SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                  ___________

                                   FORM 10-K


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

For the fiscal year ended                December 31, 1996
                               --------------------------------------------

                                       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     0-11877
                                               ----------------


                                ELXSI CORPORATION
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)


              Delaware                                 77-0151523
--------------------------------------------------------------------------------
(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) 849-1090
                                                    --------------------------
Securities registered pursuant to Section 12(b) of the Act:

      Title of each class             Name of each exchange on which registered
      -------------------             -----------------------------------------
             None                                   Not Applicable

Securities registered pursuant to Section 12(g) of the Act:

                         Common Stock, par value $0.001
--------------------------------------------------------------------------------
                                (Title of class)

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. [ X] Yes [ ] No

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K. [ ]

The   approximate   aggregate   market   value  of  the  voting  stock  held  by
non-affiliates  of the  Registrant,  based upon the closing  price of the Common
Stock on March 14, 1997, as reported by NASDAQ,  was  $21,490,000.  On March 14,
1997, the Registrant had outstanding 4,660,866 shares of Common Stock.

                      DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy  Statement for the Annual  Meeting of  Shareholders  to be
held May 22, 1997 are incorporated by reference into Part III.


<PAGE>

                                     PART I


ITEM 1.  BUSINESS

GENERAL

ELXSI  Corporation (the "Company") is a Delaware  corporation that was formed in
September 1980 as Trilogy Limited,  a Bermuda  corporation.  The Company changed
its name to ELXSI Ltd.  in January  1987,  and changed  its  incorporation  from
Bermuda to Delaware  and became  known as ELXSI  Corporation  in August  1987. A
public  company since November 1983,  the Company  acquired ELXSI  ("ELXSI"),  a
California  corporation,  in October 1985. In December 1987, the Company's other
California subsidiary, Trilogy Systems Corporation was merged into ELXSI.

In  September  1989 and January  1990,  the Company  entered into Stock and Note
Purchase Agreements (the "Stock Purchase  Agreement") with and among, The Airlie
Group L.P.  ("Airlie"),  Continental  Illinois Equity  Corporation  ("CIEC") and
Milley & Company ("M&C") (hereinafter  referred to collectively as the "Buyers")
whereby the Buyers acquired  960,000 shares,  par value $.001 per share ("Common
Stock"),  $2,000,000  aggregate  principal  amount  of the  Company's  notes and
warrants to purchase  1,204,000  shares  (adjusted for a 1-for-25  reverse stock
split effected in May 1992) of the Company's  common stock.  Subsequent to these
transactions,  the  Company  announced  its  intention  of pursuing a program of
identifying,  acquiring and managing middle-market companies. The Company is not
limiting its opportunities to any single industry.

On July 1, 1991, ELXSI acquired 30 restaurants operating under the Bickford's or
Bickford's Family Fare names and 12 Howard Johnson's restaurants operating under
the Howard Johnson's name,  which were located in  Massachusetts,  Vermont,  New
Hampshire, Rhode Island and Connecticut,  from Marriott Family Restaurants, Inc.
("Marriott")  for a  purchase  price  of  approximately  $23,867,000  (including
transaction fees and costs).

Between 1991 and 1995,  ELXSI sold six of its Howard  Johnson's  restaurants and
converted  five of the remaining six Howard  Johnson's  into  Bickford's  Family
Restaurants.  During the same period,  ELXSI opened seven new Bickford's  Family
Restaurants and acquired sixteen Abdow's Family Restaurants  ("Abdow's").  ELXSI
subsequently  converted two Abdow's into Bickford's Family  Restaurants.  During
1996,  ELXSI  converted  an  additional  seven  Abdow's into  Bickford's  Family
Restaurants,  opened one additional Bickford's,  sold one Abdow's and closed one
Abdow's.  At  December  31,  1996 ELXSI  operated  fifty-two  Bickford's  Family
Restaurants ("Bickford's"), five Abdow's and one Howard Johnson's Restaurant, in
its  Bickford's  Family  Restaurant  division  (the  "Bickford's   Division"  or
"Restaurant  Division").  As used  herein the term  "Restaurants"  refers to the
Bickford's,  Abdow's and Howard Johnson's  restaurants owned and operated in the
Restaurant Division.

On October 30, 1992, ELXSI acquired Cues, Inc., of Orlando,  Florida and its two
wholly-owned subsidiaries, Knopafex, Ltd., of Toronto, Canada, and Cues B.V., of
Maastricht, The Netherlands. The Cues business in the United States is owned and
operated as a division of

                                       2

<PAGE>

ELXSI,  and  such  division,   Knopafex  Ltd.  and  Cues  B.V.  are  hereinafter
collectively  referred to as "Cues" or the "Cues Division".  Cues is principally
engaged in the manufacture and servicing of video inspection and  rehabilitation
equipment  for  wastewater  and  drainage  systems  primarily  for  governmental
municipalities, service contractors and industrial users.

FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

Reference is made to the information set forth in Note 12 (Segment Reporting) to
the Consolidated  Financial  Statements  included herein,  which  information is
hereby incorporated by reference herein.

RESTAURANT DIVISION

The Restaurant  Division sales were $61,283,000,  $54,270,000 and $43,391,000 in
1996, 1995 and 1994, respectively.  Restaurant Division sales represented 74.1%,
72.7% and 69.5% of the total sales of the Company  during  1996,  1995 and 1994,
respectively.

The  Restaurants  are  family-oriented  and offer full  service  and  relatively
inexpensive meals.  Featuring a breakfast menu available throughout the day, the
Restaurants  appeal  to  customers  who  are  interested  in  a  casual,  low-to
moderately-priced  meal.  The  Company  has been  successful  in  marketing  the
breakfast  menu  concept to  customers  regardless  of the time of day,  and has
expanded lunch and dinner patronage by also offering improved  traditional lunch
and dinner items.  Most menu items are priced between $2.79 and $7.49,  with the
average customer check being approximately  $5.24, $5.12 and $4.96 in 1996, 1995
and 1994, respectively. Major categories of menu items are pancakes, waffles and
french toast,  eggs and  omelettes,  "country"  dinners,  soups and side orders,
salads,  hamburgers and  sandwiches,  and desserts.  Breakfast  items and coffee
accounted for  approximately  70% of food sales in each of the past three fiscal
years.

Each  Restaurant is open seven days a week,  with most  generally open from 7:00
a.m.  to 11:00  p.m.  during the week and later on  weekends  and with some open
twenty-four  hours on the weekends.  Some Restaurants are open twenty-four hours
every day.  Approximately  60% of weekly sales volume has been generated  Friday
through Sunday in each of the past three fiscal years.

While the Company  believes  that the  Restaurants  appeal to a wide  variety of
customers,  they  primarily  cater to senior  citizens  and  families  which are
attracted to the high-quality,  low-to  moderately-priced meals. Each Restaurant
generally draws its customers from within a five-mile radius and,  consequently,
repeat business is extremely important to the Restaurant Division's success. The
Company  believes  that  repeat  business  has  accounted  for a majority of the
Restaurant sales.

Each of the original 30  Bickford's  consists of a free  standing  building that
covers  approximately 2,700 to 7,000 square feet, and they are typically located
adjacent to major roads and highways and shopping malls.  Nearly all contain two
dining  areas,  smoking  and  non-smoking.  At

                                       3

<PAGE>

December  31,  1996,  12 of the  Restaurant  buildings  were  owned,  while  the
remaining 46 restaurants were either leased or owned buildings on leased land.

Each Restaurant has a kitchen equipped with grill space and ovens for service of
baked  foods.  Seating  capacity  ranges  from  100 to 200  people.  Five of the
Bickford's Restaurants provide counter service.

Restaurant Expansion and Renovation

The  acquisition  by ELXSI  provided an  opportunity  to renovate  the  existing
Restaurants and to acquire additional locations. Capital expenditures during the
years ended December 31, 1996, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>

                                                   1996              1995              1994
                                               -----------       -----------       -----------
<S>                                            <C>               <C>               <C>
         Expansion                             $   483,000       $   221,000       $   485,000
         Conversions                               747,000           243,000            86,000
         Purchase Leased Property                       --                --           346,000
         Renovation                                384,000           415,000            95,000
         Replacement due to fire loss              249,000                --                --
         Refurbishment & Equipment               1,028,000         1,088,000         1,003,000
                                               -----------       -----------       -----------
                                               $ 2,891,000       $ 1,967,000       $ 2,015,000
                                               ===========       ===========       ===========

         Acquisition of Abdow's                $        --       $ 2,575,000       $        --
                                               ===========       ===========       ===========
</TABLE>

All of the  above  capital  expenditures  except  for the  1995  acquisition  of
Abdow's, were funded by earnings from operations.  The acquisition of Abdow's in
1995,  was funded by an increase in ELXSI's  then  existing  line of credit with
Bank of America Illinois.

The Company currently plans to spend $1,950,000 for renovations,  refurbishments
and equipment  replacements  and $800,000 for Restaurant  expansion during 1997.
Management  believes that earnings  from  operations  will be sufficient to fund
this planned program in addition to other funding requirements.

The Company  believes that increased  profitability of the Restaurants will come
mainly from  gaining  market  share by  continuing  its programs to improve food
products and service,  and through its programs of refurbishing  existing units,
opening new units,  and to a lesser extent,  from price  increases.  The Company
believes that it is partially due to the foregoing that sales at the original 30
Bickford's have increased.

Sales at 29 of the original  Bickford's  Restaurants,  (excluding  from 1996 the
Brockton,  MA Restaurant,  which was damaged by fire during 1996) increased 1.6%
in 1996, 1.3% in 1995 and 6.1% in 1994  (including a 53rd week),  over the prior
year's sales;  customer counts at these 29 Bickford's  Restaurants  were flat in
1996, increased 1.8% in 1995 and increased 1.5% in 1994 (including a 53rd week),
over the prior year's  counts;  sales at same  Restaurants,  including  the five
converted and one remaining Howard Johnson's units, increased 0.7% in 1996, 0.4%
in 1995 and

                                       4

<PAGE>

5.8% in 1994 (including a 53rd week),  over the prior year's sales, and customer
counts at same  Restaurants  decreased 0.8% in 1996,  decreased 3.4% in 1995 and
increased  1.2% in 1994  (including a 53rd week),  over the prior year's counts.
The  foregoing  comparisons  are  impacted  by  the  fact  that  the  Restaurant
Division's  1994 fiscal year  comprised 53 weeks,  as compared to 52 for each of
1995 and 1996. See the second paragraph of "Management's Discussion and Analysis
of  Financial  Condition  and  Results of  Operations  - Results of  Operations"
herein.

The Company takes an opportunistic  approach to Restaurant  Division  expansion.
Management  evaluates  both  purchase  and  lease  opportunities,  and,  in most
instances,   the  Company  favors  opening  new  Restaurants   utilizing  leased
properties.  The Company will  generally  open a new  Restaurant  only if it can
reasonably  be expected to meet the  Company's  return on  investment  criteria,
which is generally an annual return on the  investment of  approximately  25% to
30%.

Restaurant Management and Supervision

Each Restaurant has a manager and one to three assistant managers,  at least one
of whom must be on duty at all times during  restaurant  hours. The managers are
responsible  for hiring all  personnel  at the  Restaurant  level,  managing the
payroll  and  employee  hours and  ordering  necessary  food and  supplies.  The
Bickford's  Division has nine district managers who, between them, cover all the
Restaurants. The district managers are responsible for the complete operation of
the Restaurants located in assigned geographical areas, including responsibility
for sales,  profits and compliance with all operational policies and procedures.
The  district  managers,  managers  and  assistant  managers  are  all  salaried
personnel,  but are also  compensated  with  performance  incentives  which  can
provide a significant  portion of their total  compensation.  Bonuses paid under
the program are based  principally  upon monthly  sales  volume,  attainment  of
certain cost targets and store profitability.

Sources and Availability of Materials

Food  supplies  are  distributed  by various  Company-approved  wholesalers  and
purveyors, which deliver directly to each Restaurant based on the quoted cost of
individual food items.  Essential  supplies and raw materials are available from
several sources,  and the Company is not dependent upon any one supplier for its
food  supplies.   These  purchases  from  suppliers  are  generally  done  on  a
verbal-purchase-order  basis and without any long-term commitments or contracts.
The  Company  does not  maintain  or engage  in any  warehousing  or  commissary
operations.

Seasonality

The Restaurants experience slightly higher revenues in the summer months.

Customers

The  Restaurants are not dependent upon a single customer or group of customers,
although a large portion of each Restaurant's  customers live within a five mile
radius  thereof  and,


                                       5

<PAGE>


accordingly,  repeat  customers  are  important  to  the  Bickford's  Division's
success. See the fourth paragraph of "Restaurant Division" above.

Competition

The Restaurants are in direct competition with many local restaurants  providing
family-oriented  meals,  some of which are owned,  operated and/or franchised by
national and regional chains, many of whom are larger and have greater financial
resources than the Company.  The restaurant  business is highly competitive with
respect to price, service,  location and food quality. The Company believes that
its  attention to quality and service,  along with its low-to  moderately-priced
menu items, will continue to attract customers.  In 1995, the Company noticed an
increase  in the  number  of  restaurants  offering  buffet-style  dining in New
England.  The Company believes that the freshness of its food and its reasonable
pricing compare favorably to these buffet concepts.

Employees

At December 31, 1996,  the  Restaurant  Division  employed  approximately  2,650
persons,   of  whom   approximately   2,200  were  part-time  hourly  employees,
approximately  230 were full-time  hourly employees and  approximately  220 were
salaried  personnel.  This  represents  an increase  since  December 31, 1995 of
approximately 150 persons, consisting mainly of part-time employees. None of the
Restaurant Division's employees are represented by a union.

Environmental Matters

The  Restaurant  Division is subject to various  federal,  state and local laws,
rules and  regulations  relating to the protection of the  environment  that are
typical for  companies in its  industry.  Management  believes  that  compliance
therewith will have no material effect on its capital expenditures,  earnings or
competitive position.


CUES DIVISION

The Cues Division sales were  $21,460,000,  $20,404,000 and $19,032,000 in 1996,
1995 and 1994,  respectively.  Cues Division sales represented  25.9%, 27.3% and
30.5%  of  the  total  sales  of  the  Company  during  1996,   1995  and  1994,
respectively.

Cues  manufactures  systems which utilize closed  circuit  television and highly
specialized  rehabilitation  equipment to inspect and repair  underground  sewer
lines.  The  infiltration of groundwater  into sewer  pipelines  through leaking
joints and pipe fractures unnecessarily burdens the capacity of sewage treatment
plants by increasing the volume of fluids being treated. Leaking joints and pipe
fractures  can also  contribute  to sewer line damage that can be  repaired,  in
severe cases, only by costly excavation.  Cues installs its systems in specially
designed  trucks and vans  which are sold as mobile  units.  Cues also  provides
product  servicing  and  replacement  parts for its  customers  and  distributes
chemical  grout  sealants used in  connection  with its sealing  equipment.

                                       6

<PAGE>

The principal  customers of Cues are municipalities  and contractors  engaged in
sewer  inspection  and repair.  Cues is not  engaged in the service  business of
maintaining and repairing sewer lines.

Inspection and Rehabilitation Equipment

Cues's  inspection and sealing  equipment  constitutes an integrated system that
combines  the  capability  of  inspecting  underground  sewer  lines with remote
control  television  cameras and creating a permanent  maintenance record of the
condition of the sewer lines;  pressure testing sewer line joints;  and applying
chemical  sealants  to repair  leaking  joints  and  small  pipe  fractures.  In
addition,  Cues  manufactures  and  sells a line of  remotely  operated  robotic
cutting devices. These devices reinstate or open the laterals sewer lines, which
are smaller  diameter  pipes leading from  residences or businesss into the main
sewer  pipes,  after the  laterals  have been  blocked by the  material  used in
relining the main sewer pipe's interior surface.

