SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-Q

(Mark One)

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

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

                                       OR

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

For the transition period from                       to
                               ---------------------    ---------------------

                          Commission file number 0-935
                                                 -----

                            BELL NATIONAL CORPORATION
             (Exact name of registrant as specified in its charter)

            California                                           94-1451828
(State or other jurisdiction                                 (I.R.S. employer 
of incorporation or organization)                           identification no.)


3600 Rio Vista Avenue, Suite A, Orlando, Florida                         32805
--------------------------------------------------------------------------------
    (Address of principal executive offices)                          (Zip code)

Registrant's telephone number, including area code:   (407) 849-0290
                                                    -------------------

--------------------------------------------------------------------------------
                 (Former name, former address and former fiscal
                      year, if changed since last report.)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. 

                                Yes   X       No
                                    -----        ------

                APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                  PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Indicate  by check mark  whether  the  registrant  has filed all  documents  and
reports  required  to be  filed by  Section  12,  13 or 15(d) of the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by a court.

                                Yes   X       No
                                    -----        ------

As of November 11, 1997, the number of shares of the  registrant's  common stock
outstanding is 5,934,542.


<PAGE>

                         Part I - Financial Information

ITEM 1. Financial Statements.


                            BELL NATIONAL CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                             (Dollars in Thousands)

                                     ASSETS


                                               September 30,       December 31,
                                                   1997                 1996
                                              -------------        -------------
                                                (Unaudited)

Cash and cash equivalents                     $        1,362       $          --

Accounts receivable, net                                  --               1,222

Inventory, net                                            --               2,740

Prepaid expenses and other current assets                  7                  95
                                              --------------       -------------

     Total current assets                              1,369               4,057

Property and equipment, net                               --                 157

Goodwill, net                                             --                 663

Deferred sample books, net                                --               1,242
                                              --------------       -------------

                                              $        1,369       $       6,119
                                              ==============       =============













The  accompanying  notes are an integral  part of these  consolidated  financial
statements.


                                       2
<PAGE>


                            BELL NATIONAL CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                             (Dollars in Thousands)

                      LIABILITIES AND STOCKHOLDERS' EQUITY

                                                September 30,      December 31,
                                                    1997               1996
                                               --------------     -------------
                                                (Unaudited)


Current Liabilities:
  Accounts payable                             $           --     $       1,047
  Current portion of long-term debt                        --             2,225
  Accrued compensation and employee benefits              502               444
  Accrued expenses                                        576               512
                                               --------------     -------------

         Total current liabilities                      1,078             4,228

Accrued stock appreciation rights                         159               268

Other liabilities                                          49                48
                                               --------------     -------------

                                                        1,286             4,544

Stockholders' equity:

  Common  stock,  no par  value;  
    authorized 12,000,000  shares,
    issued and outstanding 5,934,542
    shares at September 30, 1997 
    and 5,488,114 shares at 
    December 31, 1996                                  15,849            15,815

  Additional paid-in capital                               10                10

  Accumulated deficit                                 (15,776)          (14,250)
                                               --------------     -------------

       Total stockholders' equity                          83             1,575
                                               --------------     -------------

                                               $        1,369     $       6,119
                                               ==============     =============









The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

                                       3
<PAGE>


                            BELL NATIONAL CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                (Dollars in thousands, except per share amounts)

                                   (Unaudited)
<TABLE>
<CAPTION>
                                                         Three Months Ended                Nine Months Ended
                                                            September 30,                    September 30,
                                                     ---------------------------      --------------------------
                                                         1997           1996              1997           1996
                                                     -----------     -----------      -----------    -----------
<S>                                                  <C>             <C>              <C>            <C>
Net  sales                                           $     1,142     $     3,093      $     6,576    $     9,643

Costs and expenses:
     Cost of sales                                           513           1,544            3,521          5,205
     Selling, general and administrative                     565           1,411            3,150          4,429
                                                     -----------     -----------      -----------    -----------

Operating income                                              64             138              (95)             9

Other income (expense):
     Interest expense                                         (1)            (57)            (134)          (199)
     Other                                                    17             (92)              25           (102)
                                                     -----------     -----------      -----------    -----------

Income (loss) before income taxes                             80             (11)            (204)          (292)

Provision for income taxes                                    --              --               --             (2)
                                                     -----------     -----------      -----------    -----------

Net income (loss) before sale of assets              $        80     $       (11)     $      (204)   $      (294)

Loss on sale of assets                                    (1,322)             --           (1,322)            --
                                                     -----------     -----------      -----------    -----------

