30, 1998                                              1,227    $3,668,000     $3,075,000  36,010,229   $21,327,000
                                                             ==================================================================== 

<CAPTION> 
                                                                      Additional                                              
                                                                       Paid-In       Deferred      Treasury       Accumulated 
                                                                       Capital     Compensation      Stock           Deficit  
                                                                    ------------------------------------------------------------
<S>                                                                 <C>            <C>              <C>           <C>
Balances, October 1, 1997                                               $2,996,000     ($3,000)     ($385,000)     ($27,217,000)  
Constructive retirement of treasury stock                                                             385,000                     
Warrants issued in connection with convertible debenture                                                                          
Shares issued in lieu of interest                                                                                                 
Shares issued for services                                                                                                        
Common stock issued by subsidiary for services                             469,000                                                
Amortization of deferred compensation                                                    3,000                                    
Amortization of deemed dividend                                                                                         (45,000)  
Accrual of preferred stock dividend                                                                                     (74,000)  
Accretion on preferred stock                                                                                            (93,000)  
Conversion of Series B preferred stock to common stock                                                                            
Conversion of Series C preferred stock to common stock                                                                            
Beneficial conversion feature related to Series A-1 and                    225,000                                                
 A-2 debentures
Net loss                                                                                                             (6,717,000)  
                                                                    ------------------------------------------------------------- 
Balances, June 30, 1998                                                 $3,690,000      $    0       $      0      ($34,146,000)  
                                                                    ============================================================= 

<CAPTION> 
                                                                              Total              
                                                                           Stockholders'          
                                                                              Equity             
                                                                         ---------------
<S>                                                                      <C>                         
Balances, October 1, 1997                                                   3,384,000            
Constructive retirement of treasury stock                                                        
Warrants issued in connection with convertible debenture                       25,000            
Shares issued in lieu of interest                                             185,000            
Shares issued for services                                                     40,000            
Common stock issued by subsidiary for services                                469,000            
Amortization of deferred compensation                                           3,000            
Amortization of deemed dividend                                                                  
Accrual of preferred stock dividend                                                              
Accretion on preferred stock                                                                            
Conversion of Series B preferred stock to common stock                                           
Conversion of Series C preferred stock to common stock                                           
Beneficial conversion feature related to Series A-1 and 
  A-2 debentures                                                              225,000            
Net loss                                                                   (6,717,000)           
                                                                         ---------------
Balances, June 30, 1998                                                   ($2,386,000)           
                                                                         ===============
</TABLE>

              See notes to the consolidated financial statements.
                                        

                                       3
<PAGE>
 
                    Intercell Corporation and Subsidiaries
                     Consolidated Statements of Cash Flows
                   Nine Months Ended June 30, 1998 and 1997
                                  (Unaudited)


<TABLE> 
<CAPTION> 
                                                                                   1998                1997
<S>                                                                              <C>                  <C>
Cash flows from operating activities
Net loss                                                                         ($6,717,000)         ($5,839,000)
Adjustments to reconcile net loss to net cash from                     
   continuing operations:                                              
     Loss from discontinued operations                                             3,170,000
     Depreciation and amortization                                                     2,000              484,000
     Gain on sale of property and equipment                                          (57,000)
     Amortization of discount on convertible debenture                               225,000
     Amortization of deferred compensation                                             3,000              784,000
     Common stock and warrents issued for services and interest                      225,000               43,000
     Common stock issued by subsidiary for services                                  469,000
Change in assets and liabilities net of Nanopierce acquisition:        
   (Increase) decrease in:                                             
     Accounts receivable                                                              (8,000)             (55,000)
     Inventory                                                                                           (972,000)
     Prepaid expenses and other assets                                               189,000             (110,000)
     Increase in accounts payable and accrued liabilities                            686,000              116,000
                                                                                 --------------------------------
Net cash used in operating activities                                             (1,813,000)          (5,549,000)
                                                                                 --------------------------------
                                                                       
