<PAGE>   1
                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                   Form 10-QSB


[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES 
    EXCHANGE ACT OF 1934


    For the quarterly period ended September 30, 1997
                                   ------------------


                         Commission file number 0-16011


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


                                   California
--------------------------------------------------------------------------------
         (State or other jurisdiction of incorporation or organization)


                                   95-2873757
--------------------------------------------------------------------------------
                      (I.R.S. Employer Identification No.)


                            12265 W. Bayaud Ave #110
                                  Lakewood, CO
--------------------------------------------------------------------------------
                    (Address of principal executive offices)


                                      80228
--------------------------------------------------------------------------------
                                   (Zip Code)


                                 (303) 986 8011
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)

Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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
                                     -----      -----

The number of shares of Common Stock outstanding on September 30, 1997 was
18,361,300 shares

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PART I -- FINANCIAL INFORMATION

The financial information furnished herein has not been audited by independent
accountants; however, in the opinion of management, all adjustments (only
consisting of normal recurring accruals) necessary for a fair presentation of
the results of operations for the three month period ending September 30, 1997
have been included.

ITEM 1.  FINANCIAL STATEMENTS

                           WATSON GENERAL CORPORATION
                                AND SUBSIDIARIES

                           Consolidated Balance Sheet

<TABLE>
<CAPTION>

                                                         September 30,         June 30,                 
                                                             1997                1997                   
                                                         -------------       ------------               
                                                         (unaudited)         (unaudited)                
<S>                                                      <C>                <C>                         
ASSETS                                                                                                  
                                                                                                        
  CURRENT ASSETS                                                                                        
        Cash and equivalents                             $    624,000       $    799,000                
        Accounts receivable                                   678,000            662,000                
        Prepaid expenses and other current assets             416,000            418,000                
                                                         ------------       ------------                
                                                            1,718,000          1,879,000                
                                                                                                        
  PROPERTY AND EQUIPMENT                                      718,000            755,000                
  INTANGIBLES AND GOODWILL                                  8,284,000          8,546,000                
                                                         ------------       ------------                
                                                         $ 10,720,000       $ 11,180,000                
                                                         ============       ============                
                                                                                                        
LIABILITIES AND SHAREHOLDERS' EQUITY                                                                    
                                                                                                        
  CURRENT LIABILITIES                                                                                   
        Accounts payable, accrued expenses                                                              
          and other liabilities                          $    764,000       $    915,000                
        Current portion of long-term debt                   1,095,000          1,083,000                
                                                         ------------       ------------                
                                                            1,859,000          1,998,000                
                                                                                                        
  LONG-TERM DEBT AND OTHER LIABILITIES                      6,629,000          6,423,000                
  DEFERRED EMPLOYEE BENEFITS                                  434,000            434,000                
                                                                                                        
SHAREHOLDERS' EQUITY                                                                                    
                                                                                                        
  Common stock                                             10,400,000         10,373,000                
  Additional paid-in capital                                1,947,000          1,947,000                
  (Accumulated deficit)                                   (10,549,000)        (9,995,000)               
                                                         ------------       ------------                
                                                            1,798,000          2,325,000                
                                                         ------------       ------------                
                                                         $ 10,720,000       $ 11,180,000                
                                                         ============       ============                
</TABLE>


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<PAGE>   3
                           WATSON GENERAL CORPORATION
                                AND SUBSIDIARIES

                      Consolidated Statements of Operations
                 Three Months Ended September 30, 1997 and 1996

<TABLE>
<CAPTION>
                                                     1997             1996          
                                                  ----------       ----------       
                                                  (unaudited)      (unaudited)      
<S>                                               <C>              <C>              
Sales                                             $1,560,000       $  559,000       
                                                                                    
Cost of sales                                        580,000          170,000       
                                                  ----------       ----------       
  Gross profit (loss)                                980,000          389,000       
                                                                                    
Selling, general and administrative expenses       1,312,000        1,006,000       
                                                                                    
Interest expense, net of interest income             222,000           35,000       
                                                  ----------        ---------       
Loss from operations before benefit for                                             
  income taxes                                      (554,000)        (652,000)      
                                                                                    
Benefit for income taxes                                  --               --       
                                                  ----------        ---------       
Net (loss)                                        $ (554,000)       $(652,000)      
                                                  ----------        ---------       
Net (loss), per share                             $    (0.03)       $   (0.06)      
                                                  ==========        =========       
</TABLE>