Cues's inspection, cutting and sealing systems are placed in sewer lines through
manholes. The television camera, positioned using either a motorized transporter
or pulled on a skid  assembly,  relays a  television  picture of the interior of
that sewer line via cable to a monitoring station in a mobile unit above ground.
The television inspection system employs a three-inch-diameter color camera that
can be remotely adjusted for close-up viewing of problem areas. By recording the
position  of the  camera  as it  moves  through  the  sewer  lines,  the  Cues's
inspection and sealing  equipment gives the customers a permanent  record of the
condition of their sewer lines. If the television camera inspection of the sewer
lines  discloses a leaking  joint or pipe  fracture,  sealing  equipment  can be
introduced and positioned through use of the camera to make the repair. Once the
sealing module is positioned, inflatable packers seal off the line at either end
of the damaged area and a chemical  sealant is applied that  penetrates the leak
or fractures as well as the earth  surrounding  the pipe,  hardening to seal the
line. The sealing module may also be used to determine the structural  integrity
of the joint by applying air or water  pressure  against the walls of the joint.
This pressure test enables the customers to detect  leaking  joints that may not
be easily detected visually.

The  sealing  module  manufactured  by Cues is used to repair  sewer lines where
infiltration  or  inflow  of  water  occurs  through  leaking  joints  and  pipe
fractures.  Repairs  can last 20 years or more,  depending  upon the  structural
soundness of the sewer line or repaired joints.  Cues's sealing equipment is not
designed to repair a severely damaged or collapsed pipe, which must be excavated
and  replaced  in the  traditional  manner or repaired by the use of other sewer
line repair  technologies  such as relining.  However,  Cues's Kangaroo  cutting
system is often used to inspect  and repair,  through its cutting  capabilities,
structurally  deficient or collapsed sewer lines. Cues has also developed a line
of equipment for use in the inspection, but not the repair, of underground water
wells, dams, industrial pipe, potable water lines and large-pipe storm drains.

Cues  also  manufactures  and  sells a line of  portable  television  inspection
equipment  used primarily for inspection of lateral pipes ranging in size from 2
to 6 inches.

                                       7

<PAGE>


Product Servicing, Replacement Parts and Chemicals

Cues  provides  product  servicing  and  repairs at its  facilities  in Orlando,
Florida; Toronto, Canada and Maastricht, The Netherlands.  In Orlando, Cues also
maintains  an  inventory  of  replacement  parts  for  distribution  and sale to
customers. Cues generally warrants that all parts, components and equipment that
it  manufactures  will be free from  defects in material and  workmanship  under
normal and intended use for a period of twelve  months from the date of shipment
to the customer.  Major items of equipment such as vehicles,  generators,  etc.,
furnished to, but not  manufactured  by, Cues, are covered under the warranty of
the third-party  manufacturer of such equipment.  Cues recorded warranty expense
of approximately  $287,000,  $255,000 and $196,000,  during the years 1996, 1995
and 1994, respectively.

Product Development

Cues has an ongoing program to improve its existing  products and to develop new
products.  During the twelve  months ended  December  31,  1996,  1995 and 1994,
approximately  $248,000,  $311,000 and $287,000,  respectively,  was expended by
Cues for product  development,  (excluding,  in each case, the  compensation and
benefits  expense  of  engineering  department  personnel,   which  comprises  a
significant  portion of research and development  efforts).  Although Cues holds
United States  patents for components of its products,  management  believes the
expiration  or invalidity of any or all of such patents will not have a material
adverse  effect  on its  business.  For  1997,  Cues  currently  plans  to spend
approximately  $300,000  (exclusive  of such  personnel  expenses)  for  product
development activities.

Source and Availability of Raw Materials

Cues  manufactures  certain  components  of  its  system  and  purchases  others
including, television camera modules, monitors, video recorders, vehicles, which
are readily  available from a number of sources.  These purchases from suppliers
are done on a purchase  order  basis and without any  long-term  commitments  or
contracts.

Cues has agreements with Orlando,  Florida truck dealers to deliver truck bodies
that are used in the manufacture of Cues's mobile units. Under these agreements,
Cues  reimburses the dealers' floor plan financing costs for those vehicles held
by the  dealer  until  delivery.  Cues  does not have any other  commitments  or
contracts with its truck dealers.  Management  believes that alternative sources
for truck chassis are  available  and that the loss of any current  dealer would
not have a material adverse effect on Cues.

Marketing

Cues markets its products and services in the United  States  though nine direct
salesmen.  In certain geographic areas of the country,  Cues markets it products
and services through  independent  representatives  which are  non-exclusive (to
Cues),  none of whom accounted for more than 5% of the Cues Division's  revenues
in any of the last three  years.  The Company  believes  that the loss of any of
these salesman or  representatives  would not have a material

                                       8

<PAGE>

adverse  effect on the Cues  Division.  Cues also  employees  technical  service
representatives  located  in  Orlando,  Toronto  and  Maastricht.  Cues's  major
customers  include   municipalities  and  contractors   engaged  in  sewer  line
inspection  and repair as well as  privately-owned  sewer  systems.  No customer
accounted for more the 5% of Cues's 1996, 1995 or 1994 sales.  Cues participates
in trade  shows and uses trade  magazine  advertising  in the  marketing  of its
products and services.  The Cues name is well-established,  affording it and its
products wide recognition within its industry.

Outside  North  America,  Cues markets its products in five  continents,  either
directly or through non-exclusive (to Cues) independent distributors,  agents or
dealers,  none of whom accounted for more than 5% of the Cues Division's revenue
in any of the last three  years.  During  1996,  1995 and 1994,  export sales to
foreign  countries  represented  approximately  16%,  14% and 16% of total  Cues
sales,  respectively.  The vast  majority of  equipment  sales to  customers  in
foreign countries are arranged under U.S.  dollar-denominated  letters of credit
agreements and therefore the currency and payment risk are minimized.

The Cues Division  historically  has not  experienced  any material  problems or
risks in distributing and selling products outside the United States, other than
those normally  associated  with such efforts  (e.g.,  language  barriers,  time
differences, customs regulations and complications relative to the conforming of
equipment to local electronic, video, vehicle and other standards).

Competition

Competition for the type of products sold by Cues is based mostly on price,  and
also service and reliability.  Management believes that it competes  effectively
in each of these respects. Management also believes that there are six companies
which produce and sell products  which are  competitive  with those  produced by
Cues. A  significant  portion of sales are generated  through a bidding  process
initiated  by  municipalities.   This  process  is  extremely  price  sensitive,
requiring Cues to meet or beat competitors' bids in order to secure sales.

Employees

At December 31, 1996 Cues had 128 full and  part-time  employees.  This includes
five  employees of Knopafex,  Ltd. and four  employees of Cues B.V.  None of the
Cues Division employees are represented by a union.

Environmental

The Cues Division is subject to various federal, state and local laws, rules and
regulations  relating to the protection of the environment  that are typical for
companies in its industry. Management believes that compliance therewith has had
no  material  effect  on  its  capital  expenditures,  earnings  or  competitive
position.

                                       9

<PAGE>


ITEM 2.         PROPERTIES

ELXSI  leases land and/or  buildings  at 46 of its 58  restaurants,  under lease
agreements expiring (including extension options) on various dates through 2032.
The majority of these leases require ELXSI to pay taxes, maintenance,  insurance
and other occupancy expenses related to the leased premises. The rental payments
for a majority of the Restaurant  locations are based upon minimum annual rental
payments and a percentage of their respective sales.

Below is a summary of the Restaurant properties as of December 31, 1996.


                                                    Howard
                                     Bickford's    Johnson's   Abdow's   Total
                                     ----------    ---------   -------   -----

    Massachusetts:         Owned         8             --         --        8
                           Leased       25              1          3       29

    Connecticut:           Owned         2             --         --        2
                           Leased        5             --          2        7

    Rhode Island:          Owned        --             --         --       --
                           Leased        5             --         --        5

    New Hampshire:         Owned         2             --         --        2
                           Leased        5             --         --        5

    Total:                 Owned        12             --         --       12
                           Leased       40              1          5       46


ELXSI also owns a 4,000 square foot building in Boston, Massachusetts,  which is
used for its Restaurant Division management and administrative headquarters, and
a 26,000 square foot office and manufacturing  facility in Orlando,  Florida for
its Cues  Division.  In  addition,  Cues B.V.  owns an office and  manufacturing
facility in Maastricht,  The  Netherlands,  and Knopafex,  Ltd. rents office and
manufacturing space in Toronto, Canada.

ITEM 3.         LEGAL PROCEEDINGS

There are no material  pending legal  proceedings  (other than ordinary  routine
litigation incidental to the business) to which the Company or its Subsidiary or
of which any of their  respective  properties is the subject,  nor are there any
proceedings  known to be contemplated by  governmental  authorities  against the
Company or its Subsidiary.

ITEM 4.         SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There  were no  matters  submitted  to vote of  shareholders  during  the fourth
quarter of 1996.

                                       10

<PAGE>


                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
         STOCKHOLDER MATTERS

Market Information

The Company's Common Stock is traded in the  over-the-counter  market and quoted
in the  automated  quotation  system of the National  Association  of Securities
Dealers,  Inc.- National  Market System  ("NASDAQ"),  under the symbol ELXS. The
following  table  sets forth high and low  closing  sales  prices for the fiscal
quarters indicated, as reported by NASDAQ.


                                        1996                       1995
                                  -----------------         -----------------
                                  High         Low          High         Low
                                  ----         ---          ----         ---

         First Quarter            $6.88       $5.50         $7.38       $5.00
         Second Quarter            7.63        5.25          7.13        5.63
         Third Quarter             6.63        4.88          7.81        5.88
         Fourth Quarter            6.63        4.88          6.50        4.88


On March 14, 1997,  the reported last sale price for the Company's  Common Stock
in NASDAQ was $6.50 per share. The above quotations reflect inter-dealer prices,
without  retail  mark-up,  mark-down  or  commission  and  may  not  necessarily
represent actual transactions.

Holders

As of March 14, 1997 there were 5,882 holders of record of the Company's  Common
Stock.

Dividend History

The Company has never paid any dividends,  nor is there current intention to pay
any dividends in 1997,  however management will consider paying dividends in the
future.

Stock Transfer Agent

The Company's stock transfer agent is Continental  Stock Transfer and Trust Co.,
2 Broadway, New York, New York 10004, (212) 509-4000.

                                       11

<PAGE>


ITEM 6.   SELECTED FINANCIAL DATA
(Amounts in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
                                                                      Year Ended December 31,
                                             ----------------------------------------------------------------------------
                                                1996            1995            1994             1993            1992
                                             ----------      ----------      ----------       ----------      -----------

<S>                                          <C>             <C>             <C>              <C>            <C>
Net Sales                                    $   82,743      $   74,674      $   62,423       $   55,682     $    38,139

Costs and Expenses:
    Cost of sales                               (66,603)        (58,347)        (47,440)         (41,338)        (29,168)
    General and administrative                   (7,362)         (7,484)         (6,630)          (6,406)         (2,761)
    Depreciation and amortization                (2,775)         (2,206)         (1,794)          (1,589)         (1,138)
    Interest income                                 111             125               8               --              --
    Interest expense                             (1,495)         (1,767)         (1,426)          (1,653)         (1,496)
    Other income (expense)                          432              65             (41)             (80)            222
    Benefit (provision) for income taxes          2,332            (514)           (366)            (348)           (260)
                                             ----------      ----------      ----------       ----------      ----------

Net income                                   $    7,383      $    4,546      $    4,734       $    4,268      $    3,538
                                             ==========      ==========      ==========       ==========      ==========
Net income per common share
         Primary                             $     1.51      $     0.89      $     0.79       $     0.72      $     0.68
                                             ==========      ==========      ==========       ==========      ==========
         Fully diluted                       $     1.51      $     0.89      $     0.79       $     0.69      $     0.68
                                             ==========      ==========      ==========       ==========      ==========

Weighted average number of common
     and common equivalent shares
         Primary                                  4,902           5,093           6,014            5,947           5,212
                                             ==========      ==========      ==========       ==========      ==========
         Fully diluted                            4,902           5,093           6,014            6,234           5,211
                                             ==========      ==========      ==========       ==========      ==========

Other Data:

Working capital                              $    8,649      $    2,438      $     (423)      $      471      $   (1,391)
Total assets                                     59,478          47,699          40,516           38,520          35,202
Capitalized leases and long term debt            20,704          14,924          12,304           12,016          13,541
Stockholders' equity                             28,913          22,714          19,398           18,126          13,885

</TABLE>




                                       12



<PAGE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS


RESULTS OF OPERATIONS

See  Note 1 to the  Consolidated  Financial  Statements  for  background  on the
Company.  The Company's focus continues to be identifying,  acquiring,  managing
and operating selected middle market companies.

Both the  Company's  corporate  functions  and Cues  Division  have fiscal years
consisting  of four  calendar  quarters  ending on December  31. The  Restaurant
Division's fiscal years consist of four 13-week quarters (and, accordingly,  one
52-week  period)  ending on the last  Saturday in December;  this  requires that
every six or seven years the Restaurant Division add an extra week at the end of
the fourth  quarter and fiscal year.  This was the case in the fourth quarter of
1994.


YEAR ENDED DECEMBER 31, 1996

The Company's 1996 revenues and expenses  resulted from the operation of ELXSI's
Restaurant   and  Cues   Divisions   and  the   Company's   corporate   expenses
("Corporate").

Restaurant Division. The Restaurants had sales of $61,283,000,  cost of sales of
$50,990,000,  selling,  general and  administrative  expenses of $1,956,000  and
depreciation and  amortization  expense of $2,318,000,  which yielded  operating
income of  $6,019,000.  In addition,  the  Restaurants  had $246,000 of interest
expense  related to the  amortization  of  deferred  financing  fees and capital
leases, and other income of $227,000 related mainly to a gain on the replacement
of  assets  lost in a  Restaurant  fire,  resulting  in income  before  taxes of
$6,000,000.

Cues  Division.  Cues had sales of  $21,460,000,  cost of sales of  $15,613,000,
selling,  general and administrative expenses of $4,056,000 and depreciation and
amortization expense of $457,000,  which yielded operating income of $1,334,000.
In addition,  Cues had $42,000 of interest  expense,  $5,000 of other income and
$45,000 of tax expense, resulting in income before taxes of $1,252,000.

Corporate.  Corporate general and administrative  expenses were $1,350,000.  The
major components of these expenses were the compensation  accrual related to the
Bickford's  Phantom  Stock Option Plan (see the  Company's  proxy  statement for
further  information),  management  fees paid to Cadmus  Corporation  ("Cadmus")
under  a  management  agreement  (see  NOTE  6  to  the  Consolidated  Financial
Statements of the Company),  legal  expenses,  Corporate  and  Bickford's  audit
expenses, and stockholder services and financial reporting expenses.

The terms of the Cadmus  management  agreement provide for Cadmus to provide the
Company with advice and  services  with  respect to the  Company's  business and
financial  management and  long-range  planning.  Specific  examples of services
historically  rendered to the Company under

                                       13

<PAGE>

this management  agreement include:  (a) ongoing hands-on  evaluation of Company
and division  management;  (b) direct  management of a portfolio of restaurants;
(c) preparing and reviewing division operating budgets and plans; (d) evaluating
new restaurant locations and menu changes; (e) identifying, and assisting in the
divestiture of,  under-performing  assets; (f) evaluating  financing options and
negotiating  with lenders;  (g) assisting in the compliance with securities laws
and other public reporting  requirements;  (h) communicating  with stockholders;
(i) negotiating and arranging insurance programs; (j) monitoring tax compliance;
(k) evaluating and approving capital spending; (l) cash management services; (m)
preparing market  research;  (n) developing and improving  management  reporting
systems;  and  (o)  identifying  and  evaluating   acquisition   candidates  and
investment opportunities. It is through the Cadmus management agreement that the
Company is provided  the  non-director  services of: Mr.  Milley  (except in his
capacity as President of Cues,  for which he is directly  compensated by ELXSI),
the  Company's  Chairman of the Board,  President and Chief  Executive  Officer;
Thomas R., Druggish, the Company's Vice President,  Treasurer and Secretary; and
Kevin P. Lynch, a Vice President and Director of the Company.

Corporate  interest  expense  was  $1,207,000,  consisting  of senior  bank debt
interest of $1,045,000 and senior  subordinated  note interest of $162,000.  The
Company's  senior  bank  debt  lender  is Bank of  America  Illinois;  NOTE 7 to
Consolidated  Financial Statements of the Company includes information regarding
the terms of the bank debt.