Net loss                                             $    (1,242)    $       (11)     $    (1,526)   $      (294)
                                                     ===========     ===========      ===========    ===========


Net loss per common share                            $     (0.22)    $     (0.01)     $     (0.27)   $     (0.06)
                                                     -----------     -----------      -----------    -----------

Weighted average number of common
  shares outstanding                                   5,934,543       5,283,114        5,687,614      5,283,114
                                                     -----------     -----------      -----------    -----------
</TABLE>





The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

                                       4
<PAGE>


                            BELL NATIONAL CORPORATION
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                             (Dollars in Thousands)
                                   (Unaudited)


<TABLE>
<CAPTION>
                                             Common Stock              Additional        Accum-         Total
                                 ---------------------------------       Paid-in         ulated      Stockholders'
                                       Shares            Dollars         Capital        Deficit         Equity
                                 ----------------    -------------     -----------    -----------    -----------
Balance at 
<S>                              <C>                 <C>               <C>            <C>            <C>        
   December 31, 1996                    5,488,114    $      15,815     $        10    $   (14,250)   $     1,575

Exercise of SAR's                         446,428               34              --             --             34
Net income                                     --               --              --         (1,526)        (1,526)
                                 ----------------    -------------     -----------    -----------    -----------

Balance at
   September 30, 1997                   5,934,542    $      15,849     $        10    $   (15,776)   $        83
                                 ================    =============     ===========    ===========    ===========

</TABLE>



























The  accompanying  notes are an integral  part of these  consolidated  financial
statements.


                                       5
<PAGE>


                            BELL NATIONAL CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Dollars in thousands)

                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                       Nine Months Ended September 30,
                                                                  ----------------------------------------
                                                                       1997                      1996
                                                                  --------------             -------------
<S>                                                               <C>                        <C>

Operating activities:
Net (loss) income                                                 $       (1,526)            $        (294)

Adjustments  to  reconcile  net  (loss)  income
   to cash  provided  by  operating activities:
     Depreciation                                                             32                        43
     Amortization of goodwill                                                 11                        15
     Amortization of deferred sample books                                   624                       904
     Amortization of deferred debt commitment fee                             --                        40

(Increase) decrease in assets:
     Accounts receivable                                                     170                      (159)
     Inventory                                                                64                     1,144
     Prepaid expenses and other current assets                                17                        88
Increase (decrease) in liabilities:
     Accounts payable                                                        155                      (481)
     Accrued compensation and employee benefits                              321                        98
     Accrued expenses                                                        313                         2
     Accrued stock appreciation rights                                      (109)                       --
                                                                  --------------             -------------
     Net cash provided by operating activities                                72                     1,400
                                                                  --------------             -------------

Investing activities:
     Acquisition of property and equipment                                    --                        (4)
     Purchase of deferred sample books                                      (369)                     (574)
                                                                  --------------             -------------
     Net cash used in investing activities                                  (369)                     (578)
                                                                  --------------             -------------

Financing activities:
     Net (repayments) borrowings on long-term bank debt                   (2,225)                     (817)
     Proceeds from asset sale                                              3,850                        --
     Issuance of common stock from SAR agreements                             34                        --
     Principal payments on capital lease obligations                          --                        (5)
                                                                  --------------             -------------
     Net cash (used for) provided by financing activities         $        1,659             $        (822)
                                                                  --------------             -------------

</TABLE>






The  accompanying  notes are an integral  part of these  consolidated  financial
statements.


                                       6
<PAGE>



                            BELL NATIONAL CORPORATION
                CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
                             (Dollars in thousands)

                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                       Nine Months Ended September 30,
                                                                  ----------------------------------------
                                                                       1997                      1996
                                                                  --------------             -------------

<S>                                                               <C>                        <C>
Net increase in cash and cash equivalents                         $        1,362             $          --

Cash and cash equivalents at beginning of period                              --                        --
                                                                  --------------             -------------

Cash and cash equivalents at end of period                        $        1,362             $          --
                                                                  ==============             =============




Supplemental Disclosure of Cash Flow Information

Cash paid during the year for:
     Interest                                                     $          133             $         199
     Income taxes                                                             --                        --

</TABLE>




















The  accompanying  notes are an integral  part of these  consolidated  financial
statements.


                                       7
<PAGE>


                            BELL NATIONAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 1997
                                   (Unaudited)



Note 1. The Company

General.  The  information  contained  in  this  report  is  unaudited  but,  in
management's  opinion,  all adjustments  necessary for a fair  presentation have
been  included and were of a normal and  recurring  nature.  The results for the
three and nine months ended September 30, 1997 are not necessarily indicative of
results to be expected for the entire year. These financial statements and notes
should be read in conjunction with Bell National  Corporation's  (the "Company")
Annual Report on Form 10-K for the year ended December 31, 1996.

