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, 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 of           (I.R.S. employer identification no.)
 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 August 9, 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


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

Cash and cash equivalents                       $     1,256        $    1,300

Accounts receivable, net                                 --                41

Inventory, net                                           --                --

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

     Total current assets                             1,263             1,348

Property and equipment, net                              --                --

Goodwill, net                                            --                --

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

                                                $     1,263        $    1,348
                                                ===========        ==========

                                       2

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

<PAGE>

                            BELL NATIONAL CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                             (Dollars in Thousands)

                      LIABILITIES AND STOCKHOLDERS' EQUITY

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

Current Liabilities:
     Accounts payable                             $        --     $       --
     Accrued compensation and employee benefits           502            502
     Accrued expenses                                     335            318
     Reserve for asset sale                                86            140
                                                  -----------     ----------

         Total current liabilities                        923            960

Accrued stock appreciation rights                          --             --

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

                                                          923            960

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

     Additional paid-in capital                            10             10

     Accumulated deficit                              (15,519)       (15,471)
                                                  -----------     ----------

       Total stockholders' equity                         340            388
                                                  -----------     ----------

                                                  $     1,263     $    1,348
                                                  ===========     ==========

                                       3

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

<PAGE>
<TABLE>
<CAPTION>

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

                                                   (Unaudited)

                                                        Three Months Ended                 Six Months Ended
                                                               June 30,                          June 30,
                                                     ------------------------           ------------------------
                                                        1998           1997                1998           1997
                                                     ---------       --------           ---------       --------
<S>                                                         <C>         <C>                    <C>         <C>  

Net  sales                                           $      --       $  2,860           $      --       $  5,434

Costs and expenses:
     Cost of sales                                          --          1,649                  --          3,008
     Selling, general and administrative                    42          1,242                  88          2,585
                                                     ---------       --------           ---------       --------

Operating income (loss)                                    (42)           (31)                (88)          (159)

Other expense:
     Interest expense                                       --            (79)                 --           (133)
     Other                                                  14             18                  40              8
                                                     ---------       --------           ---------       --------

Income (loss) before income taxes                          (28)           (92)                (48)          (284)

Provision for income taxes                                  --             --                  --             --
                                                     ---------       --------           ---------       --------

Net income (loss)                                    $     (28)     $     (92)          $     (48)     $    (284)
                                                     =========      =========           =========      =========

Net income (loss) per 
  common share, basic and diluted                   $   (0.01)     $   (0.02)          $   (0.01)     $   (0.05)
                                                     =========      =========           =========      =========

Weighted average number of common
  shares outstanding, basic and diluted              5,916,686      5,561,701           5,916,686      5,525,111
                                                     =========      =========           =========      =========
</TABLE>

                                                        4

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

<PAGE>
<TABLE>
<CAPTION>

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

                                              (Unaudited)


                                  Common Stock                 Additional                      Total
                        ---------------------------------       Paid-in       Accumulated   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 (loss)                     --               --              --            (48)           (48)
                        ----------------    -------------     -----------    -----------    -----------

Balance at
   June 30, 1998               5,916,686    $      15,849     $        10    $   (15,519)   $       340
                        ================    =============     ===========    ===========    ===========
</TABLE>


                                                    5

                             The accompanying notes are an integral part of
                                these consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>

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

                                      (Unaudited)

                                                            Six Months Ended June 30,
                                                            -------------------------
                                                               1998            1997
                                                            ---------       ---------
<S>                                                          <C>            <C>      
OPERATING ACTIVITIES:
Net income (loss)                                            $    (48)      $   (284)

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

(Increase) decrease in assets:
     Accounts receivable                                           41            (37)
     Inventory                                                     --             71
     Prepaid expenses and other current assets                     --            (11)

Increase (decrease) in liabilities:
     Accounts payable                                              --             65
     Accrued compensation and employee benefits                    --             89
     Accrued expenses                                              17            (24)
     Accrued stock appreciation rights                             --           (109)
     Reserve for asset sale                                       (54)            --
                                                             --------       --------

     Net cash provided by operating activities                    (44)           317
                                                             --------       --------

INVESTING ACTIVITIES:
     Acquisition of property and equipment                         --             --
     Purchase of deferred sample books                             --           (346)
                                                             --------       --------

     Net cash used in investing activities                         --           (346)
                                                             --------       --------

FINANCING ACTIVITIES:
     Net (payments) borrowings on bank debt                        --             (5)
     Issuance of common stock from SAR's                           --             34
     Principal payments on capital lease obligations               --             --
                                                             --------       --------
     Net cash (used for) provided by financing activities    $     --       $     29
                                                             --------       --------
</TABLE>

                                                   6

                             The accompanying notes are an integral part of
                                these consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>

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

                                       (Unaudited)


                                                          Six Months Ended June 30,
                                                       --------------------------------
                                                           1998                  1997
                                                       ----------             ---------

<S>                                                    <C>                    <C>      
Net decrease in cash and cash equivalents              $      (44)            $      --

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

Cash and cash equivalents at end of period             $    1,256             $      --
                                                       ==========             =========


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

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

</TABLE>

                                           7

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

<PAGE>

                            BELL NATIONAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  June 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 six  months  ended June 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 in the  first  six  months  of 1997.  With the sale of PFI on
August 4, 1997 the first six  months  1998  results  reflect  the  absence of an
operating business.

SIX MONTHS ENDED JUNE 30, 1998 The Company's results for the first six 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>

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.

COMPARISON OF SIX MONTHS 1998 RESULTS TO 1997 A comparison of the 1997 first six
months results  (which  included the operations of PFI) to 1998 first six months
results (which have no operating business included in them) is not meaningful.

QUARTER ENDED JUNE 30, 1998 As discussed  above,  the Company's  results for the
second  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 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.

COMPARISON  OF SECOND  QUARTER  1998  RESULTS TO 1997 A  comparison  of the 1997
second  quarter  results  (which  included the operations of PFI) to 1998 second
quarter  results  (which  have no  operating  business  included in them) is not
meaningful.


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 six  months of 1998,  the  Company  lost  $44,000 of cash from
operations.  The cash  from  operations  derived  from the net loss of  $48,000,
payment of items  related to the reserve  for Asset Sale of  $54,000,  offset by
collection of receivables of $41,000 and increased  accrued expenses of $17,000.

                                       9
<PAGE>

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 $1,256,000 at June
30, 1998.

During the first six months of 1997, the Company generated $317,000 of cash from
operation.  The cash  from  operations  derived  from the net loss of  $284,000,
offset by amortization  of deferred sample books and other items.  The operating
cash  generated in 1997 was used to purchase  $346,000 of sample books and repay
bank principal of $5,000.



                           PART II. OTHER INFORMATION

                                     -none-


                                       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: August 12, 1998                      /s/ Alexander M. Milley
                                           -------------------------------------
                                               Alexander M. Milley,
                                               Chairman of the Board
                                               and Secretary



Date: August 12, 1998                      /s/ Thomas R. Druggish
                                           -------------------------------------
                                               Thomas R. Druggish,
                                               Chief Financial Officer
                                               (Principal Financial Officer
                                               and Accounting Officer)


                                       11