Cash flows from investing activities:                                  
     Purchase of property and equipment                                                                (1,150,000)
     Proceeds from sales and maturities of short-term investments                                       2,274,000
     Acquisition of other assets                                                                          253,000
     Payment for purchase of Sigma 7                                                                     (550,000)
     Advances to Sigma 7                                                                               (1,395,000)
     Proceeds from sale of assets                                                  2,457,000
     Increase in cash in escrow                                                     (200,000)
     Payment received on notes receivable                                              4,000
                                                                                 --------------------------------
Net cash provided by investing activities                                          2,261,000             (568,000)
                                                                                 --------------------------------
                                                                       
Cash flows from financing activities:                                  
     Proceeds from issuance of common stock                                                               150,000
     Proceeds from convertible debentures                                          1,500,000
     Proceeds from notes payable                                                   1,591,000
     Proceeds from issuance of Series C preferred stock and warrants                                    4,673,000
     Repayments of notes payable and debentures                                     (649,000)          (1,198,000)
     Repayment of long-term debt                                                                         (206,000)
                                                                       
                                                                                 --------------------------------
Net cash flows provided by financing activities                                    2,442,000            3,419,000
                                                                                 --------------------------------
                                                                                 --------------------------------
Net cash used in discontinued operations                                          (2,860,000)                   0
                                                                                 --------------------------------
                                                                       
Net increase in cash                                                                  30,000           (2,698,000)
                                                                       
Cash, beginning                                                                       16,000            4,224,000
                                                                                 --------------------------------
Cash, ending                                                                     $    46,000           $1,526,000
                                                                                 ================================
                                                                       
Non-cash investing and financing activities                            
     Series B preferred stock converted to common stock                          $    40,000           $5,118,000
                                                                                 --------------------------------
     Series C preferred stock converted to common stock                          $   162,000           $  811,000
                                                                                 ================================
     Transfer of stock options from principal shareholders to          
        Company officer                                                                                $  530,000
                                                                                                     ============
                                                                       
Acquisition of Nanopierce:                                             
     Fair value of assets acquired:                                    
         Notes receivable                                                        $    43,000
         Deposits and other                                                            4,000
         Goodwill                                                                     53,000
                                                                                 -----------
     Liabilities assumed                                                         $   100,000
                                                                                 ===========
</TABLE>
              See notes to the consolidated financial statements.

                                       4

<PAGE>
 
                    INTERCELL CORPORATION AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   THREE AND NINE MONTHS ENDED JUNE 30, 1998


1.  BASIS OF PRESENTATION

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

    The consolidated financial statements are unaudited 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 of and operating results for the periods presented. The
    consolidated financial statements should be read in conjunction with the
    September 30, 1997 audited financial statements of Intercell Corporation and
    the notes thereto. The results of operations for the three and nine months
    ended June 30, 1998 are not necessarily indicative of the results for the
    entire year ended September 30, 1998, or any future period.

2.  NET LOSS PER SHARE

    Net loss per share of common stock is computed based on the weighted average
    number of common shares outstanding during the year. Stock options, warrants
    and convertible preferred stock are not considered in the calculation as the
    impact of the potential common shares would be to decrease loss per share.
    Therefore, diluted loss per share is equivalent to basic loss per share.

    The Company adopted SFAS No. 128 Earnings Per Share during the current
    fiscal year. This statement replaces the presentation of primary earnings of
    loss per share (EPS) with a presentation of basic EPS. It also requires dual
    presentation of basic and diluted EPS for all entities with complex capital
    structures and requires reconciliation of the numerator and denominator of
    the basic EPS computation to the numerator and denominator of the diluted
    EPS computation. Basic EPS excludes dilution. Diluted EPS reflects the
    potential dilution that could occur if securities or other contracts to
    issue common stock were exercised or converted into common stock or resulted
    in the issuance of common stock that then shared in the earnings of the
    entity. The adoption of SFAS 128 did not result in a change to the
    previously presented EPS for the three and nine months ended June 30, 1998.

3.  NON-CASH INVESTING AND FINANCING ACTIVITIES

    Effective June 6, 1997, the Company purchased 90% of the common stock
    outstanding of Sigma 7 Corporation for $550,000. In conjunction with the
    purchase, the Company

                                       5
<PAGE>
 
    acquired assets with a fair value of $4,316,000 and assumed liabilities and
    minority interests of $3,766,000.