During  1996,  the Company  recorded a current  consolidated  tax  provision  of
$504,000 and a deferred tax benefit of $2,881,000, resulting in a net income tax
benefit of  $2,332,000  at the  corporate  level.  The  deferred tax benefit was
recorded  in  accordance  with  Statement  of  Accounting  Standards  Number 109
"Accounting For Income Taxes" ("SFAS 109"). SFAS 109 requires the recognition of
deferred tax assets and liabilities for the expected future tax  consequences of
temporary  differences  between the carrying  amounts and the tax basis of other
assets and liabilities.  Management  evaluated the likelihood of future earnings
during  the  remaining  life of the net  operating  loss  carryforwards  and the
anticipated  realization of the tax loss carryforwards in determining the amount
of the  deferred  tax asset to record.  The  utilization  of the  Company's  net
operating  loss and tax credit  carryforwards  may be impaired or reduced  under
certain circumstances.  Events which may affect these carryforwards include, but
are not limited to,  cumulative  stock  ownership  changes of 50% or more over a
three-year  period,  as defined,  and the timing of the  utilization  of the tax
benefit  carryforwards.  Such changes in ownership would significantly  restrict
the  Company's  ability to utilize loss and credit  carryforwards  in accordance
with  sections 382 and 383 of the  Internal  Revenue  Code  ("IRC").  Management
recognizes that it is limited in its ability to prevent such cumulative  changes
in ownership from  occurring.  If a change of ownership  were to occur,  factors
such as the number of common shares issued and outstanding,  the market price of
such shares,  short term treasury  rates,  etc.,  are used under the current tax
laws to determine the amount of the tax loss  carryforward  that can be utilized
each year.  In the event that a change in  ownership  does not take  place,  the
Company may be able to recognize the benefit of additional loss carryforwards.

At December  31, 1995,  the Company  maintained  a 100%  valuation  allowance to
account for the potential  limitations imposed by IRC 382 and 383, as well as to
give  effect to  uncertainties

                                       14

<PAGE>

surrounding  the future  success of restaurant  acquisitions  and  manufacturing
consolidations undertaken during the year.

During 1996, a portion of the valuation  allowance  was released  based upon the
success of restaurant  conversions and  manufacturing  consolidations  which had
begun in 1995. Accordingly, the Company recognized a $2,881,000 net deferred tax
asset.  The net deferred tax asset  represents  the amount of net operating loss
and credit  carryforwards  which management believes are more likely than not to
be  realized in the future.  At the end of 1996 and 1995,  the Company  believed
that it would have a change of ownership of 50% or more.

Recording the deferred tax benefit in 1996 resulted in an increase in net income
and earnings per share of $2,881,000  and $.59,  respectively.  It is uncertain,
due to the  unpredictable  nature of the  factors  involved in  determining  the
deferred tax asset, what impact SFAS 109 will have on future results.

Earnings Per Share. Earnings per share and the weighted average number of shares
outstanding were $1.51 and 4,902,000,  respectively.  This compares to $0.89 per
share for 1995,  when there were  5,093,000  shares  outstanding  (on a weighted
average  basis).  The  average  stock  price  during 1996 and 1995 was $5.83 and
$6.12,  respectively.  The market  price at December 31, 1996 and 1995 was $6.63
and $6.125, respectively.


YEAR ENDED DECEMBER 31, 1995

The Company's 1995 revenues and expenses  resulted from the operation of ELXSI's
Restaurant   and  Cues   Divisions   and  the   Company's   corporate   expenses
("Corporate").

Restaurant Division. The Restaurants had sales of $54,270,000,  cost of sales of
$43,729,000,  selling,  general and  administrative  expenses of $1,620,000  and
depreciation and  amortization  expense of $1,833,000,  which yielded  operating
income of  $7,088,000.  In addition,  the  Restaurants  had $297,000 of interest
expense  related to the  amortization  of  deferred  financing  fees and capital
leases, resulting in income before taxes of $6,791,000.

Cues  Division.  Cues had sales of  $20,404,000,  cost of sales of  $14,618,000,
selling,  general and administrative expenses of $4,425,000 and depreciation and
amortization expense of $373,000, which yielded operating income of $988,000. In
addition,  Cues had $22,000 of  interest  expense,  $2,000 of  interest  income,
$68,000 of other  income and $4,000 of tax  expense  adjustments,  resulting  in
income before taxes of $1,032,000.

Corporate.  Corporate general and administrative  expenses were $1,439,000.  The
major components of general and administrative expenses include the compensation
accrual related to the Bickford's Phantom Stock Option Plan, the management fees
paid to Cadmus,  legal expenses,  corporate and Bickford's  audit expenses,  and
stockholder  services and financial  reporting  expenses.  Interest  expense was
$1,448,000,  consisting of senior bank debt  interest of  $1,275,000  and senior
subordinated  note  interest of  $173,000.  In  addition,  the Company  recorded
interest

                                       15

<PAGE>


income of $123,000,  other expense of $3,000 and a consolidated tax provision of
$510,000 at the corporate level.

Earnings Per Share. Earnings per share and the weighted average number of shares
outstanding  for the year ended  December  31,  1995 were  $0.89 and  5,093,000,
respectively. The average stock price during 1995 was $6.12 and the market price
at December 31, 1995 was $6.125.


YEAR ENDED DECEMBER 31, 1994

The Company's 1994 revenues and expenses  resulted from the operation of ELXSI's
Restaurant   and  Cues   Divisions   and  the   Company's   corporate   expenses
("Corporate").

Restaurant Division. The Restaurants had sales of $43,391,000,  cost of sales of
$34,234,000,  selling,  general and  administrative  expenses of $1,293,000  and
depreciation and  amortization  expense of $1,460,000,  which yielded  operating
income of  $6,404,000.  In addition,  the  Restaurants  had $266,000 of interest
expense  related to the  amortization  of  deferred  financing  fees and capital
leases, resulting in income before taxes of $6,138,000.

The fifty-third week included in the 1994 results added  approximately  $810,000
in sales and, management estimates, approximately $200,000 in operating income.

Cues  Division.  Cues had sales of  $19,032,000,  cost of sales of  $13,206,000,
selling,  general and administrative expenses of $4,146,000 and depreciation and
amortization expense of $334,000,  which yielded operating income of $1,346,000.
In addition, Cues had $32,000 of interest expense,  $27,000 of other expense and
$5,000 of tax adjustments resulting in income before taxes of $1,282,000.

Corporate.  Corporate  general and  administrative  expenses were  $1,191,000 in
1994.  The major  components  of general and  administrative  expenses  were the
management  fees  paid  to  Cadmus,  the  compensation  accrual  related  to the
Bickford's  Phantom Stock Option Plan, legal expenses,  corporate and Bickford's
audit  expenses,  and  stockholder  services and financial  reporting  expenses.
Interest  expense was  $1,128,000,  consisting  of senior bank debt  interest of
$418,000 and subordinated  note interest of $710,000.  In addition,  the Company
recorded interest income of $8,000,  other expense of $14,000 and a consolidated
tax provision of $361,000 at the corporate level.

Earnings Per Share. Earnings per share and the weighted average number of shares
outstanding  for the year ended  December  31,  1994 were  $0.79 and  6,014,000,
respectively. The average stock price during 1994 was $5.42 and the market price
at December 31, 1994 was $5.25.

                                       16

<PAGE>


COMPARISON OF 1996 RESULTS TO 1995 RESULTS

The 1996 sales  increased by  $8,069,000,  or 10.8%,  gross profit  decreased by
$187,000,  or 1.1%,  selling,  general and  administrative  expense decreased by
$122,000,  or 1.6%, and depreciation and amortization  increased by $569,000, or
25.8%,  resulting in an operating income decrease of $634,000,  or 9.6%, in each
case as compared to 1995.  Interest  expense  decreased by  $272,000,  or 15.4%,
interest income  decreased by $14,000,  other income  increased by $367,000.  In
1996,  the Company  recorded an income tax benefit of $2,332,000  compared to an
income tax expense of $514,000 in 1995. The above changes resulted in a increase
in net income of $2,837,000, or 62.4%.

Restaurant  Division.  Restaurant  sales  increased by $7,013,000,  or 12.9%, in
1996. The sales increase is  attributable to an increase in the same store sales
of $309,000 and an increase in sales at new  restaurants  of  $7,807,000,  which
were  partially  offset by a decrease in sales of $1,103,000  at a  fire-damaged
Bickford's  and the sale of one and closing of another  Abdow's.  The 1996 sales
increase due to new restaurants  consisted of $3,372,000 from the five purchased
Abdow's,  $3,563,000 from the nine converted Abdow's and $872,000 from other new
Bickford's.  Same store restaurant sales increased by $309,000,  or 0.7%, mainly
as a result of a $483,000,  or 1.6%,  sales increase in the original  Bickford's
acquired in 1991 (29 locations;  excluding the fire damaged site). This increase
was partially offset by a sales decreases of $107,000,  or 0.9%, and $67,000, or
4.5%, at the eleven other  comparable  Bickford's  and the one remaining  Howard
Johnson's unit, respectively.

The original 29 Bickford's  (excluding  the fire damaged site) had flat customer
counts while the 11 other comparable Bickford's and the one Howard Johnson's had
decreases in customer counts of 2.6% and 3.0%, respectively.  Overall comparable
customer counts  decreased by 0.8% in 1996 compared to 1995 primarily due to the
severe  winter  weather in the first quarter of 1996.  The one Howard  Johnson's
Restaurant is located near one of the three  Bickford's  that are licensed to an
unrelated third party, and under the applicable  license  agreement,  may not be
converted  into a  Bickford's.  Management  is  continuing to focus on improving
sales at all Restaurants  through attention to customer  service,  food quality,
new menu items and Restaurant refurbishments.

Restaurant  gross  profit  decreased  by  $248,000  and the  gross  profit  as a
percentage  of sales  decreased  from  19.4% in 1995 to 16.8% in 1996.  The main
factor in the 2.6%  decline in the gross  profit  percentage  was an increase in
labor costs.  Labor costs as a percentage of sales increased by 2.0%, from 34.4%
in 1995 to 36.4% in 1996,  due to higher labor costs as a percentage of sales at
the nine  converted  and five  remaining  Abdow's  and the  $355,000 of start-up
training  costs in 1996 related  primarily to the conversion of the nine Abdow's
into  Bickford's  restaurants.  The 14 Abdow's  Restaurants  (including the nine
converted  into  Bickford's)  had labor costs as a percentage of sales of 40.8%.
Management  does not  intend  to  reduce  the  labor  costs  immediately  at the
converted  Abdow's as it does not wish to  compromise  their  excellent  service
reputation.  Food costs  decreased  by 0.3% in 1996 as compared  to 1995,  while
variable costs increased by 0.4% during the same period. The food costs decrease
was mainly due to an increase in cash rebates related to the increased volume of
food purchases  associated with the addition of new  Restaurants,  including the
Abdow's. Upon conversion of an Abdow's into a

                                       17

<PAGE>

Bickford's Restaurant, food cost as a percentage of sales tend to decline to the
average Bickford's level. The Bickford's food costs increased as a percentage of
sales as a result of the sale of higher-cost dinner items and an increase in the
cost of individual  food items,  including  eggs,  bacon and sausage,  partially
offset by a decline in coffee costs. In addition, fixed costs as a percentage of
sales increased by 0.6% in 1996, due to higher rents related to the inclusion of
the Abdow's  Restaurants  for twelve months in 1996 as compared to six months in
1995.  Management currently intends to keep the present five Abdow's Restaurants
operating under that concept, which has generally lower margins than Bickford's,
and therefore the overall margins will continue to be negatively affected.

Restaurant  selling,  general and  administrative  expense increased by $336,000
during 1996 over 1995 mainly as a result of adding additional  support personnel
as a result of the acquisition of Abdow's.

Restaurant  depreciation and  amortization  increased by $485,000 during 1996 as
compared to 1995.  Restaurant  depreciation  and  amortization  will continue to
increase each year with the addition of new  Restaurants,  or until such time as
assets  valued and recorded at the date of the  Bickford's  acquisition  in July
1991 become fully depreciated.  The equipment acquired in that acquisition has a
seven-year useful life, and will become fully depreciated in 1998.

As a result of the above,  Restaurant  Division  operating  income  decreased by
$1,069,000 in 1996 compared to 1995.

Cues Division.  Cues's sales increased by $1,056,000,  or 5.2%, in 1996 compared
to 1995. As a result of this increase and a 1.1% decrease in Cues's gross profit
percentage  in 1996  compared  to  1995,  gross  profit  increased  by  $61,000.
Operating income was positively  impacted by a decrease in selling,  general and
administrative   expenses  of  $369,000   partially  offset  by  a  increase  in
depreciation  and  amortization  expense of  $84,000.  The  decrease in selling,
general and administrative expenses resulted primarily from the consolidation of
Canadian  operations into Orlando and the  restructuring  of the Cues west coast
sales  effort to become  more  efficient.  As a result of the  above,  operating
income increased by $346,000 in 1996 as compared to 1995. Management anticipates
that gross margins will continue to experience  pressure in 1997 due to the fact
that Cues's customers  continue to stress pricing factors in awarding  contracts
through the competitive bidding process.

Corporate.  Corporate's general and administrative expenses decreased by $89,000
during 1996  compared  to 1995,  partially  due to a decrease in the  Bickford's
management  compensation  accrual  related to its  Phantom  Stock  Option  Plan.
Interest  expense  decreased  by  $241,000  in 1996  compared  to 1995  due to a
decrease in interest  rates and a lower  average debt balance in 1996.  The bank
interest rate  applicable to Company  borrowings at December 31, 1996 was either
prime (8.25%) or 2% over the London Eurodollar rate, then  approximately  7.68%.
The Company has the option of  designating  a portion of the bank line of credit
as London  Eurodollar  rate  financing  for 30, 60 or 90-day  periods.  The bank
interest rate  available to the Company at December 31, 1995 was 1% above prime,
or 9.5%. In addition, the Company prepaid the remaining $1,199,000 of its senior
subordinated notes during 1996. These notes had interest rates of 15% and 14.5%.

                                       18

<PAGE>

On December 30, 1996, ELXSI purchased three revolving notes with a face value of
$6,650,000 from Bank of America Illinois, its lending bank, for $5,850,000.  The
Company recorded this $800,000 discount as a reduction in the face amount of the
notes on the balance sheet. The face value of the notes, payable by three wholly
owned  subsidiaries  of  Azimuth   Corporation;   (collectively,   the  "Azimuth
Subsidiaries"), bear interest at 15% per annum payable in arrears on the 1st and
16th  of  each  month  and  mature  on  June  30,  1998.  The  notes  are  fully
collateralized  by all of the  assets of  Azimuth  Corporation  and the  Azimuth
Subsidiaries,  including accounts  receivable and inventory.  Two of the Azimuth
Subsidiaries  design and manufacture  trade show booth displays;  the other is a
distributor  of  electrical  fuses and  fasteners.  Certain of the  officers and
directors and stockholders of Azimuth  Corporation are officers and directors of
the Company and/or ELXSI.  In addition,  ELXSI  recorded a $225,000  closing fee
receivable  due  from  the  Azimuth   Subsidiaries  under  the  Recapitalization
Agreement,  and accrued certain legal and bank fees payable.  ELXSI recorded the
net fees in accounts receivable within the accompanying  consolidated  financial
statements.  ELXSI will amortize this discount and the net closing fees over the
life of the Azimuth  Subsidiary Notes utilizing the effective interest method of
amortization.

The purpose of the  transactions  described  above and in this  paragraph was to
prudently  utilize the  Company's  debt  capacity to earn a return not generally
available in the  marketplace  for the  commensurate  risk. The knowledge of the
Azimuth  Corporation credit and the short time frame required to respond to Bank
of  America  Illinois  made  ELXSI  unique in its  ability  to  capture  such an
attractive opportunity.  Under the relevant agreements, the Azimuth Subsidiaries
have the right to prepay in full their  revolving notes held by ELXSI at a price
(or for a payment) equal to (i) the combined principal amount outstanding on the
date of prepayment  (which may be as much as  $9,965,000)  plus (ii) all accrued
but unpaid interest thereon less (iii) if purchased in April, May or June 1997 a
discount of  $275,000,  $175,000 and $75,000,  respectively.  Therefore,  if the
Azimuth  Subsidiary notes are not satisfied before July 1, 1997, ELXSI will have
fully earned the $800,000  discount applied to the purchase.  As a result of the
transactions,  described in this  paragraph,  ELXSI became the senior  revolving
credit lender to the Azimuth  Subsidiaries.  Funding for ELXSI's purchase of the
Azimuth  Subsidiary  notes, as well, as for any further  revolving  credit loans
that may be made by ELXSI to the Azimuth  Subsidiaries,  was provided by Bank of
America  Illinois  under an amendment  and  restatement  of its existing  credit
agreement  with ELXSI.  The Company's  return on  investment  from the foregoing
transactions  is in the form of net interest (i.e.,  the difference  between the
Azimuth's  Subsidiaries' 15% interest rate and the Company's cost of borrowing),
the discount earned by the Company and the closing fee described above.


