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    June 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 of             (I.R.S. employer identification no.)
incorporation or organization)

4209 Vineland Road, Suite J-1, Orlando, Florida                         32811
--------------------------------------------------------------------------------
   (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 August 9, 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


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

Cash and cash equivalents                     $      --             $     --

Accounts receivable, net                          1,259                1,222

Inventory, net                                    2,669                2,740

Prepaid expenses and other current assets           106                   95
                                              ---------             --------

     Total current assets                         4,034                4,057

Property and equipment, net                         130                  157

Goodwill, net                                       653                  663

Deferred sample books, net                        1,068                1,242
                                              ---------             --------

                                              $   5,885             $  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

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

Current Liabilities:
  Accounts payable                                     1,112          1,047
  Current portion of long-term debt                    2,220          2,225
  Accrued compensation and employee benefits             533            444
  Accrued expenses                                       486            512
                                                 -----------      ---------

         Total current liabilities                     4,351          4,228

Accrued stock appreciation rights                        159            268

Other liabilities                                         50             48
                                                 -----------      ---------

                                                       4,560          4,544

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

     Additional paid-in capital                           10             10

     Accumulated deficit                             (14,534)       (14,250)
                                                 -----------      ---------

       Total stockholders' equity                      1,325          1,575
                                                 -----------      ---------

                                                 $     5,885      $   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>
<S>                                        <C>          <C>         <C>         <C>
                                             Three Months Ended        Six Months Ended
                                                  June 30,                June 30,
                                           ----------------------   ---------------------
                                             1997          1996       1997        1996
                                           ---------    ---------   ---------   ---------

Net  sales                                 $   2,860    $   3,383   $   5,434   $   6,550

Costs and expenses:
     Cost of sales                             1,649        1,978       3,008       3,661
     Selling, general and administrative       1,242        1,527       2,585       3,018
                                           ---------    ---------   ---------   ---------

Operating income (loss)                          (31)        (122)       (159)       (129)

Other expense:
     Interest expense                            (79)         (70)       (133)       (142)
     Other                                        18          (17)          8         (10)
                                           ---------    ---------   ---------   ---------

Income (loss) before income taxes                (92)        (209)       (284)       (281)

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

Net income (loss)                          $     (92)   $    (209)  $    (284)  $    (283)
                                           =========    =========   =========   =========

Net income (loss) per common share         $   (0.02)   $   (0.04)  $   (0.05)  $   (0.05)
                                           =========    =========   =========   =========

Weighted average number of common
  shares outstanding                       5,561,701    5,283,114   5,525,111   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>
<S>                      <C>          <C>         <C>         <C>           <C>
                                                  Additional                  Total
                              Common Stock         Paid-in    Accumulated   Stockholders'
                           Shares     Dollars      Capital      Deficit       Equity
                         ---------    --------    ----------  -----------   ------------

Balance at
   December 31, 1996     5,488,114    $ 15,815     $    10    $ (14,250)    $  1,575

Exercise of SAR's          446,428          34          --           --           34

Net income (loss)               --          --          --         (284)        (284)
                         ---------    --------     -------    ---------     --------

Balance at
   June 30, 1997         5,934,542    $ 15,849     $    10    $ (14,534)    $  1,325
                         =========    ========     =======    =========     ========
</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)

                                                       Six Months Ended June 30,
                                                       -------------------------
                                                          1997           1996
                                                       ----------     ---------
Operating activities:
Net income (loss)                                        $  (284)     $  (283)

Adjustments to reconcile net income (loss) to
net cash  provided by operating activities:
  Depreciation                                                27           29
  Amortization of goodwill                                    10           10
  Amortization of deferred sample books                      520          607
  Amortization of deferred debt commitment fee                --            8

(Increase) decrease in assets:
  Accounts receivable                                        (37)        (115)
  Inventory                                                   71        1,129
  Prepaid expenses and other current assets                  (11)          42

Increase (decrease) in liabilities:
  Accounts payable                                            65         (248)
  Accrued compensation and employee benefits                  89           98
  Accrued expenses                                           (24)          71
  Accrued stock appreciation rights                         (109)          --
                                                         -------      -------