4.  RECENT ACCOUNTING PRONOUNCEMENTS

    In February 1998, the Financial Accounting Standards Board (FASB) issued
    Statement of Accounting Standards (SFAS) No. 132, Employer's Disclosures
    about Pensions and Other Postretirement Benefits. This statement requires
    disclosure only and therefore will not impact the Company's financial
    statements.

    In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
    Instruments and Hedging Activities. Currently, the Company does not have any
    derivative financial instruments and does not participate in hedging
    activities, therefore management believes SFAS No. 133 will not impact the
    Company's financial statements.

5.  YEAR 2000 CONVERSION

    The Company recognizes the need to ensure its operations will not be
    adversely impacted by Year 2000 software failures. Software failures due to
    processing errors potentially arising from calculations using the Year 2000
    date are a known risk. The Company is addressing this risk to the
    availability and integrity of financial systems and the reliability of the
    operational systems. The Company has established processes for evaluating
    and managing the risks and costs associated with this problem. Management
    believes the total cost of compliance and its effect on the Company's future
    results of operations will be insignificant.

6.  CONVERTIBLE DEBENTURES

    In December 1997, the Company issued convertible debentures and attached
    warrants for $1,500,000, of this total $750,000 is the Series A-1 debenture
    and $750,000 is the Series A-2 debenture. The convertible debentures were,
    at the time of issue, unsecured obligations of the Company.

    The $750,000 Series A-1 debentures requires quarterly interest payments at
    9% per annum, beginning March 1, 1998 with the balance due on December 1,
    1999. The debenture may be converted at the option of the holder after 60
    days from the date of issuance at a conversion price per share equal to the
    lessor of 85% of the market price as defined, or $0.75. In connection with
    the convertible debt, three warrants were issued each entitling the holder
    to purchase 200,000 shares of common stock for $0.17, $0.50 and $1.00,
    respectively. The warrants expire three years from the date of issuance.

    The $750,000 Series A-2 debentures pays interest quarterly at 9% per annum,
    beginning June 1, 1998, with a maturity date, at a conversion price for each
    share of common stock at 85% of the market price as defined in the financing
    agreement.

                                       6
<PAGE>
 
    A beneficial conversion feature of $225,000, representing the "in the money
    portion" of the debentures at the date of issuance, was recognized as a
    discount on the debentures and an increase to additional paid in capital.
    The discount was amortized to interest expense.

    At the request of the Company, the Series A-2 debenture was accelerated to
    December 31, 1997. As consideration for the acceleration, the Company
    provided collateral to the debenture holders for the entire $1,500,000. The
    Company has assigned a first priority secured lien on the assets of Sigma 7,
    a first deed of trust on land held for sale in Arizona and an assignment of
    the $2,200,000 note from Intercell Technologies Corporation to the Company.
    In addition, the Company issued 1,000,000 shares of its common stock to the
    debenture holders. The Company issued 2,491,000 shares (of which 1,000,000
    shares were issued to the debenture holders) of common stock for services
    rendered and in lieu of interest expense during nine months ended June 30,
    1998, recognizing $225,000 in general and administrative expense.

7.  COMPREHENSIVE INCOME

    On January 1, 1998, the Company adopted Statement of Financial Accounting
    Standards No. 130, Reporting Comprehensive Income. This standard establishes
    requirements for disclosure of comprehensive income consisting of certain
    items previously not included in the statements of operations including
    unrealized gains and losses among others. For the three and nine months
    ended June 30, 1998 and 1997, the Company had no items of comprehensive
    income.

8.  SEGMENT REPORTING

    Statement of Financial Accounting Standards No. 131, Disclosures about
    Segments of an Enterprise and Related Information, was effective for
    financial statements for periods beginning after December 15, 1997. This
    statement establishes standards for the manner in which public business
    enterprises report information about operating segments in interim financial
    reports issued to stockholders. As the FASB allows, the Company has not
    applied this standard in its interim financial statements for the year
    ending September 30, 1998.

