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 December 31, 1996

                                       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              (I.R.S employer identification number)
of 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 January 31, 1997 there were  17,795,021  shares of the  registrant's  sole
class of common shares,  190 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
              December 31 and September 30, 1996                            1

            Condensed Consolidated Statement of Operations
              For the Three Months Ended December 31, 1996 and 1995         2

            Condensed Consolidated Statement of Cash Flows
              For the Three Months Ended December 31, 1996 and 1995         3

            Notes to Condensed Consolidated Financial Statements
              December 31, 1996                                             4

Item 2.   Management's Discussion and Analysis of Financial
           Condition and Results of Operations                              5


PART II.  OTHER INFORMATION

Item 1.   Legal Proceedings                                                 8

Item 2.   Changes in Securities                                             8

Item 6.   Exhibits and Reports on Form 8-K                                  9


          SIGNATURES                                                       10


<PAGE>

<TABLE>
<CAPTION>
                         PART 1 - FINANCIAL INFORMATION


Item 1.   Financial Statements

                     INTERCELL CORPORATION AND SUBSIDIARIES
                      Condensed Consolidated Balance Sheet

                                                                                     (Unaudited)
                                                                                 December 31, 1996       September 30, 1996
                                                                                 -----------------       ------------------
                                     ASSETS
<S>                                                                               <C>                      <C>  

Current assets
    Cash and cash equivalents                                                     $   8,116,000            $   4,224,000
    Short term investments                                                              975,000                3,063,000
    Accounts receivable, net                                                            810,000                  746,000
    Inventories                                                                       1,156,000                1,066,000
    Prepaid expenses and other current assets                                           141,000                  102,000
    Investment land held for sale                                                     1,424,000                1,424,000
                                                                                    -----------              -----------
        Total current assets                                                         12,622,000               10,625,000

Property, plant and equipment, net                                                    1,638,000                1,418,000
Goodwill and other intangible assets, net                                             1,510,000                1,583,000
Other assets                                                                            213,000                  200,000
                                                                                    -----------             ------------

        Total assets                                                               $ 15,983,000             $ 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                                                    15,000                  120,000
    Accounts payable and accrued liabilities                                            858,000                  742,000
                                                                                    -----------              -----------
        Total current liabilities                                                       873,000                2,060,000

Long term debt, less current portion                                                     29,000                   86,000
                                                                                    -----------              -----------

        Total liabilities                                                               902,000                2,146,000
                                                                                    -----------              -----------

Commitments

Stockholders' equity:
    Convertible preferred stock: 10,000,000 shares authorized
        Series B; 228 and 787 issued and outstanding as of December 31, 1996
           and September 30, 1996 respectively                                        1,603,000                5,533,000
        Series C; 525 and 0 issued and outstanding as of December 31, 1996
           and September 30, 1996 respectively                                        3,492,000                        -
    Warrants to acquire common stock                                                  3,051,000                1,870,000
    Common stock; no par value;  100,000,000  shares  authorized  17,663,459 and
        15,734,229 shares outstanding as of December 31, 1996
           and September 30, 1996 respectively                                       16,160,000               12,187,000
    Deferred compensation                                                           (   254,000)             (  331,000)
    Accumulated deficit                                                             ( 8,971,000)             (7,579,000)
                                                                                     ----------               ----------

        Total stockholders' equity                                                   15,081,000               11,680,000
                                                                                     ----------               ----------

                                                                                   $ 15,983,000             $ 13,826,000
                                                                                     ==========               ==========
</TABLE>

     See accompanying notes to condensed consolidated financial statements.


                                       1
<PAGE>


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


                                                       Three Months Ended
                                                          December 31
                                                       ------------------
                                                     1996              1995
                                                     ----              ----


Net sales                                      $   1,599,000     $      853,000
Cost of goods sold                                 1,143,000            571,000
                                                 -----------       ------------

    Gross profit                                     456,000            282,000

Selling, general and administrative expenses       1,534,000            541,000
Research and development                             374,000             12,000
                                                 -----------      -------------

    Operating loss                              (  1,452,000)     (     271,000)

Other income (expense)                                60,000      (      20,000)
                                                 -----------       ------------

    Loss before income taxes                    (  1,392,000)     (     291,000)

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

    Net loss                                   $(  1,392,000)     $(    291,000)

Deemed Preferred Stock Dividend relating to
    in-the-money conversion terms                    221,000                  -

Accretion on Preferred Stock                         139,000                  -
                                                 -----------        -----------

Net loss applicable to common stockholders     $(  1,752,000)     $(    291,000)
                                                 ===========       ============

Net loss per common share                      $(        .11)     $(       0.03)
                                                 ===========       ============

Weighted average number of shares of
      common stock outstanding                    16,527,588         10,457,547
                                                  ==========         ==========









     See accompanying notes to condensed consolidated financial statements.