COMPARISON OF 1995 RESULTS TO 1994 RESULTS

The  1995  sales  increased  $12,251,000,   or  19.6%,  gross  profit  increased
$1,344,000,  or 9.0%,  selling,  general and  administrative  expense  increased
$854,000,  or 12.9%, and depreciation and amortization  increased  $412,000,  or
23.0%,  resulting in an operating  income increase of $78,000,  or 1.2%, in each
case as compared to 1994.  Interest  expense  increased by  $341,000,  or 23.9%,
interest income increased by $117,000,  other income and expense  increased from
expense of

                                       19

<PAGE>

$41,000 in 1994 to income of $65,000 in 1995,  and  income  taxes  increased  by
$148,000, or 40.4%, resulting in a decrease in net income of $188,000, or 4.0%.

Restaurant  Division.  Restaurant  sales increased by $10,879,000,  or 25.1%, in
1995. The sales increase was  attributable to a decrease in the same store sales
of $152,000, offset by the addition of new restaurants that added $11,031,000 to
1995  sales.  The  1995  sales  increase  due to new  restaurants  consisted  of
$8,112,000 from 14 purchased Abdow's, $873,000 from the two Abdow's converted in
1995 and  $2,046,000  from other new  Bickford's.  Same store  restaurant  sales
decreased by $152,000,  or 0.4%,  mainly due to the  inclusion of a 53rd week in
1994,  which added  $763,000 to those  restaurants  1994 sales.  The original 30
Bickford's acquired in 1991 had a sales increase of $405,000,  or 1.3%, the nine
other comparable  Bickford's (including the five converted Howard Johnson's) had
a sales decrease of $494,000,  or 5.1%, while the one remaining Howard Johnson's
unit had a sales decline of $63,000,  or 4.1%. Included in the above comparisons
is the effect of the  fifty-third  week in 1994,  which added sales of $582,000,
$155,000  and  $26,000  to  the  original  thirty  Bickford's,  the  nine  other
comparable   Bickford's  and  the  one  remaining  Howard  Johnson   Restaurant,
respectively. Excluding the 53rd week from 1994 sales, the same store Restaurant
sales increased by $611,000, or 1.5%.

The original thirty Bickford's, the nine other comparable Bickford's and the one
Howard Johnson's  Restaurant had a decrease in customer counts of 1.8%, 7.6% and
9.8%,  respectively.  Excluding  the 53rd week from 1994,  the  original  thirty
Bickford's,  the nine other  comparable  Bickford's and the one Howard Johnson's
Restaurant  had an increase  (decrease) in customer  counts of 0.1%,  (6.2)% and
(8.3)%, respectively, during 1995.

Restaurant  gross profit increased by $1,384,000 but declined as a percentage of
sales from 21.1% in 1994 to 19.4% in 1995.  The main factor in the 1.7%  decline
in the gross profit percentage was a 1.5% increase in food costs as a percentage
of sales, primarily attributable to the Abdow's units. The Bickford's food costs
increased  as a  percentage  of sales,  as a result  of the sale of  higher-cost
dinner items,  and an increase in the cost of individual  food items,  including
eggs,  bacon and  sausage,  partially  offset by a decline in coffee  costs.  In
addition to the food cost  increase,  variable  costs as a  percentage  of sales
increased  by 0.4% in 1995.  Labor costs as a  percentage  of sales  declined by
0.2%,  from 34.6% to 34.4%,  despite higher labor costs as a percentage of sales
at the 16 Abdow's.  The 16 Abdow's (including the two converted into Bickford's)
had labor costs as a percentage of sales of 37.2% in 1994.

Restaurant  selling,  general and administrative  expenses increased by $327,000
during 1995 over 1994 mainly as a result of adding additional  support personnel
as a result of the acquisition of Abdow's.

Restaurant  depreciation and  amortization  increased by $373,000 during 1995 as
compared to 1994.

As a result of the above,  Restaurant  Division  operating  income  increased by
$684,000 in 1995  compared to the 53 weeks ended  December 31, 1994.  Management
estimates that the inclusion of a 53rd week in 1994 added approximately $200,000
to operating income that year.

                                       20

<PAGE>

Cues  Division.  Cues's  sales  increased  by  $1,372,000,  or 7.2%,  in 1995 as
compared to 1994. As a percentage of sales, Cues's gross profit declined by 2.3%
in 1995 compared to 1994, causing gross profit to decrease by $40,000. Operating
income  was  negatively  impacted  by  an  increase  in  selling,   general  and
administrative   expense  of  $279,000  and  an  increase  in  depreciation  and
amortization  expense of  $39,000.  As a result of the above,  operating  income
decreased by $358,000 in 1995, as compared to 1994.

Corporate.  Corporate general and administrative  expenses increased by $248,000
during 1995 as  compared  to 1994  mainly due to an  increase in the  Bickford's
management  compensation  accrual  related to its  Phantom  Stock  Option  Plan.
Interest  expense  increased  by $320,000 in 1995 as compared to 1994,  due to a
higher average debt balance in 1995,  partially offset by a decrease in interest
rates in 1995.  The  higher  average  debt  balance  in 1995 was the  result  of
spending  approximately  $3.8 million to purchase  Abdow's  Restaurants and $7.4
million to repurchase  Company common stock,  warrants to purchase  common stock
and senior subordinated notes at the end of 1994 and beginning of 1995. The bank
interest  rate  applicable  to Company  borrowing was 1% above the prime lending
rate (9.5%,  at  December  31,  1995),  and 1.5% above the prime  lending  rate,
(10.0%, at December 31, 1994).


ACQUISITIONS

On July 3,  1995,  ELXSI  acquired  16  Abdow's  Family  Restaurants  from Abdow
Corporation  of  Springfield,  MA,  for  a  price  of  approximately  $3,800,000
(including  transaction  fees  and  expenses  of  approximately  $300,000).  The
transaction  included the leasing of the 16 restaurant sites and the purchase of
associated assets located in western Massachusetts and central Connecticut.  The
acquisition was financed by an increase in ELXSI's  existing line of credit with
Bank of America  Illinois.  On February 1, 1996, ELXSI completed its sale of the
Vernon,  Connecticut  Abdow's Restaurant for net proceeds of $1,225,000.  During
1996, ELXSI closed one under-performing Abdow's Restaurant.


INCOME TAXES AND INFLATION

In 1996,  the Company  recorded a  provision  for  current  federal  alternative
minimum  taxes of  $105,000  (after the benefit of federal  net  operating  loss
carryforwards  of  $1,616,000),  a state income tax  provision of $444,000 and a
deferred  tax  benefit of  $2,881,000,  resulting  in an income  tax  benefit of
$2,332,000 (see "Year Ended December 31, 1996 - Corporate" above).

In 1995, the Company recorded a provision for federal  alternative minimum taxes
of $118,000  (after the benefit of federal net operating loss  carryforwards  of
$1,619,000), and a state income tax provision of $396,000.

In 1994, the Company recorded a provision for federal  alternative minimum taxes
of $88,000  (after the benefit of federal net operating  loss  carryforwards  of
$1,526,000),  and a state income

                                       21

<PAGE>

tax  provision  of  $278,000  (after  the  benefit of state net  operating  loss
carryforwards). Approximately one-half of ELXSI's consolidated taxable income is
apportioned  to  Massachusetts.  The final year that the net operating  loss was
available to ELXSI to offset  Massachusetts  taxable income was 1994 because the
five year Massachusetts  carryforward period expired in 1995. During 1994, ELXSI
would have  recorded a provision for  additional  state income taxes of $190,000
had the Massachusetts net operating loss carryforwards not been available.

At December 31, 1996, the Company had approximately  $216,000,000 in federal net
operating loss carryforwards,  which begin to expire in 1998 and fully expire in
2005 if not used. In addition,  the Company had  $6,500,000  in  investment  tax
credit and research and  development  credit  carryforwards  available to reduce
future  federal  income taxes.  (see "Year Ended  December 31, 1996 - Corporate"
above).

Inflation  and changing  prices have not had a material  impact on the Company's
results of operations.

LIQUIDITY AND CAPITAL RESOURCES

Available Resources.  The Company's consolidated  unrestricted cash positions at
December  31, 1996 and 1995 were $0. The Company  has a cash  management  system
whereby cash  generated by operations is  immediately  used to reduce debt.  The
immediate reduction of outstanding debt provides the Company with a reduction in
interest  expense  greater than the  interest  income that the cash could safely
earn from alternative  investments.  Working capital needs, when they arise, are
met by daily borrowings.

During 1996,  the Company had cash flow from  operations  of  $4,200,000  which,
along with the  $1,075,000  proceeds  from the sale of the  Vernon,  Connecticut
Abdow's  Restaurant and net borrowings of $7,112,000 on the bank line of credit,
funded the  purchase  of  property,  plant and  equipment  totalling  $3,108,000
(including  the  one new  Restaurant  opened  in  1996),  a loan to ELX  Limited
Partnership ("ELX") totalling $909,000,  the purchase of related party debt with
a face  amount of  $6,650,000  from Bank of  America  Illinois  for  $5,850,000;
principal  payments  of  long-term  14.5%  and  15%  senior  subordinated  notes
totalling  $1,199,000;  the  repurchase of Common Stock and Warrants to purchase
Common  Stock for  $1,146,000;  and  principal  payments  on  capital  leases of
$139,000.  During 1996, current assets increased by $4,249,000  primarily due to
an increase in Cues's  inventory,  the  recording  of a deferred  tax asset,  an
increase  in  Bickford's  and  Corporate's  accounts  receivable  related  to an
insurance settlement related to a Restaurant fire in 1996, partially offset by a
decrease in the asset held for sale due to the sale of the  Vernon,  Connecticut
Abdow's restaurant.  Inventory increased due to the introduction and development
of new products, a general increase in component parts used in production and an
increase  in  finished  assemblies.  Current  liabilities  decreased  in 1996 by
$750,000  (excluding  the  current  portion of the  long-term  debt and  current
portion of long-term capital leases).

During 1995,  the Company had cash flow from  operations  of  $4,003,000,  which
along with net borrowings of $2,334,000 in long-term debt funded the purchase of
property,  plant  and  equipment  totalling  $2,357,000  (including  the one new
Restaurant  opened in  1995);  the net cost

                                       22

<PAGE>

of acquiring the fifteen Abdow's totalling $2,575,000;  the repurchase of Common
Stock of  $1,224,000;  the payment of bank fees of $125,000;  and the  principal
payments on capital leases of $56,000.  During 1995, current assets increased by
$4,034,000,  primarily due to an increase in Cues's  inventory and the recording
of an  asset  held  for  sale  at  December  31,  1995  related  to the  Vernon,
Connecticut Abdow's restaurant.  The Restaurant was sold on February 1, 1997 for
cash.  Inventory  increased  due  to the  introduction  and  development  of new
products and an increase in equipment used for  demonstrations.  The increase in
current  assets was partially  offset by an increase in current  liabilities  of
$647,000  (excluding  the  current  portion of the  long-term  debt and  current
portion of long-term capital leases).

During 1994,  the Company had cash flow from  operations  of  $6,871,000,  which
along with a net borrowing of $225,000 in long-term debt funded the  acquisition
of property,  plant and equipment  totalling  $2,363,000  (including the two new
Restaurants  opened in 1994);  a loan to ELX of  $1,156,000;  the  repurchase of
Common Stock and Series A Warrants to purchase  Common Stock of $3,499,000;  and
the payment of bank fees of $109,000.  During 1994,  current assets increased by
$286,000, primarily due to an increase in Cues's inventory partially offset by a
decline in Cues's  accounts  receivable  and a decrease in  Bickford's  Division
prepaid expenses. Inventory increased due to increased monthly production volume
caused by increased sales orders at Cues and the introduction and development of
new products. The increase in current assets was partially offset by an increase
in  current  liabilities  of  $136,000  (excluding  the  current  portion of the
long-term debt and current portion of long-term capital leases).

Future Needs For and Sources of Capital. Management believes that cash generated
by operations is  sufficient to fund current  operations  including the interest
payments on the bank debt. With bank approval,  excess funds are available under
the Company's loan agreement to finance additional acquisitions.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The  Consolidated  Financial  Statements  of the  Company for each of the fiscal
years in the three-year period ended December 31, 1996, together with the report
thereon of Price  Waterhouse  LLP dated  March 20,  1997,  are  included in this
report commencing on page F-1.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
         ACCOUNTING AND FINANCIAL DISCLOSURE

The  Company  did not change its  independent  accountants  during 1996 nor were
there any  disagreements  with such  accountants  on  accounting  principals  or
practices, financial disclosure or auditing scope or procedure.


                                       23

<PAGE>



                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The  information  required under this item is  incorporated  herein by reference
from the ELXSI  Corporation  Proxy  Statement  to be filed within 120 days after
December  31,  1996 for the annual  Meeting of  Stockholders  to be held May 22,
1997.

ITEM 11.  EXECUTIVE COMPENSATION

The  information  required under this item is  incorporated  herein by reference
from the ELXSI  Corporation  Proxy  Statement  to be filed within 120 days after
December  31,  1996 for the annual  Meeting of  Stockholders  to be held May 22,
1997.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
          AND MANAGEMENT

The  information  required under this item is  incorporated  herein by reference
from the ELXSI  Corporation  Proxy  Statement  to be filed within 120 days after
December  31,  1996 for the annual  Meeting of  Stockholders  to be held May 22,
1997.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The  information  required under this item is  incorporated  herein by reference
from the ELXSI  Corporation  Proxy  Statement  to be filed within 120 days after
December  31,  1996 for the annual  Meeting of  Stockholders  to be held May 22,
1997.


                                       24

<PAGE>

                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
          REPORTS ON FORM 8-K


(a)  Documents filed as part of this report:

Index to Consolidated Financial Statements
------------------------------------------
                                                                        Page
                                                                      Number(s)
                                                                     ---------
1.  Financial Statements
      Report of Independent Certified Public Accountants                F-1
      Consolidated Balance Sheets at December 31, 1996 and 1995      F-2 to F-3
      Consolidated Income Statements for the three years
        ended December 31, 1996                                         F-4
      Consolidated Statements of Stockholders' Equity for the
        three years ended December 31, 1996                             F-5
      Consolidated Statements of Cash Flows for the three years
        ended December 31, 1996                                      F-6 to F-7
      Notes to Consolidated Financial Statements                     F-8 to F-25

2.  Financial Statement Schedules

         Schedule
         Number                    Description                            Page
         ------                    -----------                            ----
          VIII      Valuation and Qualifying Accounts and Reserves         S-1

All other schedules are omitted because they are not applicable or not required,
or because the required  information is included in the  Consolidated  Financial
Statements or Notes thereto.

3.   Exhibits

Exhibit
Number    Description
------    -----------

2.1       Agreement  and Plan of Merger by and among ELXSI  Corporation,  ELXSI,
          Cadmus Corporation and Holdingcues, Inc. dated as of October 16, 1992,
          including form of Series C Warrant.  (Incorporated herein by reference
          to Exhibit 2.7 of the  Company's  Current  Report on Form 8-K as filed
          November 13, 1992 (File No 0-11877)).

2.2       Family Restaurant Sale and Purchase Agreement, between Marriott Family
          Restaurants,  Inc.  ("Marriott")  and the Company  dated  February 28,
          1991.  (Incorporated  herein  by  reference  to  Exhibit  2.1  of  the
          Company's  Current  Report on Form 8-K,  dated July 16, 1991 (File No.
          0-11877)).


                                       25

<PAGE>


2.3       Side  Letter to the  Family  Restaurant  Sale and  Purchase  Agreement
          between   Marriott   and  the  Company   dated   February   28,  1991.
          (Incorporated  herein by  reference  to Exhibit  2.2 of the  Company's
          Current Report on Form 8-K, dated July 16, 1991 (File No. 0-11877)).