9.  DISCONTINUED OPERATIONS

    In February 1998, the Company entered into a stock purchase agreement to
    sell, transfer, assign and deliver all assets, liabilities, rights and
    obligations of the Company related to its wholly-owned subsidiary California
    Tube Laboratory, Inc. to Jaymark Corporation, in exchange for $1,500,000 in
    cash, $500,000 in notes receivable and an escrow account of $200,000 (on
    September 16, 1998 Jaymark Corporation received a distribution from the
    escrow account in the amount of approximately $185,000). This has been
    accounted for as a discontinued operation and the results of operations have
    been excluded from continuing operations in the consolidated financial
    statements of operations for all periods presented. The Company recognized a
    loss on the sale of assets of approximately $300,000. The Company also
    recognized losses from discontinued operations as follows:

                                       7
<PAGE>
 
<TABLE>
<CAPTION>
                                                                 Three months ending                     Nine months ending   
                                                                       June 30,                               June 30, 
                                                             --------------------------             ---------------------------
                                                                1998            1997                    1998             1997
                                                                ----            ----                    ----             ----
     <S>                                                        <C>         <C>                     <C>              <C> 
     Net sales                                                   $0           1,096,000              $1,583,000       3,498,000
     Cost of goods sold                                           0             985,000               1,589,000       2,604,000
                                                                 --           ---------               ---------       ---------
     Gross profit (Loss)                                          0             111,000                  (6,000)        894,000
     General and administrative expense                           0             145,000                 209,000         473,000
                                                                 --           ---------               ---------       ---------
     Income/(Loss) from operations                                0             (34,000)               (216,000)        421,000
     Other income                                                 0              21,000                   1,000          37,000
                                                                 --           ---------               ---------       ---------
     Income/(Loss) from discontinued operations                  $0          $  (13,000)             $ (215,000)     $  458,000
                                                                 ==           =========               =========       =========
</TABLE>

In June of 1998 the Company discontinued all operations of its majority owned
subsidiary Sigma 7 Corporation, a manufacturer of memory modules located in San
Diego, CA. The Company will seek protection under U.S. bankruptcy laws. Sigma 7
Corporation has been accounted for as a discontinued operation and the results
of operations have been excluded from continuing operations in the consolidated
financial statements of operations for all periods presented. At June 30, 1998,
the assets of Sigma 7 consist of:

<TABLE>
<CAPTION>
                        <S>                       <C> 
                         Accounts receivable       $ 58,000          
                         Inventories                112,000           
                         Other current assets        65,000           
                                                    -------           
                         Total current assets       235,000           
                                                                      
                         Property and equipment     302,000           
                                                    -------           
                         Total                     $537,000            
                                                    =======
</TABLE>

The Company anticipates the assets of Sigma 7 will be realized, sold or
otherwise liquidated in connection with the bankruptcy proceedings. At the
current time, the Company believes that no significant gain or loss will be
realized on the disposition of the Sigma 7 assets. The Company has recognized
losses relating to this discontinued operation as follows:

<TABLE>
<CAPTION>
                                                                 Three months ending                    Nine months ending   
                                                                      June 30,                               June 30, 
                                                              --------------------------             ---------------------------
                                                                1998            1997                    1998             1997
                                                                ----            ----                    ----             ----
     <S>                                                     <C>            <C>                     <C>             <C> 
     Net sales                                                $ 315,000       $ 448,000              $   669,000      $  448,000  
     Cost of goods sold                                         639,000         347,000                1,471,000         347,000
                                                               --------         -------                ---------        --------  
     Gross profit/(Loss)                                       (324,000)        101,000                 (802,000)        101,000   
     General and administrative expense                         450,000         152,000                1,386,000         152,000   
                                                               --------         -------               ----------        --------
     Income from operations                                    (774,000)        (51,000)              (2,188,000)        (51,000)
     Other expense                                               51,000               0                  167,000               0
                                                               --------         -------               ----------        --------
     Loss from discontinued operations                        $(825,000)      $ (51,000)             $(2,355,000)     $  (51,000) 
                                                               ========         =======               ==========        ========= 
                                               
</TABLE> 

In April 1998, the Company entered into a stock purchase agreement to sell 100
shares of common stock of Cellular Magnetics, Inc., a subsidiary of Intercell
Corporation, representing 100% ownership of the common stock of Cellular
Magnetics, Inc., to individuals in exchange for $700,000 in cash. This has been
accounted for as a

                                       8
<PAGE>
 
     discontinued operation and the results of operations have been excluded
     from continuing operations in the consolidated financial statements of
     operations for all periods presented. The Company has recognized a gain on
     the sale of a subsidiary from its investment of approximately $544,000. The
     Company also recognized losses from discontinued operations as follows:

<TABLE> 
<CAPTION> 
                                                  Three months ending       Nine months ending       
                                                       June 30,                  June 30, 
                                                  -------------------     ----------------------
                                                    1998     1997            1998        1997                 
                                                    ----     ----            ----        ----                             
           <S>                                    <C>                    <C>                      
           Net sales                                 $0   $ 434,000       $  814,000  $1,480,000
           Cost of goods sold                         0     318,000          639,000   1,039,000        
                                                      -   ---------          -------  ----------        
           Gross profit                               0     116,000          175,000     441,000      
           General and administrative expense         0     174,000          901,000     448,000      
                                                      -   ---------          -------  ----------          
           Loss from operations                       0     (58,000)        (726,000)     (7,000)     
           Other expense                              0       1,000          118,000      58,000     
                                                      -   ---------          -------  ----------         
           Loss from discontinued operations         $0   $ (59,000)       $(844,000) $  (65,000)         
                                                    ====  ==========       ========== ===========
</TABLE> 
                                           
     The Company has not recognized any income tax benefit related to the losses
     from discontinued operations due to the uncertainty of the Company to
     produce any future net income.

10.  NANOPIERCE ACQUISITION

     In February 1998, Intercell Corporation transferred all of the intellectual
     property (which had an historical carrying value of zero) of its wholly
     owned subsidiary Particle Interconnect Corporation to Nanopierce (formerly
     Sunlight Systems, Inc.) for 7,250,000 restricted post split shares of
     common stock and 100 Series A, 8%, Voting, Convertible, Cumulative,
     Participating, Preferred shares of Nanopierce.  The preferred shares are
     convertible to 7,250,000 restricted post split shares of Nanopierce
     Technologies, Inc.'s common stock.  Intercell Corporation has approximately
     74% controlling interest in Nanopierce on a fully diluted basis.  This
     transaction was discussed in detail in Form 8-K dated February 26, 1998 and
     as disclosed in Form 8-K the historical financial statement of Sunlight
     Systems, Inc. were not included due to their insignificance.  The unaudited
     results of operations on a pro forma basis as though Nanopierce had been
     acquired as of October 1, 1997  and October 1, 1996 are as follows:

                                             For the nine months ended June 30, 
                                                  1998               1997     
                                                  ----               ----     
               Revenue                         $     1,000        $         0 
               Net loss from operations        $(3,682,000)       $(5,941,000)
               Net loss                        $(7,228,000)       $(7,424,000)
               Net loss per share              $     (0.23)       $     (0.43)
                                              =============      =============

     From March 1, 1998 through June 30, 1998 Nanopierce issued 621,593 shares
     of its common stock in exchange for services valued at approximately
     $469,000 based on the
                          
                                       9
<PAGE>
 
     quoted market price of the Nanopierce common stock at the date the services
     were performed. The shares were issued for the following services:
     
           Employees, compensation                      $175,000
           Third parties, investment related services    294,000
                                                        --------
                                                        $469,000
                                                        ========

     The $469,000 is recorded as general and administrative expense and as an
     increase to additional paid in capital.

11.  STOCKHOLDERS' EQUITY

     During the nine months ended June 30, 1998, the Company issued 1,975,000
     shares of its common stock to debt holders in lieu of interest valued at
     approximately $185,000 and 516,000 shares of its common stock to third
     parties in exchange for investment management services, valued at
     approximately $40,000.  The values were based on quoted market price of the
     Company's common stock at the date the services were performed.

12.  SUBSEQUENT EVENT

     In connection with the acquisition of Cellular Magnetics in September 1996,
     the Company provided a guarantee to the former shareholders of M.C. Davis
     that the 277,778 shares of the Company's restricted common stock issued at
     the time of the acquisition would have a value on October 8, 1998 of not
     less than $4.00 per share.  During this period the value of the Company's
     stock declined and certain shareholders made demand on the Company to honor
     its guarantee.  In November of 1998, the Company agreed to transfer 750,000
     and 100,000 restricted common shares of its Nanopierce Technologies, Inc.
     common stock and 793,899 and 500,000 restricted shares of the Company's
     common stock respectively to certain of these shareholders.

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, 1997.  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.