  Net cash provided by operating activities                  317        1,348
                                                         -------      -------

Investing activities:
  Acquisition of property and equipment                       --           (2)
  Purchase of deferred sample books                         (346)        (503)
                                                         -------      -------

  Net cash used in investing activities                     (505)        (505)
                                                         -------      -------

Financing activities:
  Net (payments) borrowings on bank debt                      (5)        (842)
  Issuance of common stock from SAR's                         34           --
  Principal payments on capital lease obligations             --           (1)
                                                         -------      -------
  Net cash (used for) provided by financing activities    $   29      $  (843)
                                                         -------      -------


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)

                                                       Six Months Ended June 30,
                                                       -------------------------
                                                         1997             1996
                                                       --------         --------
Net decrease in cash and cash equivalents              $     --         $    --

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

Cash and cash equivalents at end of period             $     --         $    --
                                                       ========         =======


Supplemental Disclosure of Cash Flow Information

Cash paid during the year for:
     Interest                                          $    132         $   142
     Income taxes                                            --              --



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

                                        7


<PAGE>

                            BELL NATIONAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  June 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 six  months  ended June 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.

Bell  National   Corporation's  wholly  owned  subsidiary  Payne  Fabrics,  Inc.
("Payne") is a designer and  distributor  of decorative  drapery and  upholstery
fabrics.  Payne was acquired by the Company on June 15, 1990.  On August 5, 1997
Payne sold  substantially all of its assets and most of its liabilities  related
to its business to Westgate Fabrics.


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

Results of  Operations  The  Company's  revenues  and  expenses  result from the
operations of Payne Fabrics, Inc.

Six Months Ended June 30, 1997 The Company had net sales of $5,434,000,  cost of
goods sold of  $3,008,000,  selling,  general  and  administrative  expenses  of
$2,585,000  and an  operating  loss of  $159,000  during the first six months of
1997. The operating loss was increased by interest  expense of $133,000,  offset
by other income of $8,000 resulting in a net loss of $284,000.

Six Months Ended June 30, 1996 The Company had net sales of $6,550,000,  cost of
goods sold of  $3,661,000,  selling,  general  and  administrative  expenses  of
$3,018,000  and an  operating  loss of  $129,000  during the first six months of
1996.  The operating loss was increased by interest  expense of $142,000,  other
expense  of  $10,000  and income  taxes of  $2,000,  resulting  in a net loss of
$283,000.

Comparison  Of Six Months 1997 Results to 1996 Sales for the first six months of
1997 decreased by $1,116,000  compared to the corresponding  period in 1996. All
fabric and workroom categories experienced declines.

The gross  profit for the first six months of 1997 was 44.6%  compared  to 44.1%
for the same period in 1996. Selling,  general and administrative  costs for the
first six months of 1997 were $433,000  lower than the same period of 1996.  The
results  include a $76,000  favorable  adjustment for SAR's deemed  exercised on
June 15, 1997.

                                       8
<PAGE>

Interest expense decreased by $9,000 for the first six months of 1996 due to the
slightly  lower debt balance in  comparison to the same period of the prior year
offset by high rates in 1997. Other expenses were $18,000 lower in the first six
months of 1997 versus 1996.  Also in the first six months of 1997 provisions for
income taxes were $2,000 lower than in 1996.

The net loss of $284,000 in the first six months of 1997  compared to a net loss
of $283,000  for the same  period in 1996  resulted in a loss per share of $0.05
for the first six months of 1997 and 1996.

Quarter  Ended June 30, 1997 The Company  had net sales of  $2,860,000,  cost of
goods sold of  $1,649,000,  selling,  general  and  administrative  expenses  of
$1,242,000  and an operating  loss of $31,000 during the second quarter of 1997.
The operating loss was increased by interest expense of $79,000, offset by other
income of $18,000 resulting in a net loss of $92,000.

