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, 1998              
                                 -----------------------------------------------

                                       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 identification no.)
of incorporation or organization)

 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 3, 1998,  the number of shares of the  registrant's  common stock
outstanding is 5,916,686.

<PAGE>


                         PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS.


                            BELL NATIONAL CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                             (Dollars in Thousands)

                                     ASSETS


                                                 September 30, December 31,
                                                     1998         1997     
                                                    ------       ------
                                                 (Unaudited)

Cash and cash equivalents                           $1,148       $1,300

Accounts receivable, net                                --           41

Inventory, net                                          --           --

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

     Total current assets                            1,155        1,348

Property and equipment, net                             --           --

Goodwill, net                                           --           --

Deferred sample books, net                              --           --
                                                    ------       ------

                                                    $1,155       $1,348
                                                    ======       ======


              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

<TABLE>
<CAPTION>
                                                         September 30,   December 31,
                                                             1998            1997     
                                                         ------------    ------------
                                                         (Unaudited)
<S>                                                               <C>             <C>
Current Liabilities:
  Accounts payable                                       $         --    $         --
  Accrued compensation and employee benefits                      348             502
  Accrued expenses                                                392             318
  Reserve for asset sale                                          106             140
                                                         ------------    ------------

    Total current liabilities                                     846             960

Accrued stock appreciation rights                                  --              --

Other liabilities                                                  --              --
                                                         ------------    ------------

                                                                  846             960

Stockholders' equity:

  Common  stock,  no par  value;  authorized 12,000,000
    shares,  issued and outstanding 5,916,686 shares at 
    September 30, 1998 and December 31, 1997                   15,849          15,849

  Additional paid-in capital                                       10              10

  Accumulated deficit                                         (15,550)        (15,471)
                                                         ------------    ------------

    Total stockholders' equity                                    309             388
                                                         ------------    ------------

                                                         $      1,155    $      1,348
                                                         ============    ============

</TABLE>


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

                                       3
<PAGE>


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

                                   (Unaudited)

                                           Three Months Ended             Nine Months Ended
                                              September 30,                  September 30,      
                                        --------------------------    --------------------------
                                           1998           1997           1998            1997   
                                        -----------    -----------    -----------    -----------
<S>                                     <C>            <C>            <C>            <C>        
Net  sales                              $        --    $     1,142    $        --    $     6,576

Costs and expenses:
  Cost of sales                                  --            513             --          3,521
  Selling, general and administrative            43            565            131          3,150
                                        -----------    -----------    -----------    -----------

Operating income                                (43)            64           (131)           (95)

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

Income (loss) before income taxes               (26)            80            (74)          (204)

Provision for income taxes                       (5)            --             (5)            --
                                        -----------    -----------    -----------    -----------

Net income (loss) before sale of assets $       (31)   $        80    $       (79)   $      (204)

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

Net loss                                $       (31)   $    (1,242)   $       (79)   $    (1,526)
                                        ===========    ===========    ===========    ===========


Net loss per common share               $     (0.00)   $     (0.22)   $     (0.01)   $     (0.27)
                                        -----------    -----------    -----------    -----------

Weighted average number of common
  shares outstanding                      5,916,686      5,916,686      5,916,686      5,669,757
                                        -----------    -----------    -----------    -----------
</TABLE>


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

                                                4
<PAGE>

<TABLE>
<CAPTION>
                            BELL NATIONAL CORPORATION
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                             (Dollars in Thousands)
                                   (Unaudited)


                             Common Stock       Additional   Accum-        Total 
                        ---------------------    Paid-in     ulated    Stockholders'
                         Shares      Dollars     Capital     Deficit      Equity  
                        ---------   ---------   ---------   ---------    ---------
<S>                     <C>         <C>         <C>         <C>          <C>      
Balance at
   December 31, 1997    5,916,686   $  15,849   $      10   $ (15,471)   $     388

Net income                     --          --          --         (79)         (79)
                        ---------   ---------   ---------   ---------    ---------

Balance at
   September 30, 1998   5,916,686   $  15,849   $      10   $ (15,550)   $     309
                        =========   =========   =========   =========    =========
</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,
                                                     -------------------------------
                                                          1998           1997     
                                                         -------       -------
<S>                                                      <C>           <C>     
OPERATING ACTIVITIES:
Net (loss) income                                        $   (79)      $(1,526)

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

(Increase) decrease in assets:
    Accounts receivable                                       41           170
    Inventory                                                 --            64
    Prepaid expenses and other current assets                 --            17
Increase (decrease) in liabilities:
    Accounts payable                                          --           155
    Accrued compensation and employee benefits              (154)          321
    Accrued expenses                                          74           313
    Accrued stock appreciation rights                         --          (109)
    Reserve for asset sale                                   (34)           --
                                                         -------       -------
    Net cash provided by operating activities               (152)           72
                                                         -------       -------

INVESTING ACTIVITIES:
    Acquisition of property and equipment                     --            --
    Purchase of deferred sample books                         --          (369)
                                                         -------       -------
    Net cash used in investing activities                     --          (369)
                                                         -------       -------

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



                                                 Nine Months Ended September 30,
                                                 -------------------------------
                                                      1998            1997     
                                                     -------        -------

Net increase in cash and cash equivalents            $  (152)       $ 1,362

Cash and cash equivalents at beginning of period       1,300             --
                                                     -------        -------

Cash and cash equivalents at end of period           $ 1,148        $ 1,362
                                                     =======        =======




SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Cash paid during the year for:
     Interest                                        $    --        $   133
     Income taxes                                          5             --


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

                                       7
<PAGE>


                            BELL NATIONAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 1998
                                   (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, 1998 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, 1997.