2.4       Assignment  and  Guaranty  of  Family  Restaurants  Sale and  Purchase
          Agreement  and Side Letter,  between the  Company,  Marriott and ELXSI
          dated June 29, 1991.  (Incorporated herein by reference to Exhibit 2.3
          of the Company's Current Report on Form 8-K, dated July 16, 1991 (File
          No. 0-11877)).

2.5       Closing Side Letter Agreement  Regarding  Family  Restaurants Sale and
          Purchase  Agreement  between  ELXSI and  Marriott  dated July 1, 1991.
          (Incorporated  herein by  reference  to Exhibit  2.4 of the  Company's
          Current Report on Form 8-K, dated July 16, 1991 (File No. 0-11877)).

2.6       Real Estate Closing Side Letter Agreement Regarding Family Restaurants
          Sale and Purchase  Agreement  between ELXSI and Marriott dated July 1,
          1991.  (Incorporated  herein  by  reference  to  Exhibit  2.5  of  the
          Company's  Current  Report on Form 8-K,  dated July 16, 1991 (File No.
          0-11877)).

2.7       Agreement  Concerning  Massachusetts  and Connecticut  Liquor Licenses
          between ELXSI and Marriott dated July 1, 1991. (Incorporated herein by
          reference to Exhibit 2.6 of the Company's  Current Report on Form 8-K,
          dated July 16, 1991 (File No. 0-11877)).

3.1       Restated  Certificate  of  Incorporation  of the Company,  as amended.
          (Incorporated  herein by  reference  to Exhibit  3.1 of the  Company's
          Annual Report on Form 10-K for the fiscal year ended December 31, 1989
          (file No. 0-11877)).

3.2       Certificate of Amendment of Restated  Certificate of  Incorporation of
          the Company dated May 27, 1992.  (Incorporated  herein by reference to
          Exhibit 3.2 of the Company's Annual Report on Form 10-K for the fiscal
          year ended December 31, 1994 (file No. 0-11877)).

3.3       Bylaws of the  Company.  (Incorporated  herein by reference to Exhibit
          3.1 of the Company's  Registration  Statement on Form S-4, as amended.
          (file No. 0-11877)).

4.1       Series A Warrant No. A-7 to  purchase  50,000  shares of Common  Stock
          issued to Eliot Kirkland L.L.C. ("EKLLC").

4.2       Form  of  Allonge  and   Amendment  to  Series  A  Warrants  of  ELXSI
          Corporation, with respect to the foregoing Warrant.

4.3       Series A Warrant No. A-6 to purchase  150,500  shares of Common  Stock
          issued to the Alexander M. Milley Irrevocable Trust I U/A dated May 9,
          1994.  (Incorporated  herein  by  reference  to  Exhibit  4.2  of  the
          Company's  Annual  Report  on Form  10-K  for the  fiscal  year  ended
          December 31, 1994 (file No. 0-11877)).

4.4       Form  of  Allonge  and   Amendment  to  Series  A  Warrants  of  ELXSI
          Corporation, with respect to the foregoing Warrant.

4.5       Series B  Warrant  No.  B-1 to  purchase  604,656  shares  of Series A
          Non-Voting  Convertible Preferred Stock issued to Continental Illinois
          Equity Corporation ("CIEC") (now named BankAmerica Capital Corporation
          ("BACC")).  (Incorporated  herein by  reference  to Exhibit 4.6 of the
          Company's  Annual  Report  on Form  10-K  for the  fiscal  year  ended
          December 31, 1989 (file No. 0-11877)).


                                       26

<PAGE>

4.6       Series C Warrant No. C-3 to  purchase  68,762  shares of Common  Stock
          issued to EKLLC.

4.7       Form  of  Allonge  and   Amendment  to  Series  C  Warrants  of  ELXSI
          Corporation, with respect to the foregoing Warrant.

4.8       Amended and Restated Registration Rights Agreement dated as of January
          23,  1990  among  the  Company,  Milley &  Company  ("M&C")  and CIEC.
          (Incorporated  herein by  reference  to Exhibit  4.7 of the  Company's
          Annual Report on Form 10-K for the fiscal year ended December 31, 1989
          (file No. 0-11877)).

4.9       Exercise of Option and Assignment of  Registration  Rights executed by
          ELX Limited  partnership ("ELX") and The Airlie Group, L.P. ("Airlie")
          dated November 30, 1994.  (Incorporated herein by reference to Exhibit
          4.6 of the  Company's  Annual  Report on Form 10-K for the fiscal year
          ended December 31, 1994 (file No. 0-11877)).

4.10      15%  Senior  Subordinated  Note  issued by the  Company to CIEC in the
          amount of  $401,765.00.  (Incorporated  herein by reference to Exhibit
          10.18 of the Company's  Annual Report on Form 10-K for the fiscal year
          ended December 31, 1989 (file No. 0-11877)).

4.11      14.5%  Senior  Subordinated  Note issued by the Company to CIEC in the
          amount of  $502,206.25  dated June 27, 1991.  (Incorporated  herein by
          reference to Exhibit 4.8 of the  Company's  Annual Report on Form 10-K
          for the fiscal year ended December 31, 1994 (file No. 0-11877)).

4.12      Amended and Restated Loan and Security Agreement, dated as of December
          30, 1996, between ELXSI and Bank of America Illinois ("BAI").

4.13      Warrant Purchase and Senior  Subordinated Note termination  Agreement,
          dated as of December 30,1996, between BACC and the Company.

4.14      14.5%  Senior  Subordinated  Note  issued by the  Company to Pan Fixed
          Income  Fund,  Ltd.,  dated as of  November  16, 1993 in the amount of
          $250,000.  (Incorporated  herein by  reference  to Exhibit 4.12 of the
          Company's  Annual  Report  on Form  10-K  for the  fiscal  year  ended
          December 31, 1994 (file No. 0-11877)).

4.15      14.5%  Senior  Subordinated  Note issued by the Company to Rona Jaffe,
          dated as of November 16, 1993 in the amount of $100,000. (Incorporated
          herein by reference to Exhibit 4.13 of the Company's  Annual Report on
          Form 10-K for the  fiscal  year  ended  December  31,  1994  (file No.
          0-11877)).

4.16      14.5% Senior Subordinated Note issued by the Company to Anne Strassler
          A.C.S.W. P.C., dated as of November 16, 1993 in the amount of $25,000.
          (Incorporated  herein by reference  to Exhibit  4.14 of the  Company's
          Annual Report on Form 10-K for the fiscal year ended December 31, 1994
          (file No. 0-11877)).

10.1      The   Company's   1987   Incentive   Stock  Option  Plan  as  amended.
          (Incorporated  by reference to Exhibit  10.1 of the  Company's  Annual
          Report on Form 10-K for the fiscal year ended  December 31, 1987 (file
          No. 0-11877)).

10.2      The  Company's  1987  Supplemental   Stock  Option  Plan  as  amended.
          (Incorporated  by reference to Exhibit  10.2 of the  Company's  Annual
          Report on Form 10-K for the fiscal year ended  December 31, 1987 (file
          No. 0-11877)).

10.3      The Company's 1993 Incentive Stock Option Plan.  (Incorporated  herein
          by reference to Exhibit 10.3 of the  Company's  Annual  Report on Form
          10-K for the fiscal year ended December 31, 1994 (file No. 0-11877)).

                                       27

<PAGE>


10.4      The Company's 1995 Incentive Stock Option Plan (Incorporated herein by
          reference  to  Exhibit  4.1 to the  Company's  Form  S-8  Registration
          Statement filed November 14, 1995 (Registration No. 033-64205)).

10.5      The Company's 1996 Incentive Stock Option Plan (Incorporated herein by
          reference  to  Exhibit  4.1 to the  Company's  Form  S-8  Registration
          Statement filed December 2, 1996 (Registration No. 333-17131)).

10.6      The ELXSI 1991  Phantom  Stock Option Plan for the  management  of the
          Bickford's Division. (Incorporated herein by reference to Exhibit 10.4
          of the Company's  Annual Report on Form 10-K for the fiscal year ended
          December 31, 1994 (file No. 0-11877)).

10.7      Amendment  No. 1 to the ELXSI 1991  Phantom  Stock Option Plan for the
          management  of  the  Bickford's  Division.   (Incorporated  herein  by
          reference to Exhibit 10.5 of the Company's  Annual Report on Form 10-K
          for the fiscal year ended December 31, 1994 (file No. 0-11877)).

10.8      Non-Qualified  Stock Option Agreement issued to Robert C. Shaw for the
          purchase of 12,500  shares of Common  Stock,  dated  October 30, 1992.
          (Incorporated  herein by reference  to Exhibit  10.7 of the  Company's
          Annual Report on Form 10-K for the fiscal year ended December 31, 1994
          (file No. 0-11877)).

10.9      Non-Qualified  Stock Option Agreement issued to John C. Savage for the
          purchase of 10,000  shares of Common  Stock,  dated  October 30, 1992.
          (Incorporated  herein by reference  to Exhibit  10.8 of the  Company's
          Annual Report on Form 10-K for the fiscal year ended December 31, 1994
          (file No. 0-11877)).

10.10     Non-Qualified Stock Option Agreement issued to Farrokh K. Kavarana for
          the purchase of 10,000 shares of Common Stock, dated October 30, 1992.
          (Incorporated  herein by reference  to Exhibit  10.9 of the  Company's
          Annual Report on Form 10-K for the fiscal year ended December 31, 1994
          (file No. 0-11877)).

10.11     Non-Qualified  Stock Option Agreement issued to Kevin P. Lynch for the
          purchase of 20,000  shares of Common  Stock,  dated  October 30, 1992.
          (Incorporated  herein by reference to Exhibit  10.10 of the  Company's
          Annual Report on Form 10-K for the fiscal year ended December 31, 1994
          (file No. 0-11877)).

10.12     Non-Qualified Stock Option Agreement issued to Alexander M. Milley for
          the purchase of 30,000 shares of Common Stock, dated October 30, 1992.
          (Incorporated  herein by reference to Exhibit  10.11 of the  Company's
          Annual Report on Form 10-K for the fiscal year ended December 31, 1994
          (file No. 0-11877)).

10.13     Non-Qualified  Stock Option Agreement issued to Thomas R. Druggish for
          the purchase of 12,500 shares of Common Stock, dated October 30, 1992.
          (Incorporated  herein by reference to Exhibit  10.12 of the  Company's
          Annual Report on Form 10-K for the fiscal year ended December 31, 1994
          (file No. 0-11877)).

10.14     Stock and Note Purchase  Agreement  dated as of August 31, 1989 by and
          among the Company,  Airlie and M&C.  (Incorporated herein by reference
          to Exhibit 2.1 of the  Company's  Current  Report on Form 8-K as filed
          October 3, 1989 (File No 0-11877)).

                                       28

<PAGE>

10.15     Stock and Note Purchase  Agreement  dated as of January 23, 1990 among
          Airlie,  CIEC and M&C.  (Incorporated  herein by  reference to Exhibit
          10.14 of the Company's  Annual Report on Form 10-K for the fiscal year
          ended December 31, 1994 (file No. 0-11877)).

10.16     Management  Agreement  ("Management   Agreement")  between  Winchester
          National,  Inc.  (d/b/a as M&C) and the Company  dated  September  25,
          1989.  (Incorporated  herein  by  reference  to  Exhibit  10.21 of the
          Company's  Annual  Report  on Form  10-K  for the  fiscal  year  ended
          December 31, 1991 (file No. 0-11877)).

10.17     Assignment  of  Management  Agreement  dated  June 28,  1991 among the
          Company,  Winchester  National,  Inc.,  ELXSI  and MMI.  (Incorporated
          herein by reference to Exhibit 10.16 of the Company's Annual Report on
          Form 10-K for the  fiscal  year  ended  December  31,  1994  (file No.
          0-11877)).

10.18     Management  Agreement Extension dated September 25, 1992 between ELXSI
          and MMI.  (Incorporated  herein by reference  to Exhibit  10.17 of the
          Company's  Annual  Report  on Form  10-K  for the  fiscal  year  ended
          December 31, 1994 (file No. 0-11877)).

10.19     Assignment to Cadmus Corporation ("Cadmus"),  dated January 1, 1994 of
          MMI's rights under the extended  Management  Agreement dated September
          25, 1992, as amended  between ELXSI and MMI.  (Incorporated  herein by
          reference to Exhibit 10.18 of the Company's Annual Report on Form 10-K
          for the fiscal year ended December 31, 1994 (file No. 0-11877)).

10.20     Promissory  Note of ELX payable to the Company dated  December 8, 1994
          in the amount of  $1,155,625.00  due  December 8, 1997.  (Incorporated
          herein by reference to Exhibit 10.6 of the Company's  Annual Report on
          Form 10-K for the  fiscal  year  ended  December  31,  1994  (file No.
          0-11877)).

10.21     Form of Stock  Purchase  and Option  Exercise  Agreement,  dated as of
          December  30,  1996,  between  BACC and ELX  (Incorporated  herein  by
          reference to Exhibit D to the  Amendment No. 10 to the Schedule 13D of
          Alexander M. Milley,  MMI,  ELX,  Cadmus and EKLLC,  dated  January 7,
          1997, filed in respect of the Company's Common Stock).

10.22     Form of Promissory Note of ELX payable to the Company,  dated December
          30,  1996,  in the  amount  of  $909,150  due  on  December  30,  1999
          (Incorporated herein by reference to Exhibit E to the Amendment No. 10
          to the  Schedule 13D of Alexander  M.  Milley,  MMI,  ELX,  Cadmus and
          EKLLC, dated January 7, 1997, filed in respect of the Company's Common
          Stock).

10.23     Form of  Recapitalization  Agreement,  dated as of December  30, 1996,
          among Azimuth  Corporation  ("Azimuth"),  Delaware Electro Industries,
          Inc. ("DEI"),  Contempo Design,  Inc.  ("CDI"),  Contempo Design West,
          Inc.  ("CDW"),  ELXSI and BAI  (Incorporated  herein by  reference  to
          Exhibit F to the  Amendment No. 10 to the Schedule 13D of Alexander M.
          Milley,  MMI, ELX, Cadmus and EKLLC,  dated January 7, 1997,  filed in
          respect of the Company's Common Stock).

10.24     Second Amended and Restated Loan and Security  Agreement,  dated as of
          October 9, 1995, between Azimuth and BAI.

10.25     Loan and Security Agreement,  dated as of October 9, 1995, between DEI
          and BAI.

10.26     Loan and Security Agreement,  dated as of October 9, 1995, between CDI
          and BAI.

10.27     Loan and Security Agreement,  dated as of October 9, 1995, between CDW
          and BAI.

                                       29

<PAGE>


10.28     First Omnibus  Amendment,  dated as of August 9, 1996,  among Azimuth,
          DEI, CDI, CDW and BAI.

10.29     Second  Omnibus  Amendment,  dated as of  September  23,  1996,  among
          Azimuth, DEI, CDI, CDW and BAI.

10.30     Third Omnibus Amendment, dated as of November 27, 1996, among Azimuth,
          DEI, CDI, CDW and BAI.

10.31     Second  Amended and  Restated  Guaranty,  dated as of October 9, 1995,
          made by DEI, CDI and CDW in favor of BAI.

10.32     Second Amended and Restated Pledge  Agreement,  dated as of October 9,
          1995, among Azimuth, DEI, CDI, CDW and BAI.

21.1      Subsidiaries  of the  Company.  (Incorporated  by reference to Exhibit
          22.1 to the  Company's  Annual Report on Form 10-K for the fiscal year
          ended December 31, 1990 (file No. 0-11877)).

23.1      Consent of Price Waterhouse LLP

27        Financial Data Schedule


(b)  Reports on Form 8-K

                None



                                       30

<PAGE>

                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

                                        ELXSI CORPORATION


                                        BY: /s/ Alexander M. Milley
                                            --------------------------------
                                            Alexander M. Milley
                                            Chairman of the Board, President
                                            and Chief Executive Officer

Dated:   March  24, 1997

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  registrant and
in the capacities and on the dates indicated.