                                       2

<PAGE>
<TABLE>
<CAPTION>
                     INTERCELL CORPORATION AND SUBSIDIARIES
                 Condensed Consolidated Statement of Cash Flows
                                   (Unaudited)

                                                                                             Three Months Ended
                                                                                                 December 31
                                                                                                 -----------
                                                                                        1996                     1995
                                                                                        ----                     ----
<S>                                                                               <C>                      <C>   

Cash flows from operating activities
    Net loss                                                                      $(  1,392,000)           $(    291,000)
    Adjustments to reconcile net loss to cash (used in)
      provided by operating activities:
        Depreciation and amortization                                                   143,000                   11,000
        Amortization of deferred compensation                                            77,000                  210,000
        Common stock issued for interest                                                 43,000                        -
    Changes in operating assets and liabilities
        Accounts receivable                                                        (     64,000)                 127,000
        Inventory                                                                  (     90,000)            (      6,000)
        Prepaid expenses                                                           (     39,000)                   3,000
        Current liabilities                                                             116,000                    6,000
                                                                                    -----------               ----------

      Net cash provided by (used in) operating activities                          (  1,206,000)                  60,000
                                                                                    -----------               ----------

Cash flows from investing activities
    Proceeds from sales and maturities of short-term investments                      2,088,000                        -
    Acquisition of property, plant and equipment                                   (    290,000)             (    15,000)
    Acquisition of other assets                                                    (     13,000)                       -
                                                                                    -----------               ----------

      Net cash provided by (used in ) investing activities                            1,785,000              (    15,000)
                                                                                    -----------               ----------

Cash flows from financing activities
    Proceeds from issuance of common stock                                                    -                   39,000
    Proceeds from issuance of Series C preferred stock and warrants                   4,673,000                        -
    Repayments of notes payable                                                     ( 1,198,000)             (    86,000)
    Repayment of long term debt                                                     (   162,000)             (     1,000)
                                                                                     ----------               ----------
      Net cash provided by (used in) financing activities                             3,313,000              (    48,000)
                                                                                     ----------               ----------

Net increase (decrease) in cash and cash equivalents                                  3,892,000              (     3,000)

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

Cash and cash equivalents at end of period                                          $ 8,116,000             $     54,000
                                                                                    ===========              ===========

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

Non-cash investing and financing activities
    Series B preferred stock converted to common                                    $ 3,930,000             $          -

</TABLE>




     See accompanying notes to condensed consolidated financial statements.

                                       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
         preseneted.  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  ended  December 31, 1996 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  during  each  period
         presented. Common stock equivalent shares consist of stock options that
         are computed using the treasury stock method.

3.       INVENTORIES

         Inventories consist of:     December 31, 1996      September 30, 1996
                                     -----------------      ------------------

                  Raw materials       $    483,000            $    422,000
                  Work in process          482,000                 453,000
                  Finished goods           191,000                 191,000
                                        ----------              ----------

                                       $ 1,156,000             $ 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 has been recognized on a pro rata basis in the first quarter of
         the  1997  fiscal  year.  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 pules 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>


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 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; (ii) the manufacture and rebuilding of specialty electron
power  tubes;  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.").

In July, 1995 the Company  acquired CTL, 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  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.

                                       5

<PAGE>


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 has been recognized
on a pro rata basis in the first quarter of the 1997 fiscal year.


RESULTS OF OPERATIONS

REVENUES:

Total revenues in the first quarter of 1997 were  $1,599,000 and  represented an
87% increase  over the first  quarter  revenues in the prior  fiscal year.  This
increase in revenue was primarily attributable to the inclusion of revenues from
the  Company's  new  electronic  components  operations  of $536,000 in the 1997
fiscal year and a $211,000  increase  in first  quarter  sales of electron  tube
products over the first 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 first quarter of the 1997 fiscal year represents the
first quarter 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 25% in the first quarter of 1997
compared to the first  quarter of 1996.  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  quarter  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 first
quarter of the 1997 fiscal year.  The balance of the Company's  operations  have
remained stable in the first quarter of 1997 compared to the first quarter sales
of the 1996 fiscal year.