     On February 6, 1998 the Company entered into a stock purchase agreement to
sell, transfer, and deliver all assets, liabilities, rights and obligations of
the Company related to its wholly-owned subsidiary California Tube Laboratory,
Inc. to Jaymark Corporation, in exchange for $1,500,000 in cash, $500,000 in
notes receivable and an escrow cash amount of $200,000.  

                                       10
<PAGE>
 
The company recognized a loss from discontinued operations of approximately
$215,000 for the nine months ended June 30, 1998, based on the disposition. The
Company also recognized a loss on the sale of a subsidiary of approximately
$300,000.

     On February 26, 1998 Intercell Corporation transferred all of the
intellectual property (which had an historical carrying value of zero) of its
wholly owned subsidiary Particle Interconnect Corporation to Nanopierce
Technologies, Inc. for 7,250,000 shares of common stock of Nanopierce and 100
Series A 8% Voting, Convertible, Cumulative, Participating, Preferred shares of
Nanopierce.  The 100 preferred shares are convertible into 7,250,000 shares of
common stock.  Intercell Corporation owns approximately 60% of the outstanding
common stock of Nanopierce Technologies, Inc. and approximately 74% of the
common stock on a diluted basis, considering the voting and conversion rights of
the Series A preferred stock.

     Intercell Corporation discontinued all operations of its majority owned
subsidiary Sigma 7 Corporation, a manufacturer of memory modules located in San
Diego, CA, on June 5, 1998.  The market for the Sigma 7 Corporation's main
product line of memory modules experienced significant price erosion on a
worldwide basis.  The Company did not have the capitalization to continue and
intends to seek protection under U.S. bankruptcy laws.  The Company recognized a
loss from discontinued operations of approximately $825,000 for the three months
ended June 30, 1998 and $2,355,000 for the nine months ended June 30, 1998.

     On April 9, 1998, the Company entered into a stock purchase agreement to
sell 100 shares or 100% of the common stock of Cellular Magnetics, Inc., a
wholly owned subsidiary of Intercell Technologies Corporation to individuals for
$700,000 in cash.  The Company held a secured interest in Cellular Magnetics,
Inc. due to the default on promissory notes totaling $2,575,000 from Intercell
Technologies Corporation to the Company.  As soon as Intercell Technologies
Corporation announced that it would default on the notes payable to the Company,
the Company undertook steps to protect is secured interest, including the
peaceable repossession and foreclosure of the primary asset, Cellular Magnetics,
Inc.  The Company used the proceeds of the sale of Cellular Magnetics, Inc. to
pay down $700,000 of the outstanding balance due on the convertible debentures.
The Company recognized a gain on the sale of a subsidiary of approximately
$544,000 and recognized a loss on discontinued operations of $844,000 for the
nine months ended June 30, 1998.

     The Company is currently engaged in the design, development and licensing
of products using its patented Particle Interconnect Technology, through its
majority owned subsidiary Nanopierce Technologies, Inc.

     In December 1997, the Company issued convertible debentures and attached
warrants for $1,500,000 of this total, $750,000 is the Series A-1 debenture and
$750,000 is the Series A-2 debenture.  The convertible debentures were, at the
time of issue, unsecured obligations of the Company.

     The $750,000 Series A-1 debenture requires quarterly interest payments at
9% per annum, beginning March 1, 1998 with the balance due on December 1, 1999.
The debenture may be converted at the option of the holder after 60 days from
the date of issuance at a conversion price per share equal to the lessor of 85%
of the market price as defined, or $0.75.  In 

                                       11
<PAGE>
 
connection with the convertible debt, three warrants were issued, each entitling
the holder to purchase 200,000 shares of common stock for $0.17, $0.50, and
$1.00 respectively. The warrants expire three years from the date of issuance.
The portion of the proceeds of the Series A-1 debenture allocable to the 
warrants was $15,000.

     The $750,000 Series A-2 debenture pays interest quarterly at 9% per annum,
beginning June 1, 1998, with a maturity date of April 1, 1999.  The debt may be
converted at the option of the holder any time at the end of six business days
following the maturity date, at a conversion price for each share of common
stock at 85% of the market price as defined in the financing agreement.  The
Company has recognized $225,000 in interest expense relating to the beneficial
conversion terms of the debentures.