<TABLE>
<CAPTION>


            Signature                                    Title                            Date
            ---------                                    -----                            ----
<S>                                       <C>                                         <C>
 /s/ Alexander M. Milley                  Chairman of the Board,                      March 24, 1997
-----------------------------------        President and Chief Executive
       Alexander M. Milley                 Officer (Principal Executive Officer)


 /s/ Robert C. Shaw                       Director and Vice President                 March 25, 1997
-----------------------------------
       Robert C. Shaw

 /s/ Thomas R. Druggish                   Vice President, Treasurer                   March 24, 1997
-----------------------------------        and Secretary (Chief
       Thomas R. Druggish                  Accounting Officer and
                                           Principal Financial Officer)

 /s/ Kevin P. Lynch                        Director and Vice President                March 24, 1997
-----------------------------------
       Kevin P. Lynch

 /s/ Farrokh K. Kavarana                   Director                                   March 24, 1997
-----------------------------------
       Farrokh K. Kavarana

 /s/ Denis M. O'Donnell                    Director                                   March 24, 1997
-----------------------------------
       Denis M. O'Donnell
</TABLE>

                                       31

<PAGE>






               Report of Independent Certified Public Accountants


To the Board of Directors and Shareholders of
ELXSI Corporation

In our  opinion,  the  consolidated  financial  statements  listed  in the index
appearing  under  Item  14(a)(1)  and (2) on page  25,  present  fairly,  in all
material  respects,   the  financial  position  of  ELXSI  Corporation  and  its
subsidiary  at December 31, 1996 and 1995,  and the results of their  operations
and their cash flows for each of the three  years in the period  ended  December
31, 1996, in conformity with generally  accepted  accounting  principles.  These
financial  statements are the  responsibility of the Company's  management;  our
responsibility  is to express an opinion on these financial  statements based on
our audits.  We conducted  our audits of these  statements  in  accordance  with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable  assurance about whether the financial statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence  supporting the amounts and  disclosures  in the financial  statements,
assessing the  accounting  principles  used and  significant  estimates  made by
management,  and evaluating the overall  financial  statement  presentation.  We
believe  that our audits  provide a reasonable  basis for the opinion  expressed
above.





/s/ Price Waterhouse LLP
------------------------
Price Waterhouse LLP


Orlando, Florida
March 20, 1997







                                      F-1

<PAGE>
                                ELXSI CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                             (Dollars in Thousands)

                                   A S S E T S


<TABLE>
<CAPTION>

                                                          December 31,       December 31,
                                                              1996               1995
                                                        --------------       -------------

Current assets:

     <S>                                                <C>                  <C>
     Accounts receivable, less allowance for
       doubtful accounts of $54 and $58 in 1996
       and 1995, respectively                           $        3,425       $       2,776

     Inventories                                                11,017               8,477

     Prepaid expenses and other current assets                     234                 397

     Note receivable - related party                             1,156                  --

     Deferred tax asset                                          1,142                  --

     Asset held for sale                                            --               1,075
                                                        --------------       -------------

         Total current assets                                   16,974              12,725

Property, buildings and equipment, net                          27,677              27,458

Intangible assets, net                                           5,525               5,703

Deferred debt costs, net                                            76                 212

Notes receivable - related party                                 6,759               1,156

Deferred tax asset - noncurrent                                  1,739                  --

Other                                                              728                 445
                                                        --------------       -------------

     Total assets                                       $       59,478       $      47,699
                                                        ==============       =============

</TABLE>




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

                                      F-2
<PAGE>

                                ELXSI CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                  (Dollars in Thousands, Except Per Share Data)

                      LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>

                                                         December 31,       December 31,
                                                             1996               1995
                                                        --------------      -------------
Current liabilities:
<S>                                                     <C>                 <C>
     Accounts payable                                   $        3,266      $       4,269
     Accrued expenses                                            4,649              4,396
     Capital lease obligations - current                           142                137
     Current portion of long-term debt                             268              1,485
                                                        --------------      -------------

         Total current liabilities                               8,325             10,287

Capital lease obligations - non current                          1,588              1,732
Long-term debt, net of discount                                 18,706             11,570
Other non current liabilities                                    1,946              1,396
                                                        --------------      -------------

     Total liabilities                                          30,565             24,985
                                                        --------------      -------------

Commitments and contingencies (Note 8)                              --                 --
                                                        --------------      -------------

Stockholders' equity:
   Preferred Stock, Series A Non-voting
     Convertible, par value $0.002 per share
       Authorized--5,000,000 shares
       Issued and outstanding--none                                 --                 --
   Common Stock, par value $0.001 per share
       Authorized--160,000,000 shares
       Issued and outstanding--4,660,869
       at December 31, 1996 and 4,792,353
       at December 31, 1995                                          5                  5
   Additional paid-in-capital                                  228,520            229,666
   Accumulated deficit                                        (199,512)          (206,895)
   Cumulative foreign currency translation adjustment             (100)               (62)
                                                        --------------      -------------

         Total stockholders' equity                             28,913             22,714
                                                        --------------      -------------

     Total liabilities and stockholders' equity         $       59,478      $      47,699
                                                        ==============      =============
</TABLE>





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

                                      F-3

<PAGE>


                                ELXSI CORPORATION
                         CONSOLIDATED INCOME STATEMENTS
                  (Amounts in Thousands, Except Per Share Data)



<TABLE>
<CAPTION>
                                                                Year Ended December 31,
                                              -------------------------------------------------------
                                                   1996                  1995                1994
                                              --------------        -------------       -------------

<S>                                           <C>                   <C>                 <C>
Net sales                                     $       82,743        $      74,674       $      62,423

Costs and expenses:
     Cost of sales                                    66,603               58,347              47,440
     Selling, general and administrative               7,362                7,484               6,630
     Depreciation and amortization                     2,775                2,206               1,794
                                              --------------        -------------       -------------

Operating income                                       6,003                6,637               6,559

Other income (expense):
     Interest income                                     111                  125                   8
     Interest expense                                 (1,495)              (1,767)            (1,426)
     Other income (expense)                              432                   65                 (41)
                                              --------------        -------------       -------------

Income before income taxes                             5,051                5,060               5,100

Benefit (provision) for income taxes                   2,332                 (514)               (366)
                                              --------------        -------------       -------------

Net income                                    $        7,383        $       4,546       $       4,734
                                              ==============        =============       =============


Net income per common share                   $         1.51        $        0.89       $        0.79
                                              ==============        =============       =============


Weighted average number of common
  and common equivalent shares                         4,902                5,093               6,014
                                              ==============        =============       =============
</TABLE>












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

                                      F-4
<PAGE>


                                ELXSI CORPORATION
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                             (Dollars in Thousands)
                                   Cumulative

<TABLE>
<CAPTION>
                                                                                                      Foreign
                                                                 Additional          Accum-           Currency
                                                 Common           Paid-In-           ulated          Translation
                                                  Stock            Capital           Deficit         Adjustment
                                               -----------     -------------      -------------      -----------

<S>                                            <C>             <C>                <C>                <C>
Balance at December 31, 1993                   $         5     $     234,331      $    (216,175)     $       (35)

Foreign currency translation
     adjustment                                         --                --                 --              (21)
Purchase and retirement of 354,963
     shares of Common Stock and
     warrants to purchase 761,638
     shares of Common Stock                             --            (3,499)                --               --
Exercise of Common Stock options
     to purchase 18,400 shares of
     Common Stock                                       --                58                 --               --
Net income                                              --                --              4,734               --
                                               -----------     -------------      -------------      -----------

Balance at December 31, 1994                             5           230,890           (211,441)             (56)

Foreign currency translation
     adjustment                                         --                --                 --               (6)
Purchase and retirement of 240,000
     shares of Common Stock                             --            (1,224)                --               --
Net income                                              --                --              4,546               --
                                               -----------     -------------      -------------      -----------

Balance at December 31, 1995                             5           229,666           (206,895)             (62)

Foreign currency translation
     adjustment                                         --                --                 --              (38)
Purchase and retirement of 131,500
     shares of Common Stock and
     warrants to purchase preferred
     stock convertible into 241,862
     shares of Common Stock                             --            (1,146)                --               --
Net income                                              --                --              7,383               --
                                               -----------     -------------      -------------      -----------

Balance at December 31, 1996                   $         5     $     228,520      $    (199,512)     $      (100)
                                               ===========     =============      =============      ===========
</TABLE>





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

                                      F-5
<PAGE>


                                ELXSI CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                                              Year Ended December 31,
                                                                  ----------------------------------------------
                                                                      1996             1995              1994
                                                                  -----------       -----------      -----------
Cash flows provided by operating activities:
<S>                                                               <C>               <C>              <C>
Net income                                                        $     7,383       $     4,546      $     4,734
Adjustments to reconcile net income to net
   cash provided by operating activities:
     Depreciation and amortization                                      2,775             2,206            1,794
     Amortization of deferred debt costs                                  166               213              126
     Amortization of debt discount                                         12                19               90
     Loss on disposal of equipment                                        292                54                7
     Other                                                                (38)               (6)             (21)

(Increase) decrease in assets:
     Accounts receivable                                                 (649)             (498)             301
     Inventories                                                       (2,540)           (2,269)            (794)
     Prepaid expenses and other current assets                            163              (192)             207
     Deferred tax asset                                                (2,881)               --               --
     Other                                                               (283)             (242)              (9)
(Decrease) increase in liabilities:
     Accounts payable                                                  (1,003)              253              305
     Accrued expenses                                                     253               394              281
     Other current liabilities                                             --                --             (450)
     Other non current liabilities                                        550               600              300
                                                                  -----------       -----------      -----------
     Net cash provided by operating activities                          4,200             5,078            6,871
                                                                  -----------       -----------      -----------

Cash flows used in investing activities:

     Proceeds from sale of Abdow's Restaurant                           1,075                --               --
     Acquisition of asset held for sale                                    --            (1,075)              --
     Acquisition of Abdow's Restaurants                                    --            (2,575)              --
     Purchase of property, building and equipment                      (3,108)           (2,357)          (2,363)
     Notes receivable - related party                                  (6,759)               --           (1,156)
                                                                  -----------       -----------      -----------
     Net cash used in investing activities                             (8,792)           (6,007)          (3,519)
                                                                  -----------       -----------      -----------
</TABLE>







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

                                      F-6
<PAGE>


                                ELXSI CORPORATION
                CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
                             (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                                              Year Ended December 31,
                                                                  ----------------------------------------------
                                                                      1996             1995              1994
                                                                  -----------       -----------      -----------

Cash flows provided by (used in) financing activities:
<S>                                                                     <C>               <C>              <C>
     Net borrowings on line of credit                                   7,112             2,429            3,446
     Payments of long-term senior subordinated debt                    (1,199)              (83)          (3,221)
     Payments of long-term debt                                            (6)              (12)              --
     Purchase of Common Stock and warrants to
       purchase Common Stock                                           (1,146)           (1,224)          (3,499)
     Proceeds from exercise of Common Stock
       options                                                             --                --               58
     Payment of deferred bank fee                                         (30)             (125)            (109)
     Principal payments on capital lease obligations                     (139)              (56)             (27)
                                                                  -----------       -----------      -----------
     Net cash provided by (used in) financing activities                4,592               929           (3,352)
                                                                  -----------       -----------      -----------

Decrease in cash and cash equivalents                                      --                --               --

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

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


Supplemental Disclosure of Cash Flow Information:

Cash paid during the year for:
       Interest                                                   $     1,411       $     1,544      $     1,324
       Taxes                                                              747               563              455
</TABLE>











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

                                      F-7

<PAGE>

                                ELXSI CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 1996


NOTE 1.   The Company

General.  Prior to 1990, ELXSI Corporation (together with its subsidiaries,  the
"Company") operated principally through its wholly-owned  California subsidiary,
ELXSI.  During  that  period,  the  principal  business of ELXSI was the design,
manufacture,  sale and support of minisupercomputers.  In July 1989, the Company
announced a major restructuring of its computer  operations.  In September 1989,
the Company discontinued all computer operations.

In September 1989 and January 1990, the Company  entered into  agreements  with,
and between, The Airlie Group L.P.  ("Airlie"),  BankAmerica Capital Corporation
("BACC") (formerly named Continental Illinois Equity Corporation),  and Milley &
Company ("M&C") (hereinafter referred to collectively as the "Buyers");  whereby
the Buyers acquired  960,000 shares of the Company's Common Stock for $3,000,000
in cash.  In addition,  the Buyers loaned the Company  $2,000,000  (see Note 6).
Subsequent  to these  transactions,  the  Company  announced  its  intention  of
pursuing an active program of identifying,  acquiring and managing middle market
companies.

On July 1, 1991, ELXSI acquired thirty Bickford's  Restaurants and twelve Howard
Johnson's  Restaurants from Marriott Family Restaurants,  Inc. These Restaurants
are  located  in  Massachusetts,   Vermont,  New  Hampshire,  Rhode  Island  and
Connecticut.

Between  1992 and 1995,  ELXSI  sold six of its  Howard  Johnson's  Restaurants,
converted five others into Bickford's  Restaurants,  opened seven new Bickford's
Restaurants,  acquired 16 Abdow's Family Restaurants ("Abdow's"),  and converted
two of the Abdow's into  Bickford's  Restaurants.  During  1996,  ELXSI sold one
Abdow's, closed one Abdow's,  converted seven Abdow's into Bickford's and opened
one  new  Bickford's  Restaurant.  At  December  31,  1996,  ELXSI  operated  52
Bickford's Restaurants,  five Abdow's and one Howard Johnson's Restaurant,  (the
"Restaurants" or "Restaurant Division").

On October 30, 1992,  ELXSI acquired Cues, Inc. of Orlando,  Florida and its two
wholly-owned  subsidiaries Knopafex,  Ltd., a Canadian company, and Cues B.V., a
Dutch company, collectively referred to as "Cues".

Cues is engaged in the manufacture and servicing of video  inspection and repair
equipment  for  wastewater  and  drainage  systems  primarily  for  governmental
municipalities, service contractors and industrial users.

NOTE 2.   Summary of Significant Accounting Policies

Principles of Consolidation.  The consolidated  financial statements include the
accounts of ELXSI  Corporation and its wholly-owned  subsidiaries.  All material
intercompany accounts and transactions have been eliminated.

Both the  Company's  corporate  functions  and Cues  Division  have fiscal years
consisting  of four  calendar  quarters  ending on December  31. The  Restaurant
Division's  fiscal year consists of four

                                      F-8

<PAGE>

13-week  quarters (one 52-week  period) ending on the last Saturday in December;
this requires that every six or seven years the Restaurant Division add an extra
week at the end of the fourth quarter and fiscal year. This was the case for the
fourth quarter of 1994.

Cash and Cash Equivalents. The Company has a cash management system whereby cash
generated by operations is  immediately  used to reduce debt.  Accordingly,  the
Company generally maintains no cash or cash equivalents.

Fair Value of Financial  Instruments.  The carrying  amount of accounts and note
receivable,  asset  held  for  sale,  accounts  payable,  accrued  expenses  and
long-term  debt  approximates  fair value because of the short maturity of those
instruments  and the variable  nature of the interest rates  associated with the
debt.

Inventories. Inventories are stated at the lower of cost or market determined by
the first-in, first-out method.

Property, Buildings and Equipment.  Property, buildings and equipment, including
buildings under capital leases, are stated at cost less accumulated depreciation
and   amortization.   Depreciation  and  amortization  are  provided  using  the
straight-line  method.  Buildings  held pursuant to capital leases are amortized
over  the  shorter  of the term of the  respective  lease  (including  extension
options) or the estimated useful life. The estimated lives used are:

         Buildings and improvements                     30    years
         Equipment, furniture and fixtures               7    years

Depreciation  and  amortization  expense for 1996, 1995 and 1994 was $2,597,000,
$2,018,000 and $1,614,000, respectively.

Impairment  of  Long-Lived  Assets.  In the event that  facts and  circumstances
indicate that the carrying  value of a long-lived  asset,  including  associated
intangibles  may be impaired,  an evaluation of  recoverability  is performed by
comparing the  estimated  future  undiscounted  cash flows  associated  with the
asset's  carrying  amount  to  determine  if a  write-down  to  market  value or
discounted cash flow is required. Statement of Financial Accounting Standard No.
121,  "Accounting  for the  Impairment of Long-Lived  Assets and for  Long-Lived
Assets to be Disposed Of" ("SFAS 121"), was adopted by the Financial  Accounting
Standards  Board ("FASB") in March 1995 and has been  implemented by the Company
in 1996. However,  since the Company's previous accounting policy was consistent
with the provisions of SFAS 121, there was no impact as a result of adopting the
new standard.