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<PAGE>   4

                           WATSON GENERAL CORPORATION
                                AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows
                 Three Months Ended September 30, 1997 and 1996

<TABLE>
<CAPTION>

                                                                    1997          1996                
                                                                 ----------     ----------            
                                                                 (unaudited)   (unaudited)            
<S>                                                              <C>            <C>                   
Cash flows (used in) operating activities:                                                            
                                                                                                      
  Net (loss)                                                      $(554,000)    $(652,000)            
  Adjustments to reconcile net (loss) to net cash                                                     
     used for operating activities:                                                                   
        Depreciation and amortization                               391,000       199,000             
        Loss on sale and write-off of property and equipment         54,000                           
        Net changes in operating assets and liabilities            (153,000)      152,000             
                                                                  ---------     ---------             
                                                                   (262,000)     (301,000)            
                                                                  ---------     ---------             
Cash flows (used in) investing activities:                                                            
                                                                                                      
     Net purchase of subsidiary                                          --       (40,000)            
     Sale (purchase) of property and equipment                      (65,000)     (132,000)            
                                                                  ---------     ---------             
                                                                    (65,000)     (172,000)            
                                                                  ---------     ---------             
Cash flows (used in) provided by financing activities:                                                
                                                                                                      
     Proceeds from issuance of common stock and options              27,000       170,000             
     Borrowings, net of repayments                                  125,000       (60,000)            
                                                                  ---------     ---------             
                                                                    152,000       110,000             
                                                                  ---------     ---------             
                                                                                                      
Increase (Decrease) in cash                                        (175,000)     (363,000)            
Cash, beginning                                                     799,000       550,000             
                                                                  ---------     ---------             
Cash, ending                                                      $ 624,000     $ 187,000             
                                                                  =========     =========             
</TABLE>


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<PAGE>   5

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

Results of Operations:

In the first quarter of fiscal 1998 the Company reported a net loss of $554,000
or $0.03 per share as compared to a net loss of $652,000 or $0.06 per share in
the prior year. Sales for the quarter were $1,560,000 compared with $559,000 in
the prior year. The 179% increase in sales over the same quarter in the prior
year is due primarily to the acquisition of Ustman Industries in May 1997.

Gross margins of 63% were achieved by focusing the Company's business in the
monitoring of underground storage tanks using Statistical Inventory
Reconciliation. The Company's strategic plan calls for it to reposition itself
in pursuit of its most significant market opportunity, leak detection/monthly
monitoring of underground storage tanks and to eliminate its existing holding
company structure. As part of this strategic plan, the Company intends to divest
its Toxguard Fluid Technologies, Inc (on-site antifreeze recycling) subsidiary.
Subsequent to June 30, 1997 Toxguard Systems, Inc. ceased operations and filed a
voluntary petition for bankruptcy under Chapter 7. Toxguard Systems, Inc.'s
financial statements have not been consolidated with those of the Company and
prior quarter results have been restated.

Included in the loss of $554,000 for the quarter were costs of approximately
$312,000 for transitioning the Company's operations from Kansas City, and Irvine
to Denver. It is expected that these costs will be significantly reduced in the
second quarter of the fiscal year. Considering the elimination of these costs,
and the depreciation and amortization charges of $391,000 for the quarter, on an
ongoing basis the Company would have achieved positive cash flow during the
quarter.

The Company's sales depend in part upon its customer's decision as to when to
implement measures to meet 1998 compliance requirements. The Company believes
that the market for its services may accelerate as compliance deadlines
approach.

Financial Condition and Liquidity:

At September 30, 1997 the Company's current liabilities exceeded current assets
by $141,000 compared to $119,000 at June 30, 1997. The Company's business does
not require material ongoing capital expenditures. The Company's management
believes that it has adequate resources for the next twelve months of
operations.


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                          PART II -- OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

        Not Applicable

ITEM 2. CHANGES IN SECURITIES

        Not Applicable

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

        Not Applicable.

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

        Not Applicable.

ITEM 5. OTHER INFORMATION

        Not Applicable.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

        Exhibit 27 -- Financial Data Schedule.

                                   SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                             WATSON GENERAL CORPORATION
                                                    (Registrant)


Date: November 12, 1997                      By: /s/ DAN R. COOK
                                                 -------------------------------
                                                     Dan R. Cook
                                                     President and CEO


Date: November 12, 1997                      By: /s/ JOSEPH L. CHRISTOFFEL
                                                 -------------------------------
                                                     Joseph L. Christoffel
                                                     Chief Financial Officer


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