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           MARCH 31, 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 April 24,  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


                                            March 31,     December 31,
                                              1998           1997
                                          -----------     ------------
                                          (Unaudited)

Cash and cash equivalents                 $     1,290     $      1,300

Accounts receivable, net                           --               41

Inventory, net                                     --               --

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

     Total current assets                       1,297            1,348

Property and equipment, net                        --               --

Goodwill, net                                      --               --

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

                                          $     1,297     $      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

                                                      March 31,    December 31,
                                                        1998           1997
                                                    -----------    ------------
                                                    (Unaudited)

Current Liabilities:
     Accounts payable                               $        --    $         --
     Accrued compensation and employee benefits             502             502
     Accrued expenses                                       316             318
     Reserve for Asset Sale                                 111             140
                                                    -----------    ------------

         Total current liabilities                          929             960

Accrued stock appreciation rights                            --              --

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

                                                            929             960

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

     Additional paid-in capital                              10              10

     Accumulated deficit                                (15,491)        (15,471)
                                                    -----------    ------------

       Total stockholders' equity                           368             388
                                                    -----------    ------------

                                                    $     1,297    $      1,348
                                                    ===========    ============

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

                                       3
<PAGE>

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

                                   (Unaudited)



                                           Three Months Ended March 31,
                                           ----------------------------
                                               1998            1997
                                           -----------     ------------

Net  sales                                  $       --     $      2,574

Costs and expenses:
   Cost of sales                                    --            1,359
   Selling, general and administrative              46            1,342
                                            ----------     ------------

Operating loss                                     (46)            (127)

Other expense:
   Interest expense                                 --              (55)
   Other                                            26              (10)
                                            ----------     ------------

Loss before income taxes                           (20)            (192)

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

Net loss                                    $      (20)    $       (192)
                                            ==========     ============

Net loss per common share                   $    (0.00)    $      (0.03)
                                            ==========     ============

Weighted average number of common
  shares outstanding                         5,916,686        5,488,114
                                            ==========     ============

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 loss                       --            --          --         (20)           (20)
                        ---------     ---------  ----------  ----------  -------------

Balance at
   March 31, 1998       5,916,686     $  15,849  $       10  $  (15,491) $         368
                        =========     =========  ==========  ==========  =============
</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)

                                                  Three Months Ended March 31,
                                                  -----------------------------
                                                       1998             1997
                                                  ------------      -----------
OPERATING ACTIVITIES:
Net loss                                          $        (20)     $      (192)

Adjustments to reconcile net loss to net
  cash provided by operating activities:
     Depreciation                                           --               14
     Amortization of goodwill                               --                4
     Amortization of deferred sample books                  --              303
     Amortization of deferred debt commitment fee           --               --

(Increase) decrease in assets:
     Accounts receivable                                    41              (10)
     Inventory                                              --               11
     Prepaid expenses and other current assets              --               65

Increase (decrease) in liabilities:
     Accounts payable                                       --              (47)
     Accrued compensation and employee benefits             --               53
     Accrued expenses                                       (2)             (12)
     Accrued Stock Appreciation Rights                      --              (20)
     Reserve for Asset Sale                                (29)              --
                                                  ------------      -----------

     Net cash provided by operating activities             (10)             169
                                                  ------------      -----------

INVESTING ACTIVITIES:
     Acquisition of property and equipment                  --               --
     Purchase of deferred sample books                      --             (164)
                                                  ------------      -----------

     Net cash used in investing activities                 (10)            (164)
                                                  ------------      -----------

FINANCING ACTIVITIES:
     Net proceeds (repayments) on long-term debt            --               (5)
                                                  ------------      -----------

     Net cash provided by financing activities    $         --      $        (5)
                                                  ------------      -----------

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)



                                                 Three Months Ended March 31,
                                                 ----------------------------
                                                    1998               1997
                                                 ---------           --------

Net decrease in cash and cash equivalents        $     (10)          $     --

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

Cash and cash equivalents at end of period       $   1,290           $     --
                                                 =========           ========




SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Cash paid during the year for:
  Interest                                       $      --           $     59
  Income taxes                                          --                 --

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

                                       7
<PAGE>

                            BELL NATIONAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 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 months ended March 31, 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  quarter of 1997.  With the sale of PFI on August
4, 1997 the first  quarter  1998  results  reflect the  absence of an  operating
business.

QUARTER ENDED MARCH 31, 1998 The Company's results for the first 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.  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

                                       8
<PAGE>

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.

QUARTER  ENDED MARCH 31, 1997 The Company had net sales of  $2,574,000,  cost of
goods sold of  $1,359,000,  selling,  general  and  administrative  expenses  of
$1,342,000 and an operating  loss of $127,000  during the first quarter of 1997.
The operating  loss together with interest  expense of $55,000 and other expense
of $10,000 resulted in a net loss of $192,000.

COMPARISON OF FIRST QUARTER 1998 RESULTS TO 1997

A comparison of the 1997 first quarter results (which included the operations of
PFI) to 1998 first 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  quarter  of 1998,  the  Company  lost  $10,000  of cash from
operations.  The cash  from  operations  derived  from the net loss of  $20,000,
payment  of items  related  to the  reserve  for Asset  Sale of  $39,000,  other
liabilities  of $2,000 offset by receipts  from accounts  receivable of $41,000.
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  $1,290,000  at
March 31, 1998.

During the first quarter of 1997,  the Company  generated  $169,000 of cash from
operations.  Although the Company  experienced a loss of $192,000 in the period,
there  were  $321,000  of  non-cash  expenses  included  in the loss,  primarily
amortization of deferred sample books. These two items,  together with decreased
current assets of $66,000 and decreased  liabilities of $26,000 created the cash
from operations.  These funds were used to purchase $164,000 of sample books and
to pay down bank debt by $5,000.



                           PART II. OTHER INFORMATION

                                     -none-

                                       9
<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: May 9, 1998                               /s/ ALEXANDER M. MILLEY
                                                --------------------------------
                                                    Alexander M. Milley,  
                                                    Chairman of the Board
                                                    and Secretary




Date: May 9, 1998                               /s/ THOMAS R. DRUGGISH
                                                --------------------------------
                                                    Thomas R. Druggish,  
                                                    Chief Financial Officer
                                                    (Principal Financial Officer
                                                    and Accounting Officer)