     At the request of the Company, purchase and payment for the Series A-2
debenture was accelerated to December 31, 1997.  As consideration for the
acceleration, the Company provided security to the debenture holders for the
entire $1,500,000.  The Company assigned a first priority secured lien on the
assets of Sigma 7 Corporation, a first deed of trust on property held for resale
in Arizona and a $2,200,000 note from Intercell Technologies Corporation to the
Company.  In connection with the placement of the convertible debentures, the
Company paid a $180,000 commission to a third-party investment banker and issued
the investment banker warrants to purchase 200,000 shares of common stock at an
exercise price of $0.15 per share.  The warrants were valued at $10,000.  The
$180,000 and $10,000 have been included in general and administrative expense.
The Company also issued 2,491,000 shares (of which 1,000,000 shares were issued
to the debenture holders) of common stock for services rendered and in lieu of
interest expense during the nine months ended June 30, 1998 recognizing $225,000
in general and administrative expense.

REVENUES

     The Company had no revenue from continuing operations for the nine months
ended June 30, 1997 or 1998.

RESEARCH AND DEVELOPMENT

     Research and development expenses decreased to $0 in the first nine months
of fiscal 1998 compared to $1,416,000 in the first nine months of 1997.  For the
third quarter of 1998 the Company had no research and development costs compared
to $340,000 for the third quarter of 1997.  The decrease was primarily
attributable to the suspension of the research and development activities
associated with the Company's Particle Interconnect Technology.  Research and
development costs relating to the Particle Interconnect Technology were reduced
from $1,416,000 in 1997 to $0 in 1998.  The Company has changed its focus from
creating a manufacturing process and facility to licensing its technology to
companies that already have a manufacturing process in place.

GENERAL AND ADMINISTRATIVE

     General and administrative expenses decreased by 66% to $596,000 in the
third quarter of the 1998 fiscal year compared to $1,756,000 in the third
quarter of fiscal 1997.  For the nine months ended June 30, 1998 general and
administrative expenses decreased by 26% to 

                                       12
<PAGE>
 
$3,347,000 compared to $4,497,000 in the nine months ended June 30, 1997. This
decrease was primarily attributable to the reduction of administrative and labor
costs associated with its Particle Interconnect Technology and a reduction in
professional fees at the Company.

OTHER INCOME/EXPENSE

     The Company earned $129,000 in interest income and other income in the
first nine months of the 1998 fiscal year compared to $218,000 for the first
nine months in 1997,while incurring interest and other expenses of $329,000 and
$0 respectively.

INCOME TAXES

     As of June 30, 1998 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

     The independent auditor's report on Intercell Corporation's financial
statements for the year ended September 30, 1997 included a "going concern"
paragraph, meaning the auditors have expressed substantial doubt about the
Company's ability to continue as a going concern.

     The Company has taken several steps regarding future operations including
the following.  In February and April 1998, the Company sold its interest in
California Tube Laboratory, Inc. and A.C. Magnetics, Inc. to raise additional
capital for ongoing operations.  The Company received $1,500,000 in cash,
$500,000 in a note receivable and $200,000 in escrow for the sale of California
Tube Laboratory, Inc.  The Company received $700,000 in cash for the sale of
A.C. Magnetics, Inc. which, it used to pay down its debt on the convertible
debenture.

     The Company has also discontinued operations at Sigma 7 Corporation and
Particle Interconnect Corporation during June 1998 and will seek protection
under the U.S. bankruptcy laws for Sigma 7 Corporation.  The intellectual
property rights to the Particle Interconnect Technology have been transferred to
Nanopierce Technologies, Inc. resulting in an approximate 74% ownership of that
company on a diluted basis.  In July 1998, Nanopierce Technologies, Inc. secured
a two-year credit facility to finance its ongoing operations.  This agreement
was to supply Nanopierce with $1,500,000 in capital during the next twelve
months with up to a total of $8,500,000 over a 24-month period.  As of November
15, 1998, Nanopierce has received $750,000 under the original agreement.  The
agreement has been amended to allow Nanopierce to assign the remaining
commitment to other parties. The Company is still qualifying investors for
additional financing. There is no assurance, however, that Nanopierce will be
able to find an additional investor which could impair its ongoing operations
due to capital requirements. Intercell Corporation has reduced its costs to a
bare minimum and is currently seeking its own financing.