Intangible  Assets. The excess of cost over fair value of net assets acquired is
amortized over 35 years using the straight-line method. Amortization expense for
1996,  1995  and  1994  was  $150,000,  $153,000  and  $151,000,   respectively.
Management periodically reviews the potential impairment of intangible assets in
order to determine the proper  carrying values as of each  consolidated  balance
sheet date.

Trademarks  are  amortized  over  35  years  using  the  straight-line   method.
Amortization  expense for 1996, 1995 and 1994 was $28,000,  $35,000 and $29,000,
respectively.

                                      F-9

<PAGE>


Deferred Debt Costs. Deferred debt costs are amortized over the term of the loan
to interest expense using the effective interest method. As of December 31, 1996
and 1995,  $76,000 and  $212,000,  respectively,  remained to be amortized  over
future  periods.  Amortization  expense  in 1996,  1995  and 1994 was  $166,000,
$213,000 and $126,000, respectively.

Use of  Estimates.  The  preparation  of  consolidated  financial  statements in
conformity with generally accepted accounting  principles requires management to
make estimates and  assumptions  that affect the reported  amounts of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the consolidated  financial  statements and the reported amounts of revenues and
expenses  during the reporting  period.  Actual  results could differ from those
estimates.

Concentration of Credit Risk. The Company's Cues division designs,  manufactures
and markets a line of video inspection and repair equipment used by governmental
municipalities,  service  contractors and industrial users for underground sewer
lines.   Financial   instruments  which  potentially   subject  the  Company  to
concentrations  of  credit  risk are  primarily  accounts  receivable  and notes
receivable.  The Company performs  ongoing credit  evaluations of its customers'
financial condition and,  generally,  requires no collateral from its customers.
The  allowance  for  non-collection  of  accounts  receivable  is based upon the
expected collectibility of all accounts receivable.

During 1996,  ELXSI  entered  into an agreement  pursuant to which it extended a
revolving  line of credit in the amount of $9,650,000 at 15% annual  interest to
subsidiaries  of  Azimuth  Corporation,  a  related  party  (see  NOTE 6). As of
December 31, 1996, the aggregate outstanding balance on the underlying revolving
notes was $6,650,000.  The revolving notes are  collateralized  by substantially
all of the  assets  of  Azimuth  Corporation  and  its  Subsidiaries,  including
accounts receivable and inventories. The Company does not believe there exists a
substantial credit risk related to this transaction.

The Company  does not rely on any one vendor or supplier  for its raw  materials
within each of its  operating  divisions,  and  management  believes  that other
suppliers could provide for the Company's needs on comparable terms.

Foreign  Currency  Translation.  The assets and  liabilities of the Canadian and
Dutch subsidiaries of Cues are translated into U.S. dollars at year-end exchange
rates, and revenue and expense items are translated at average rates of exchange
prevailing during the year. Resulting translation adjustments are accumulated in
a separate component of stockholders' equity.

Income  Taxes.  The  Company  has  adopted  Statement  of  Financial  Accounting
Standards Number 109 "Accounting For Income Taxes" ("SFAS 109").  This Statement
provides for  accounting for taxes under an asset and liability  approach.  This
approach requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of temporary  differences  between the carrying
amounts and the tax basis of other assets and liabilities. Temporary differences
giving rise to  deferred  tax assets and  liabilities  include  certain  accrued
liabilities and net operating loss carryforwards. The provision for income taxes
includes  the  amount of income  taxes  payable  for the year as  determined  by
applying  the  provisions  of the current tax law to the taxable  income for the
year and the net change during the year in the Company's deferred tax assets and
liabilities.  In determining the amount of any valuation  allowance  required to
offset  deferred tax assets,  an assessment  is made that includes  anticipating
future income,  in determining  the likelihood of realizing  deferred tax assets
(see NOTE 5).

                                      F-10

<PAGE>


Advertising.  Advertising costs, included in selling, general and administrative
expense,  are expensed as incurred and totalled $975,000,  $862,000 and $753,000
in 1996, 1995 and 1994, respectively.

Reclassification.  The Company has recorded certain  reclassifications  in prior
years to be consistent with the current years presentation.

Accounting  for  Stock-Based  Compensation.  In October  1995,  the FASB adopted
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation"  ("SFAS  123"),  which  governs  the  accounting  for  stock-based
compensation  plans,  including  employee  stock options.  The statement  allows
companies the choice of adopting a new fair value based method of accounting for
such plans  that  included  expensing  related  compensation  cost in the income
statement,  or  continuing  to apply  the  method  specified  under  preexisting
guidelines  under  which  generally  no  compensation  expense is  recorded.  If
companies elect to follow  preexisting  guidelines,  the new statement  requires
that the notes to the financial  statements include pro forma information on net
income and earnings per share as if the fair value based method were being used.
The Company has elected to continue to measure  compensation  expense  under the
preexisting   guidelines.   Pro  forma   information   relating  to  stock-based
compensation is presented in Note 11.

Net Income Per Common Share.  Net income per common share is computed  using the
weighted average number of common shares and, when dilutive,  common  equivalent
shares outstanding during the respective periods.

NOTE 3.   Acquisitions

On July 3,  1995,  ELXSI  acquired  16  Abdow's  Family  Restaurants  from Abdow
Corporation of Springfield, MA, for approximately $3,800,000 (including expenses
of  approximately  $300,000).  The  acquisition  was  financed by an increase in
ELXSI's  existing  line of  credit  with  the  Bank  of  America  Illinois.  The
transaction  involved the leasing of the 16 restaurant sites and the purchase of
associated  assets  located in western  Massachusetts  and central  Connecticut.
ELXSI converted nine of the Abdow's locations into Bickford's Restaurants during
1995 and 1996.  Shortly after the acquisition,  ELXSI negotiated the sale of the
Vernon,  Connecticut  Abdow's  Restaurant for a net sales price of approximately
$1,225,000,  which  approximated  the fair market value of the Restaurant on the
date of its acquisition by ELXSI. The balance of the receivable from the sale is
reflected  as an asset held for sale at December  31,  1995.  The balance of the
purchase  price  of  $2,575,000  was  allocated  to  the  equipment,   leasehold
improvements  and leasehold  interests of the remaining 15 Abdow's  restaurants.
The sale of the  Vernon  Connecticut,  Abdow's  Restaurant  was  consummated  on
February  1,  1996.  During  1996,  ELXSI  closed one  under-performing  Abdow's
Restaurant.

                                      F-11

<PAGE>









NOTE 4.   Composition of Certain Financial Statement Components

<TABLE>
<CAPTION>
                                                                     Year Ended December 31,
                                                              ----------------------------------
                                                                   1996                1995
                                                              -------------        -------------
<S>                                                           <C>                  <C>
    Inventories:
     Raw materials and finished goods                         $   7,734,000        $   5,715,000
     Work in process                                              3,283,000            2,762,000
                                                              -------------        -------------
                                                              $  11,017,000        $   8,477,000
                                                              =============        =============

Property, buildings and equipment:
       Land                                                   $   7,298,000        $   7,298,000
       Buildings and improvements                                14,817,000           14,696,000
       Buildings held pursuant to capital leases                  1,671,000            1,671,000
       Equipment, furniture and fixtures                         12,544,000           10,080,000
                                                              -------------        -------------
                                                                 36,330,000           33,745,000
       Accumulated depreciation and amortization                 (8,653,000)          (6,287,000)
                                                              -------------        -------------
                                                              $  27,677,000        $  27,458,000
                                                              =============        =============

   Intangible assets:
       Excess of cost over fair value of
         net assets acquired                                  $   5,249,000        $   5,249,000
       Trademarks                                                 1,030,000            1,030,000
       Liquor licenses                                               85,000               85,000
                                                              -------------        -------------
                                                                  6,364,000            6,364,000
       Accumulated amortization                                    (839,000)            (661,000)
                                                              -------------        -------------
                                                              $   5,525,000        $   5,703,000
                                                              =============        =============
</TABLE>

The excess of cost over fair value of net assets acquired, trademarks and liquor
licenses  represent  the value  assigned  to these  intangible  assets  upon the
acquisition of the Restaurants and Cues by ELXSI.

<TABLE>
<CAPTION>
                                                                    Year Ended December 31,
                                                              ---------------------------------
                                                                  1996                1995
                                                              ------------        -------------
   Accrued expenses:
<S>                                                           <C>                 <C>
       Accrued salaries, benefits and vacation                $  1,513,000        $   1,452,000
       Other taxes                                                 587,000              678,000
       Accrued insurance                                           461,000              304,000
       Accrued professional fees                                   301,000              146,000
       Accrued utilities                                           293,000              306,000
       Accrued rents                                               214,000              233,000
       Warranty accrual                                            180,000              180,000
       Other reserves                                              175,000              355,000
       Accrued royalty                                             128,000               72,000
       Accrued management fees - related party                     119,000               18,000
       State and federal income taxes                               54,000                6,000
       Accrued interest and bank fees                               31,000              126,000
       Accrued acquisition costs                                    26,000               56,000
       Other accrued expenses                                      567,000              464,000
                                                              ------------        -------------
                                                              $  4,649,000        $   4,396,000
                                                              ============        =============
</TABLE>


                                      F-12

<PAGE>

NOTE 5.   Income Taxes

Pre-tax  income  for the years  ended  December  31,  1996,  1995 and 1994 is as
follows:

                                1996                1995               1994
                           -------------       -------------      -------------
         Domestic          $   5,000,000       $   4,941,000      $   4,911,000
         Foreign                  51,000             119,000            189,000
                           -------------       -------------      -------------
           Total           $   5,051,000       $   5,060,000      $   5,100,000
                           =============       =============      =============

Income tax benefit  (expense)  for the years ended  December 31, 1996,  1995 and
1994 is as follows:

                                           Year Ended December 31,
                               ---------------------------------------------
                                    1996            1995           1994
                               -------------   -------------   -------------
         Current:
           Federal             $    (105,000)  $    (118,000)  $     (88,000)
           State and local          (444,000)       (396,000)       (278,000)
                               -------------   -------------   -------------
                                    (549,000)       (514,000)       (366,000)
                               -------------   -------------   -------------
         Deferred:
           Federal                 2,881,000              --              --
           State and local                --              --              --
                               -------------   -------------   -------------
                                   2,881,000              --              --
                               -------------   -------------   -------------
         Total                 $   2,332,000   $    (514,000)  $    (366,000)
                               =============   =============   =============


Deferred tax (liabilities) assets are comprised of the following at December 31,
1996 and 1995:

<TABLE>
<CAPTION>
                                                             1996            1995
                                                        -------------    ------------
         <S>                                            <C>              <C>
         Accrued expenses and other                     $  (1,245,000)   $ (1,422,000)
                                                        -------------    ------------
         Gross deferred tax liabilities                    (1,245,000)     (1,422,000)
                                                        -------------    ------------

         Syndication costs                                         --       1,662,000
         Acquisition costs                                         --         421,000
         Accrued expenses and other                           814,000       1,380,000
         Loss carryforwards                                73,440,000      75,217,000
         Credit carryforwards                               6,851,000       6,730,000
                                                        -------------    ------------
           Gross deferred tax assets                       81,105,000      85,410,000
                                                        -------------    ------------

           Deferred tax asset valuation allowance         (76,979,000)    (83,988,000)
                                                        -------------    ------------
           Net deferred taxes                           $   2,881,000    $         --
                                                        =============    ============

</TABLE>

At December 31, 1996 and 1995, the Company had net operating loss  carryforwards
for federal income tax purposes of approximately  $216 million and $221 million,
respectively. The decrease in the net deferred tax asset primarily resulted from
the use of net operating loss  carryforwards  to offset 1996  estimated  federal
taxable income. The net operating loss carryforwards begin to expire in 1998 and
fully expire in 2005. The Company also has  investment tax credit  carryforwards
of approximately $3.2 million, research and development tax credit carryforwards
of  approximately   $3.3  million  and  minimum  tax  credit   carryforwards  of
approximately  $230,000.

                                      F-13

<PAGE>

The investment tax credit and research and development tax credit  carryforwards
expire  between 1997 and 2003,and the minimum tax credit  carryforwards  have an
unlimited carryforward period.

The utilization of the Company's net operating loss and tax credit carryforwards
may be impaired or reduced under certain circumstances.  Events which may affect
the  Company's  ability  to utilize  these  carryforwards  include,  but are not
limited to,  cumulative stock ownership changes of 50% or more over a three-year
period, as defined by Section 382 of the Internal Revenue Code ("IRC"),  and the
timing of the  utilization  of the tax benefit  carryforwards.  Such  changes in
ownership would significantly restrict the Company's ability to utilize loss and
credit  carryforwards in accordance with sections 382 and 383 of the IRC. In the
event that a change in ownership does not take place, the Company may be able to
recognize the benefit of additional loss  carryforwards.  At the end of 1996 and
1995,  the Company  believed  that it would have a change of ownership of 50% or
more.

At December  31, 1995,  the Company  maintained  a 100%  valuation  allowance to
account for the potential  limitations imposed by IRC 382 and 383, as well as to
give  effect to  uncertainties  surrounding  the future  success  of  restaurant
acquisitions and manufacturing consolidations undertaken during the year.

During 1996, a portion of the valuation  allowance  was released  based upon the
success of restaurant  conversions and  manufacturing  consolidations  which had
begun in 1995. Accordingly, the Company recognized a $2,881,000 net deferred tax
asset.  The net deferred tax assets  represents the amount of net operating loss
and credit carryforwards,  which management believes are more likely than not to
be realized in the future.

A reconciliation of the statutory  federal tax rate and the Company's  effective
income  tax rate for the years  ended  December  31,  1996,  1995 and 1994 is as
follows:
<TABLE>
<CAPTION>
                                                                    Year Ended December 31,
                                                            -----------------------------------
                                                              1996           1995         1994
                                                            --------       -------       ------

<S>                                                             <C>           <C>          <C>
     Federal income tax rate                                    34.0%         34.0%        34.0%
     State income taxes, net of federal benefit                  8.6           7.7          5.3
     Changes in valuation allowance for federal
         deferred tax assets                                   (57.1)           --           --
     Other                                                       0.3           0.5         (0.1)
     Recognition of net operating loss carryforward            (32.0)        (32.0)       (32.0)
                                                            --------       -------       ------
           Effective income tax rate                           (46.2)%        10.2%         7.2%
                                                            ========       =======       ======
</TABLE>

NOTE 6.   Long-Term Debt and Related Party Transactions

On  September  25,  1989,  the  Company  consummated  a Stock and Note  Purchase
Agreement  ("Agreement")  with Airlie and M&C, whereby Airlie and M&C loaned the
Company  $1,750,000  and  $250,000,  respectively,  for 15% senior  subordinated
ten-year  notes,  and  warrants  to  purchase   1,053,500  and  150,500  shares,
respectively,   of  the  Company's   Common  Stock.   The  Company  recorded  as
paid-in-capital  (relating to the  warrants) a discount of $301,000 to reflect a
valuation of $0.25 per warrant, which was determined by the Company to represent
the  estimated  fair  market  value  of the  warrants  at the  inception  of the
Agreement.  These warrants originally had an exercise price of $3.125 per share,
were immediately exercisable,  and originally expired on

                                      F-14

<PAGE>

September 30, 1996. The notes bore interest at 15% payable quarterly, commencing
on  November  15,  1989.  Principal  was to be  repaid in five  annual  $400,000
installments  commencing on September 25, 1995.  In addition,  Airlie  purchased
960,000 shares of the Company's  Common Stock for $3,000,000 in cash and granted
to ELX Limited Partnership ("ELX"), of which the President of the Company is the
sole general partner and other officers of the Company are limited  partners,  a
currently exercisable seven-year option to purchase up to 480,000 of the 960,000
shares of the Common Stock, at an exercise price of $3.125 per share.