Quarter  Ended June 30, 1996 The Company  had net sales of  $3,383,000,  cost of
goods sold of  $1,978,000,  selling,  general  and  administrative  expenses  of
$1,527,000 and an operating loss of $122,000  during the second quarter of 1996.
The operating  loss together with interest  expense of $70,000 and other expense
of $17,000 resulted in a net loss of $209,000.

Comparison of Second  Quarter 1997 Results to 1996 Sales for the second  quarter
of 1997 decreased by $523,000 compared to the corresponding  period in 1996. All
fabric and workroom categories experienced declines.

The gross profit for the second  quarter of 1997 was 42.3% compared to 41.5% for
the same  period in 1996.  Selling,  general  and  administrative  costs for the
second  quarter of 1997 were  $285,000  lower than the same period of 1996.  The
results  include a $56,000  favorable  adjustment for SAR's deemed  exercised on
June 15, 1997.

Interest  expense  increased by $9,000 for the second quarter of 1997 due to the
high rate  charged in  comparison  to the same period of the prior  year.  Other
expenses were $35,000 lower in the second quarter of 1997 versus 1996.

The net loss of $92,000 in the second  quarter of 1997  compared to the net loss
of $209,000  for the same  period in 1996  resulted in a loss per share of $0.02
for the  second  quarter of 1997  compared  to a loss per share of $0.04 for the
same period of 1996.


Liquidity and Capital Resources

Available  Resources In  connection  with the bank loan  agreement,  the Company
instituted a cash management system whereby the net cash generated by operations
is immediately used to reduce bank debt. The immediate  reduction of outstanding
bank debt provides the Company with a greater reduction in interest expense than
could be offset with interest income from alternative  investments.  A review of
the  financial  statements,  summary  data,  working  capital and  discussion of
liquidity  must  take into  consideration  the fact  that the  Company  does not
maintain  any cash  balances in any of its accounts by design.  Working  capital
needs, when they arise, are met by daily borrowings.

                                       9
<PAGE>

Future Needs For and Sources of Capital

During the first  half of 1997,  the  Company  generated  $317,000  of cash from
operations  compared to $1,348,000  during the first half of 1996.  The dramatic
reduction of $1,129,000 of inventory during the first six months of 1996 was not
repeatable in 1996.  The operating  cash generated in 1997 and proceeds from the
issuance of common  stock under SAR  agreements  of $34,000 was used to purchase
$346,000 of sample books and repay bank principal of $5,000.

During the first six months of 1996,  the Company  generated  $1,348,000 of cash
from  operations  compared  to  $481,000  during  the first six  months of 1995.
Greater cash was generated  from  operations in 1996  primarily as a result of a
significant  decrease  in working  capital  during the first six months of 1995.
Accounts  receivable,  inventory,  prepaid  expenses  and other  current  assets
decreased  in net by  $1,056,000  in 1996 due to efforts in  reducing  inventory
levels.  The  decrease in current  assets was  slightly  offset by a decrease in
current  liabilities  (excluding  the current  portion of debt and capital lease
obligations)  of $79,000 in 1996.  The operating cash generated in the first six
months of 1996 was used to purchase $503,000 of sample book inventory,  purchase
$2,000 of equipment and to pay down bank debt by $842,000.

During 1996 and  continuing  in 1997,  the Company and its Payne  Fabrics,  Inc.
("PFI")  subsidiary did not meet certain of their  covenants under its revolving
credit  agreement (the "Credit  Agreement")  with Bank One, N.A.  (formerly Bank
One, Dayton,  National  Association)  (the "Bank").  In addition,  the quarterly
principal  installments  due after  September 1, 1996 had not been made although
interest  payments were kept current.  The Company has therefore  classified all
amounts owing to the Bank as current  liabilities,  reflecting  the Bank's right
under the Credit Agreement to demand immediate and full payment of its loans.