On August 5, 1997 Payne Fabrics,  Inc.  ("Payne") sold  substantially all of its
assets and most of its  liabilities  related to the  business of  designing  and
distributing  decorative drapery and upholstery  fabrics.  The sale included the
transfer  to the buyer of the use and rights to the Payne name and  simultaneous
to the closing of the transaction  the remaining  entity changed its name to PFI
National  Corporation  ("PFI").  This sale left PFI  without  any  substantially
assets and at the end of business on August 4, 1997 all operations were ceased.

A reading of the financial statements must therefore take into account that Bell
and its subsidiary PFI have not ongoing operations.


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

Results of Operations The Company's  revenues and expenses had,  previous to the
sale of substantially all of PFI's assets,  resulted from the operations of PFI.
The comparisons  included in this discussion and analysis of financial condition
and results of operation  therefore include the Company's  ownership interest in
PFI's results up to the date of sale.  The  Company's  last day of ownership was
August 4, 1997.

Nine Months Ended  September  30, 1997 The Company had net sales of  $6,576,000,
cost of goods sold of $3,521,000,  selling,  general and administrative expenses
of $3,150,000  resulting in an operating  loss of $95,000  during the first nine
months of 1997. The operating loss was increased by interest expense of $134,000
partly  offset by other  income of $25,000,  resulting  in a net loss before the
sale of assets of $204,000. These results include the Company's ownership of PFI
through August 4, 1997.

In connection with the sale of PFI's assets,  PFI recorded a loss on the sale of
assets of $1,322,000. This loss together with the net loss before the asset sale
resulted in a net loss of $1,526,000.

Nine Months Ended  September  30, 1996 The Company had net sales of  $9,643,000,
cost of goods sold of $5,205,000,  selling,  general and administrative expenses
of  $4,429,000  and  operating  income of 

                                       8
<PAGE>

$9,000  during the first nine  months of 1996.  Operating  income was reduced by
interest  expense of  $199,000,  other  expense of $102,000  and income taxes of
$2,000 resulting in a net loss of $294,000.

Comparison  of Nine Months 1997  Results to 1996 Sales for the first nine months
of 1997 decreased by $3,067,000  compared to the  corresponding  period in 1996.
The first  nine  months of 1997  decrease  is  identifiable  to all  fabric  and
workroom  categories.  In addition  the 1997  results  include  only about seven
months of results  while the 1996 results  include a full nine months of results
due to the cessation of operations on August 4, 1997.

The gross  profit for the first nine months of 1996 was 46.5%  compared to 46.0%
for the same period in 1996. Selling,  general and administrative  costs for the
first nine  months of 1997 were  $1,279,000  lower than the same period of 1996.
Again the 1997 selling  general and  administrative  results  include only about
seven months of expenses  while the 1996  results  include a full nine months of
expenses due to the cessation of operations on August 4, 1997.

Interest  expense  decreased by $65,000 in 1997  primarily due to the debt being
paid off on August 4, 1997 from the proceeds of the asset sale.  Other  expenses
were down  $127,000 in the first nine months of 1997 versus 1996.  The shortened
1997 period also accounts for most of this change.

The net loss of  $1,526,000  in the first nine months of 1997  compared to a net
loss of  $294,000  for the same  period of 1996  resulted in a loss per share of
$0.27 for 1997 compared to a loss of $0.06 for the same period in 1996. The loss
on the sale of  assets  accounts  for $0.23  per  share in 1997  resulting  in a
pre-loss  comparison  per share of a loss of $0.04 in 1997 and $0.06 in 1996 for
the first nine months of each year.

Quarter Ended  September 30, 1997 The Company had net sales of $1,142,000,  cost
of goods sold of  $513,000,  selling,  general  and  administrative  expenses of
$565,000  and  operating  income of $64,000  during  the third  quarter of 1997.
Operating  income was effected by interest expense of $1,000 and other income of
$17,000, resulting in net income before the sale of assets of $80,000. Factoring
in the loss on the sale of assets of  $1,322,000  results  in a net loss for the
period of $1,242,000.

Quarter Ended  September 30, 1996 The Company had net sales of $3,093,000,  cost
of goods sold of $1,544,000,  selling,  general and  administrative  expenses of
$1,411,000  and operating  income of $138,000  during the third quarter of 1996.
Operating income was reduced by interest expense of $57,000 and other expense of
$92,000 resulting in a net loss of $11,000.