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 Bell National  Corporation  on June 15, 1990. On
August 4, 1997 Payne Fabrics, Inc. sold substantially all of its assets and most
of its  liabilities  related  to the  business  of  designing  and  distributing
decorative  drapery and upholstery  fabrics to an unaffiliated  third party (the
"Asset Sale").  The Asset Sale included the transfer to the buyer of the use and
rights to the Payne Fabrics name, accordingly,  Payne Fabrics, Inc., changed its
name to PFI National  Corporation  ("PFI").  The Asset Sale left PFI without any
substantial assets and on August 4, 1997 all operations were ceased.


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 PFI through the sale date of August 4, 1997. The first nine months
1998 results reflect the absence of an operating business.

NINE MONTHS ENDED  SEPTEMBER 30, 1998 The  Company's  results for the first nine
months of 1998  consisted  entirely of  administrative  costs offset by interest
income on the cash balances  remaining  after the Asset Sale of PFI on August 4,
1997.  Administrative  functions  include the ongoing payment of PFI liabilities
(previously reserved for) and investigation of the investment alternatives being
considered by the Company.  Among alternatives are the possible sale of stock or
debt to raise additional  capital to either fund the acquisition of an operating
company or to fund a start-up  company  (either  from  inception  or in an early
development  phase). It is highly likely that in order to fund an acquisition of
a  meaningful  size  significant  additional  funds  would be  required,  and no
assurance  can be given  that  such  funds  could be  obtained  on terms  deemed
favorable  by  management.   Among  other  options  are  the  possibility  of  a
liquidating  dividend.  The discussion contained in this section is not intended
to be an exhaustive  review of alternatives  available to the Company,  nor does
inclusion or omission of any  alternative  provide any indication of what course
of action may finally be decided upon. However,  the Company is not, nor does it
intend to engage in, the business of investing,  reinvesting, owning, holding or
trading securities.

                                       8
<PAGE>


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.

COMPARISON  OF NINE MONTHS 1998 RESULTS TO 1997 A  comparison  of the 1998 first
nine months results (which have no operating  business included in them) to 1997
first nine months results  (which  included the operations of PFI through August
4, 1997) is not meaningful.

QUARTER ENDED SEPTEMBER 30, 1998 As discussed above,  the Company's  results for
the third quarter of 1998 consisted  entirely of administrative  costs offset by
interest  income on the cash balances  remaining  after the Asset Sale of PFI on
August 4, 1997.  Administrative  functions  include the  ongoing  payment of PFI
liabilities  (previously  reserved  for)  and  investigation  of the  investment
alternatives being considered by the Company.

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.

                                       9
<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

AVAILABLE  RESOURCES.  Absent an  acquisition,  the  Company  can  survive  as a
non-operating  entity on its current cash balances for the foreseeable future as
it investigates investment alternatives.


FUTURE NEEDS FOR AND SOURCES OF CAPITAL

During the first nine  months of 1998,  the Company  lost  $152,000 of cash from
operations.  The cash  from  operations  derived  from the net loss of  $79,000,
payment of items related to the reserve for Asset Sale of $34,000 and payment of
pension liabilities of $154,000,  offset by collection of receivables of $41,000
and  increased  accrued  expenses of $74,000.  These items  represent the entire
change from the beginning cash balance of $1,300,000 at December 31, 1997 to the
ending cash balance of $1,148,000 at September 30, 1998.

During the first nine months of 1997, the Company generated $72,000 of cash from
operation.  The cash flow from  operations in 1997 was  primarily  driven by the
loss on the sale of assets of  $1,322,000  which is  included in the net loss of
$1,526,000.  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.


                           PART II. OTHER INFORMATION


ITEM 6.  EXHIBITS AND REPORTS

    (a)  EXHIBITS

         27      Financial Data Schedule

                                       10
<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 3, 1998        /s/   ALEXANDER M. MILLEY  
                              ------------------------------------------------
                                    Alexander M. Milley, Chairman of the Board
                                    and Secretary




Date: November 3, 1998        /s/   THOMAS R. DRUGGISH   
                              -------------------------------------------------
                                    Thomas R. Druggish, Chief Financial Officer
                                    (Principal Financial Officer
                                    and Accounting Officer)

                                       11