On May 12, 1997 the Bank formally  notified PFI that it was in default under the
Credit  Agreement.  This notice included a demand for payment of all outstanding
amounts by May 30,  1997.  Subsequently,  the  Company  and PFI  entered  into a
Revolving Credit Modification  Agreement (the "Credit  Modification  Agreement')
with the Bank,  under which the:  (i) maturity  date of the amounts  outstanding
under the Credit  Agreement  was  extended to July 31,  1997,  (ii) the interest
charged   was   increased   to   prime-plus-2.0%   for   revolving   loans   and
prime-plus-4.25%  for the term loan, and (iii) the Company and PFI agreed to pay
the Bank a $30,000 fee. The Bank further  agreed to forebear  from  accelerating
the loans  under the Credit  Agreement  and  enforcing  its rights  against  the
collateral security therefor until the extended maturity date, which allowed the
Company the opportunity to secure the means of extinguishing the Bank debt.


ITEM 5.  Other Information

The  following  information  contains  disclosures  required  under  item  2  of
Securities and Exchange Commission ("SEC") Form 8-K Current Report ("Form 8-K"),
and is included  herein in lieu of filing such  information  in a separate  Form
8-K.


                                       10


<PAGE>


On July 17, 1997, the Company and PFI entered into an Asset  Purchase  Agreement
dated as of July 17, 1997 (as amended,  the "Asset  Agreement"),  with  Westgate
Fabrics, Inc. ("Westgate"),  and on August 5, 1997 the transactions contemplated
by the Asset  Agreement were  consummated.  Under the Asset  Purchase,  PFI sold
substantially all of its properties and assets (excluding cash) to Westgate, and
Westgate  assumed  specified  liabilities  of PFI.  The  purchase  price paid by
Westgate to PFI was  $3,850,000 in cash,  $150,000 of which was  deposited  into
escrow to secure  certain  post-closing  working  capital-based  purchase  price
adjustments  called  for under  the Asset  Agreement.  Such  purchase  price was
arrived  at  through  arm's-length  negotiations  between  the  Company/PFI  and
Westgate.  The assets sold included PFI's name and trademark,  and PFI is in the
process of changing its name to "PFI National Corporation".

Among the  liabilities  retained  by PFI under the Asset  Agreement  were Credit
Agreement  indebtedness,  payroll  compensation  and commissions due through the
closing date,  liabilities  for taxes,  the PFI pension plan and 401(k) plan and
certain  lease  obligations.  Approximately  $2.26  million of the cash received
under the Asset Agreement was applied to satisfy in full all amounts owed to the
Bank under the Credit Agreement and Credit Modification Agreement. In connection
with the closing of the Asset Agreement,  PFI entered into an agreement with the
landlord of its Dayton  facility  whereby the relevant lease would be terminated
in 90 days (as opposed to its September 2000 termination date) in exchange for a
one-time payment of $100,000 and prepayment of the remaining three months' rent.

PFI faces  substantial  cash  requirements to extinguish all remaining  retained
liabilities,  and the  amount  of cash it will  net  from  the  sale  may not be
determined for some time.


                           PART II. OTHER INFORMATION



Item 6. Exhibits and Reports

     (a) Exhibits

         2.2   Asset Purchase Agreement, dated as of July 17, 1997, by and among
               Payne  Fabrics,  Inc.,  Bell  National  Corporation  and Westgate
               Fabrics, Inc.

         2.3   Amendment  No. 1 to the  Asset  Purchase  Agreement,  dated as of
               August 5, 1997, by and between Payne Fabrics, Inc., Bell National
               Corporation and Westgate Fabrics, Inc.

         2.4   Post-Closing Escrow Agreement, dated as of August 5, 1997, by and
               between Westgate Fabrics,  Inc., Payne Fabrics, Inc. and Crouch &
               Hallett, L.L.P.

         27.0  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: August 12, 1997               /s/   Alexander M. Milley
                                    --------------------------------------------
                                    Alexander M. Milley, Chairman of the Board
                                      and Secretary




Date: August 12, 1997               /s/   Thomas R. Druggish
                                    --------------------------------------------
                                    Thomas R. Druggish, Chief Financial Officer
                                     (Principal Financial Officer and Accounting
                                     Officer)


<PAGE>