                                       13
<PAGE>
 
     During the nine months ended June 30, 1997 the Company's cash and cash
equivalents increased by $30,000.  This increase was due primarily to proceeds
from the issuance of $1,500,000 in convertible debentures in December 1997, the
sale of California Tube Laboratory, Inc. and the sale of A.C. Magnetics, Inc.  A
portion of these proceeds was used to pay off debts at Sigma 7 Corporation and
of the Company.

     In the 1998 fiscal year, the Company intends to make capital expenditures
of approximately $250,000 if additional financing can be raised for Nanopierce
Technologies, Inc.  These expenditures will provide for an office and
application engineering facility.  In the first nine months of fiscal 1998 the
Company had no capital expenditures.

     The Company believes that if a substitute investor can be found to complete
the entire credit facility of Nanopierce Technologies, Inc., adequate funding is
available to support operations for the next twelve months. The Company also
believes that sales of its Nanopierce Technologies, Inc. products and technology
licenses 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 licensing, joint venture,
co-manufacturing or other similar arrangement with connector manufacturers using
the Nanopierce technology. The failure to secure such a relationship could
result in the Company requiring substantial additional capital and resources to
bring Nanopierce products 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 further issuance of debt or equity in the Company.

     The Company recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 software failures.  Software failures due to
processing errors potentially arising from calculations using the Year 2000 date
are known risks.  The Company is addressing this risk to the availability and
integrity of financial systems and the reliability of the operational systems.
Management believes the total cost of compliance and its effect on the Company's
future results of operations will be insignificant.

     In February 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Accounting Standards (SFAS) No. 132, Employer's disclosures about
Pensions and Other Postretirement Benefits.  This statement requires disclosure
only and therefore will not impact the Company's financial statements.

     In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities.  Currently, the Company does not have any
derivative financial instruments and does not participate in hedging activities,
therefore management believes SFAS No. 133 will not impact the Company's
financial statements.

                                       14
<PAGE>
 
                          PART II - OTHER INFORMATION

Item 2.   CHANGES IN SECURITIES

     The Company made the following unregistered sales of its securities from
April 1, 1998 through June 30, 1998.

<TABLE>
<CAPTION>
                        TITLE OF
     DATE OF SALE       SECURITIES            AMOUNT      CONSIDERATION     PURCHASER
<S>                    <C>                   <C>        <C>              <C>
     5/8/98             Common Stock         250,000     Settlement       Mason Tarkeshian
     6/1/98             Option to Purchase   150,000     Employment       Kristi J. Kampmann
                          Common Stock @ 
                          $0.05 per share

</TABLE>


     EXEMPTION FROM REGISTRATION CLAIMED.

     This sale by the Company of its unregistered securities was made in
reliance upon Sections 4(2) and 4(6) of the Securities Act of 1933, as amended.
The individuals listed above that purchased the unregistered securities are
known to the Company and management, through pre-existing business
relationships, as a long standing business associate, friend, employee, relative
or member of the immediate family of management. The purchasers were provided
access to all material information which they requested and all information
necessary to verify such information and were afforded access to management of
the Company in connection with their purchases. The purchaser of the
unregistered securities acquired such securities for investment and not with a
view toward distribution, acknowledging such intent to the Company. All
certificates or agreements representing such securities that were issued
contained restrictive legends, prohibiting further transfer of the certificates
or agreements representing such securities, without such securities either being
first registered or otherwise exempt from registration in any further resale or
disposition.

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

     (A)  EXHIBITS:

          Exhibit 11:  Statement of Computation of Earnings Per Share
          Exhibit 27:  Financial Data Schedule

                                       15
<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)


Date:  November ___, 1998          By /s/ Paul Metzinger
                                     -------------------
                                   Paul Metzinger, President and Chief Executive
                                   Officer


Date:  November ___, 1998          By /s/ Thomas Vander Stel
                                     -----------------------
                                   Thomas Vander Stel, Secretary and Chief 
                                   Financial Officer

                                       16
<PAGE>
 
                               LIST OF EXHIBITS

Exhibit 11:    Statement of computation of earnings per share
Exhibit 27:    Financial Data Schedule