Comparison  of Third Quarter 1997 Results to 1996 Sales for the third quarter of
1997 decreased by $1,951,000  compared to the corresponding  period in 1996. The
third  quarter  1996  decrease  is  identifiable  to  all  fabric  and  workroom
categories.  In addition the 1997 results  include  roughly one month of results
while  the 1996  results  include a full  three  months  of  results  due to the
cessation of operations on August 4, 1997.

The gross profit for the third  quarter of 1997 was 55.1%  compared to 50.1% for
the same period in 1996.

Selling  general  and  administrative  costs for the third  quarter of 1997 were
$846,000 lower than the same period of 1996.  Again the 1997 selling general and
administrative  results  include only about one 


                                       9
<PAGE>

month of expenses while the 1996 results include a full three months of expenses
due to the cessation of operations on August 4, 1997.

Interest expense decreased by $56,000 in the third quarter of 1997 primarily due
to the debt  being  paid off on August 4,  1997 from the  proceeds  of the asset
sale.  Other  expenses were  $109,000  lower in the third quarter of 1997 versus
1996.  The shortened 1997 period also accounts for most of this change.

The net loss of  $1,242,000  in the third quarter of 1997 compared to a net loss
of $11,000 for the same period of 1996 resulted in a loss per share of $0.22 for
1997  compared to a loss of $0.01 for the same  period in 1996.  The loss on the
sale of  assets  accounts  for  $0.22  per  share in 1997 (a  difference  in the
weighted average number of shares outstanding  accounts for the variance between
this per share  basis and the $0.23 per share for nine months for the same item)
resulting in a per share comparison of $0.00 in 1997 and a loss of $0.01 in 1996
for the same quarter of each year.








                                       10
<PAGE>


Liquidity and Capital Resources

Available Resources. Management believes that cash on hand will be sufficient to
fund the Company's  1997  administrative  cash needs.  There is not a sufficient
amount of cash or an  existing  line of credit  that would  allow the Company to
make a major  acquisition.  The Company's  review of it's future  direction will
factor  in this  very  important  component.  The  Company  has begun to look at
various alternatives for its future direction.

The Company has made provisions for the remaining  liabilities it is responsible
for.  These  include a provision for the final  settlement  related to the asset
sale,  legal and  accounting  fees  related  to the sale and a  reserve  to make
payments to former  employees for pension funds they are entitled to under PFI's
defined benefit plan.  Management believes that it has made adequate reserves to
account for any contingency related to these matters and does not expect to book
any further loss on the sale of assets in excess of the $1,322,000 booked in the
third quarter of 1997. However,  these matters have not been completely resolved
and the risk exists  that  provisions  may not be  adequate to cover  unforeseen
events.

Future Needs For and Sources of Capital.

During the first nine months of 1997 the Company  generated $72,000 of cash from
operations  compared to $1,400,000 during the corresponding  period in 1996. The
lower cash flow from operations in 1997 was primarily  driven by the loss on the
sale of assets of 1,322,000 in 1997. Before the asset sale, $369,000 was used to
purchase  sample  books and $5,000 was used to make a  principal  payment on the
then existing line of credit.  The  $3,850,000  gross  proceeds from the sale of
assets on August 4, 1997 were used to  extinguish  the then  existing  bank debt
balance of  $2,220,000.  Net of the other working  capital  sources and uses the
Company ended the first nine months of 1997 with $1,362,000 in cash.

During the first nine months of 1996 the Company  generated  $1,400,000  of cash
from operations  compared to $876,000 during the  corresponding  period in 1995.
The  larger  cash flow from  operations  in 1996  than in 1995  resulted  from a
decrease in inventory  somewhat  offset by a decrease in accounts  payable.  The
cash generated from operations in 1996 was used to purchase $574,000 of deferred
sample book inventory, purchase $4,000 of equipment and to pay down bank debt by
$817,000.


                           PART II. OTHER INFORMATION


Exhibits 6.  Exhibits and Reports

        (a)  Exhibits

             27   Financial Data Schedule


                                       11
<PAGE>


                                   SIGNATURES


Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.


                                            BELL NATIONAL CORPORATION
                                    --------------------------------------------
                                                  (Registrant)



Date: November 11, 1997             /s/   Alexander M. Milley
                                    --------------------------------------------
                                    Alexander M. Milley, Chairman of the Board
                                     and Secretary




Date: November 11, 1997             /s/   Thomas R. Druggish
                                    --------------------------------------------
                                    Thomas R. Druggish, Chief Financial Officer
                                     (Principal Financial Officer and Accounting
                                     Officer)









                                       12
<PAGE>