GROSS PROFITS

Gross  profits  were 29% in the first  quarter of the 1997 fiscal year  compared
with 33% in the 1996  fiscal  year.  This  decrease  in  margins  was  primarily
attributable to lower margins  experienced on the sale of electronic  components
(30%) and increased  costs  associated with the manufacture of new electron tube
products.  In the first quarter of 1996,  the Company  focused  primarily on 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 $374,000 in the first quarter of
fiscal  1997  compared  to $12,000 in the first  quarter  of fiscal  1996.  This
increase  was  primarily  attributable  to research and  development  activities
incurred in connection  with the  Company's new PI Technology  ($341,000) as the
Company commenced assembly of its  pre-production  line and began testing of the
line and the technology.  In addition,  the Company  continued its developmental
work on its antenna  technology in  conjunction  with Arizona  State  University
which commenced in December, 1995.

                                       6
<PAGE>


GENERAL, SELLING AND ADMINISTRATIVE

General,  selling and administrative expenses increased by 180% to $1,513,000 in
the first  quarter of the 1997  fiscal  year  compared  to $541,000 in the first
quarter  of  fiscal  1996.  This  increase  was  primarily  attributable  to the
inclusion of general,  selling and administrative expenses for the Company's new
electronic  components and cellular antenna  operations  ($169,000) and particle
interconnect operations ($358,000). In addition, the Company incurred additional
legal and accounting costs in the first quarter of 1997 related to the filing of
a Registration Statement on Form S-1 in January, 1997.

OTHER INCOME/EXPENSE

The  Company  earned  $98,000  in  interest  income on its cash and  short  term
investments  in the  first  quarter  of the 1997  fiscal  year  while  incurring
interest  expense of $43,000.  In the first quarter of the 1996 fiscal year, the
amount of interest income earned by the Company was  insignificant  and interest
expense was $25,000.

INCOME TAXES

As of  December  31, 1996 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 three months  ended  December 31,  1996,  operating  working  capital
increased by  $3,130,000.  This  increase  was due  primarily to net proceeds of
$4,672,500  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 (total  $1,198,000)  assumed on the acquisition of PI Corp. and M.C.
Davis.

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 first quarter of fiscal 1997, capital
expenditures totaled $290,000.

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 CTLwill  provide  sufficient  funds to meet the  Company's  capital
requirements  for the next two years.  At this time, the Company does not intend
to raise  additional  capital  through the sale of  additional  capital stock or
through the issuance of debt.







                                       7
<PAGE>


                           PART II - OTHER INFORMATION



Item 1.  Legal Proceedings

The Company has recently  been  notified of a potential  litigation  matter (the
"Complaint")  that  may  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 alleges 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's  management  categorically  denies  all  allegations  made in the
Complaint and believes the Complaint is meritless. The Company intends to defend
the matter to the full extent of the law.

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%.

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").


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<PAGE>

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.

         (b)   Reports:

               1)   Form 8-K, dated October 14, 1996,  disclosed the acquisition
                    of all assets,  properties  and business  operations of A.C.
                    Magnetics,  Inc.,  d/b/a M.C.  Davis & Company  through  the
                    merger of A.C.  Magnetics,  Inc. d/b/a M. C. Davis & Company
                    into Cellular Magnetics,  Inc., a wholly owned subsidiary of
                    the Company.

               2)   Form 8-K/A-1,  dated October 14, 1996, amendment to Form 8-K
                    dated October 14, 1996,  disclosed the financial  statements
                    of  A.C.  Magnetics,   d/b/a  M.C.  Davis  &  Company.  A.C.
                    Magnetics,  d/b/a M.C.  Davis & Company was  acquired by the
                    Company  through  the merger of A.A.  Magnetics,  d/b/a M.C.
                    Davis & Company into Cellular Magnetics, Inc. a wholly owned
                    subsidiary of the Company.

                3)  Form 8-K,  dated December 16, 1996 disclosed the offering of
                    up to Six  Hundred  (600) of the  Company's  Series C No Par
                    Value  Preferred  Stock,  with  attached  Warrants,  for  an
                    aggregate of Six Million  Dollars  ($6,000,000)  pursuant to
                    Regulation D under the Securities Act of 1933, as amended.




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<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: February 21, 1997          By: ___________________________________________
                                     Gordon Sales, President and Chief Executive
                                     Officer


                                     /s/ Alan Smith
Date: February 21, 1997          By: ___________________________________________
                                     Alan Smith, Secretary and Chief Financial
                                     Officer






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