In January 1990,  BACC  purchased  from Airlie  220,400  shares of the Company's
Common Stock as well as $402,000 of the 15% senior subordinated  ten-year notes.
In addition, the Company and Airlie modified the warrants,  described above, for
the  purchase of 1,053,500  shares of the Common  Stock of the Company,  in that
such warrants  were  exchanged for two  warrants,  one  exercisable  for 811,638
shares of Common  Stock and the second  exercisable  for  604,156  shares of the
Company's Series A Non-Voting  Convertible Preferred Stock,  convertible,  under
certain  specified  conditions,  into 241,862  shares of the Common  Stock.  The
Series A Non-Voting  Convertible Preferred Stock, which was never issued, was to
carry a liquidation  preference  of $0.002 per share and have no voting  rights,
but otherwise  were to have  substantially  the same rights as the Common Stock.
Following the issuance of the two warrants,  the warrant for Series A Non-Voting
Convertible Preferred Stock was sold by Airlie to BACC. In addition,  the option
to purchase up to 480,000 shares previously granted by Airlie to ELX was amended
to be exercisable for 369,800 shares of Common Stock,  and an option to purchase
110,200  shares of Common  Stock at a price of $3.125  per share was  granted by
BACC to ELX.

On June 27,  1991,  in  connection  with the  Bickford's  Restaurants  purchase,
Airlie, BACC and M&C purchased an additional, $1,685,000, $502,000 and $313,000,
respectively,  of the  Company's  senior  subordinated  notes.  These notes bore
interest  at 14.5% and were  payable in five  annual  installments  of  $500,000
commencing on June 27, 1997.

On November 15,  1993,  Airlie sold  $500,000 of its 14.5%  senior  subordinated
notes. In connection with the sale, Milley Management  Incorporated  ("MMI"),  a
management  consulting  firm,  of which  the  President  of the  Company  is the
President and majority stockholder,  acquired 50,000 of the outstanding warrants
previously  issued by the Company to Airlie.  In  addition,  Cadmus  Corporation
("Cadmus"),  whose  President  and  principal  owner  is  Alexander  M.  Milley,
purchased  $125,000 of the senior  subordinated notes from Airlie. The remaining
$375,000 was purchased by three unrelated third parties.

On May 19,  1994,  the  Company  purchased  all of the 15.0%  and  14.5%  senior
subordinated notes held by MMI at their face value of approximately $250,000 and
$313,000, respectively. MMI waived all applicable prepayment penalties.

On December 8, 1994,  the Company  purchased  all of the 15.0% and 14.5%  senior
subordinated  notes  then held by Airlie at their  face  value of  approximately
$1,348,000 and $1,185,000, respectively. Airlie waived all applicable prepayment
penalties and the Company  agreed to cancel the remaining  debt  commitment  due
from Airlie under the Agreement.  In addition to the senior  subordinated notes,
the Company  purchased from Airlie 354,963 shares of the Company's  Common Stock
at $5.25 per share and  Airlie's  remaining  761,638  warrants to  purchase  the
Company's common stock for $2.125 per share.

                                      F-15

<PAGE>

In conjunction with the above transaction,  the Company loaned ELX approximately
$1,156,000,  the  proceeds of which ELX used to exercise  its option to purchase
the 369,800  shares of Common  Stock held by Airlie  under the  existing  option
granted to ELX at $3.125 per share.  The note bears  interest  at 1/2% above the
Company's  senior debt borrowing  rate (see NOTE 7).  Principal and interest are
due on December 8, 1997.

On December 8, 1994,  Cadmus purchased 50,000 shares of the Company Common Stock
held by Airlie for $5.25 per share. The above transactions occurring on December
8, 1994 represented a complete  divestiture of the Company's  securities held by
Airlie. The source of the Company's funds was ELXSI's bank line of credit.

On December  30,  1996,  the Company  purchased  all of the 15% and 14.5% senior
subordinated  notes held by BACC at their face value of  approximately  $241,000
and $502,000,  respectively. BACC waived all applicable prepayment penalties. In
addition to the senior  subordinated  notes,  the Company  purchased and retired
BACC's  warrants to  purchase  the  Company's  Series A  Non-Voting  Convertible
Preferred Stock warrant, convertible into 241,862 shares of the Common Stock for
$478,000.

On  December  30,  1996,  the Company  loaned ELX  approximately  $909,000,  the
proceeds of which were used to exercise  its option to purchase  110,200  shares
held by BACC under the existing  option and to purchase the other 110,200 shares
of Common  Stock held by BACC for $5.125 per share.  The note bears  interest at
1/2% above the Company's  senior debt borrowing rate (see NOTE 7). Principal and
interest  are due on December  30,  1999.  The above  transactions  occurring on
December 30, 1996 represented a complete divestiture of the Company's securities
held by BACC. The source of the funds was ELXSI's then existing line of credit.

Transactions with Cadmus Corporation. In connection with the Agreement described
above,  ELXSI (as  assignee  of ELXSI  Corporation)  entered  into a  management
agreement on September 25, 1989 with M&C,  which has most recently been assigned
to Cadmus. The management  agreement was extended in 1992 for a minimum of three
additional  years and  thereafter  unless  terminated  by a majority vote of the
Board of  Directors  of either  party.  Certain of the  Company's  officers  and
directors are  affiliated  with Cadmus.  The management  agreement  provides for
Cadmus to receive,  for management  services rendered,  compensation of $500,000
per year that commenced upon the Company having first achieved  operating income
(as  defined)  of  $1,250,000  for a  fiscal  quarter,  plus  reimbursement  for
reasonable  expenses.  The fees may be  discontinued  following  a year in which
operating income is less than $4,000,000,  but will be reinstated  following the
first fiscal  quarter in which the Company  again  attains  quarterly  operating
income of at least  $1,250,000.  During  1996,  1995 and 1994,  the  Company was
charged  management fees of $500,000 each year. Cadmus also provides the Company
with certain general and  administrative  services.  During 1996, 1995 and 1994,
the Company was charged  $36,000,  $36,000 and $41,000,  respectively,  for such
items.  At December 31, 1996 and 1995,  accrued  expenses  include  $119,000 and
$18,000, respectively, due to Cadmus under such management agreement.

Transactions with Azimuth  Corporation and  Subsidiaries.  On December 30, 1996,
ELXSI entered into a Recapitalization Agreement with Azimuth Corporation and its
three wholly-owned  subsidiaries:  Contempo Design,  Inc., Contempo Design West,
Inc., and Delaware Electro  Industries,  Inc.  (collectively  referred to as the
"Azimuth Subsidiaries"), of which certain of the officers, directors and Azimuth
stockholders   are   officers  and   directors   of  the   Company.   Under

                                      F-16

<PAGE>

the  Recapitalization   Agreement,   ELXSI  purchased  from  BAI  three  Azimuth
Subsidiary revolving notes (the "Azimuth Subsidiary Notes") which were scheduled
to  mature  on  December  31,  1996.  The Notes  had a  combined  face  value of
$6,650,000  and were  purchased  by ELXSI at an  $800,000  discount.  Under  the
Recapitalization  Agreement,  ELXSI received all contract rights and obligations
held by BAI in relation to the Azimuth Subsidiary Notes and, as a result, became
the provider of a working  capital line of credit for the Azimuth  Subsidiaries,
which ELXSI agreed to increase to $9,650,000 and extended through June 30, 1998.
The line of credit  is  collateralized  by  substantially  all of the  assets of
Azimuth Corporation.

As of December 30, 1996, the balance due to ELXSI from the Azimuth  Subsidiaries
was $6,650,000.  Loan balances  outstanding from the Azimuth  Subsidiaries  bear
interest at 15% per annum, payable in arrears on the 1st and 16th of each month,
and mature on June 30, 1998. The $800,000 discount recorded upon purchase of the
Azimuth Subsidiary Notes from BAI has been recorded as a direct reduction to the
face  amount  of the  Azimuth  Subsidiary  Notes in the  accompanying  financial
statements.  In addition,  ELXSI recorded a $225,000  closing fee receivable due
from the Azimuth Subsidiaries under the Recapitalization  Agreement, and accrued
certain  legal and bank fees  payable.  ELXSI  recorded the net fees in accounts
receivable  within  the  accompanying  consolidated  financial  statements.  The
Company will  amortize  this  discount and the net closing fees over the life of
the  Azimuth  Subsidiary  Notes  utilizing  the  effective  interest  method  of
amortization.

NOTE 7.   Long-Term Debt

Long-term debt consists of the following:
<TABLE>
<CAPTION>
                                                                                 December 31,
                                                                         ---------------------------
                                                                             1996            1995
                                                                         -----------     -----------
     <S>                                                                 <C>             <C>
     1.  ELXSI
         Bank Line of Credit with BAI, $11,790,000 available, interest
         due monthly at prime (8.25% at December 31, 1996) or 2% above
         London Eurodollar rate (7.68% at December 31, 1996), maturing
         on June 30,  1998.  The line of credit  provides  for minimum
         reductions in available  credit of $2,250,000  annually.  The
         line is secured by assets of ELXSI,  including  real  estate,
         and the outstanding  stock of ELXSI.  The agreement  provides
         for commitment fees of 0.3% on the unused portion of the line
         of credit. In addition,  the agreement  restricts the payment
         of cash  dividends by ELXSI to an amount not to exceed 50% of
         the excess cash flow (as defined).                                9,784,000      11,709,000

     2.  ELXSI

         Supplemental  Bank  Line  of  Credit  with  BAI,   $5,100,000
         available,  interest  due monthly at prime (8.25% at December
         31,  1996) or 2%  above  London  Eurodollar  rate  (7.68%  at
         December 31,  1996),  maturing on June 30, 1998.  The line is
         utilized to repurchase  securities of the Company,

                                      F-17

<PAGE>
         including stock,  warrants and notes and is secured by assets
         of ELXSI, including real estate, and the outstanding stock of
         ELXSI. The agreement  provides for commitment fees of 0.3% on
         the unused portion of the line of credit.                         3,187,000              --

     3.  ELXSI

         Additional   Bank  Line  of  Credit   with  BAI,   $8,850,000
         available,  interest  due monthly at prime (8.25% at December
         31,  1996) or 2%  above  London  Eurodollar  rate  (7.68%  at
         December 31, 1996),  maturing on June 30, 1998.  The line was
         utilized  to  purchase  the  notes  payable  by  the  Azimuth
         Subsidiaries  and can be used to fund  their  future  working
         capital  requirements  of  Azimuth  (see NOTE 6). The line is
         secured by assets of ELXSI,  including  real estate,  and the
         outstanding  stock  of  ELXSI.  The  agreement  provides  for
         commitment  fees of 0.3% on the unused portion of the line of
         credit.                                                           5,850,000              --

     4.  ELXSI Corporation
         Unsecured senior  subordinated  note payable with interest at
         15% payable  quarterly  in arrears,  commencing  November 15,
         1989.                                                                    --         310,000

     5.  ELXSI Corporation
         Unsecured senior  subordinated notes payable with interest at
         14.5%  payable  quarterly in arrears,  commencing  August 15,
         1991.                                                                    --         877,000

     6.  Cues
         Mortgage  payable at 8.25% on the land and building  owned by
         Cues B.V.                                                           122,000         141,000

       Other                                                             $    31,000     $    18,000
                                                                          18,974,000      13,055,000
       Less current portion                                                 (268,000)     (1,485,000)
                                                                         -----------     -----------
       Long-Term Debt                                                    $18,706,000     $11,570,000
                                                                         ===========     ===========
</TABLE>
The  above  bank debt  agreements  with BAI  contain,  among  other  provisions,
financial  covenants  related to the  maintenance of ELXSI's  minimum net worth,
restrictions  on its capital  expenditures  and  compliance  with certain ratios
including  liabilities  to net  worth,  interest  coverage  and  funded  debt to
earnings before interest, taxes, depreciation and amortization.

                                      F-18
<PAGE>


Aggregate  maturities of long-term  debt for the five years ending  December 31,
2000 and thereafter are as follows:

               1997                          $     268,000
               1998                             18,601,000
               1999                                 24,000
               2000                                 10,000
               2001                                 10,000
               Thereafter                           61,000
                                             -------------
                                             $  18,974,000
                                             =============

NOTE 8.   Commitments and Contingencies

ELXSI  conducts  a  substantial  portion  of  its  operations  utilizing  leased
facilities. ELXSI leases land and/or buildings at 46 of its 58 restaurants under
terms of  lease  agreements  expiring  on  various  dates  (including  extension
options)  through 2032. The majority of the leases require that ELXSI pay taxes,
maintenance, insurance, and other occupancy expenses related to leased premises.
The rental  payments for a majority of the  restaurant  locations are based on a
minimum  annual  rental plus a percentage  of sales,  as defined in the relevant
agreements. Generally, the leases provide for renewal options and in most cases,
management expects that in the normal course of business,  lease agreements will
be renewed or replaced by other leases.

Cues has several non-cancelable  operating leases,  primarily for certain office
and  transportation  equipment,  that  expire  over the  next  three  years  and
generally provide for purchases or renewal options.

The  following is a schedule of future  minimum lease  commitments  for the five
years ending December 31, 2001 and thereafter:
<TABLE>
<CAPTION>
                                                                     Capital Leases   Operating Leases
                                                                     --------------   ----------------
     <S>                                                               <C>              <C>
     1997                                                              $   276,000      $  2,722,000
     1998                                                                  270,000         2,492,000
     1999                                                                  175,000         2,441,000
     2000                                                                  175,000         2,422,000
     2001                                                                  175,000         2,301,000
     Thereafter                                                          2,543,000        16,957,000
                                                                       -----------      ------------
     Total minimum lease payments                                        3,614,000      $ 29,335,000
                                                                                        ============
     Less - Amount representing interest                                (1,884,000)
                                                                       -----------
     Present value of net minimum capital lease payments                 1,730,000
     Less - current portion                                               (142,000)
                                                                       -----------
     Noncurrent capital lease obligation                               $ 1,588,000
                                                                       ===========
</TABLE>

Rent  expense  charged to  operations  amounted to  $2,852,000,  $2,235,000  and
$1,701,000 during 1996, 1995, and 1994, respectively.

At December 31, 1996 and 1995, ELXSI had outstanding letters of credit totalling
$0 and $500,000, respectively.

                                      F-19

<PAGE>

Cues has arrangements  with truck dealers to deliver truck bodies which are used
in the  manufacture of certain Cues  products.  Under these  arrangements,  Cues
reimburses the dealers'  floor-plan  financing  costs for those vehicles held by
the dealers until delivery to Cues. The amount of this  reimbursement  for 1996,
1995 and 1994 was $61,000,  $56,000 and $57,000,  respectively.  At December 31,
1996 and 1995,  truck bodies held by the dealers under these  arrangements  were
valued at $643,000 and $688,000, respectively.

The  Company is  involved  in  various  claims and  lawsuits  incidental  to its
business. In the opinion of management, the resolution of these matters will not
have a material adverse effect on the Company's  consolidated financial position
or results of operations.

NOTE 9.   Thrift and Profit Sharing Plan

In 1986, Cues established a contributory trusteed thrift and profit sharing plan
covering all of its employees who have  completed one year of eligible  service.
The plan's  enrollment  dates are  January 1, April 1, July 1, and October 1, of
each year.  Participants  have the option of making  after-tax or deferred  cash
contributions,  not  to  exceed  6% of  their  annual  compensation,  which  are
supplemented  by  employer  matching  contributions  in the amount of 50% of the
participant's  contribution.  The  participants  may make  additional  voluntary
contributions to the plan which are not supplemented by employer  contributions.
Participants  partially  vest in the employer's  contributions  after the second
year of service and are fully vested after the sixth year of service. Thrift and
profit sharing expense for 1996, 1995 and 1994 was $44,000, $48,000 and $40,000,
respectively.

During 1995, the Restaurant  Division  established a  non-contributory  trusteed
thrift and profit  sharing plan  covering all of its  employees who are over the
age of 21 and have completed one year of eligible service.

NOTE 10.   Common Stock

Activity in common stock shares for the years ended December 31, 1996,  1995 and
1994 was as follows:


                                             1996         1995         1994
                                         -----------   ----------   ----------
Common Stock Issued:
     Balance at beginning of year          4,792,353    5,032,333    5,368,870
     Issuance of fractional shares                16           20           26
     Options exercised                            --           --       18,400
     Shares repurchased and cancelled       (131,500)    (240,000)    (354,963)
                                         -----------   ----------   ----------
     Balance at end of year                4,660,869    4,792,353    5,032,333
                                         ===========   ==========   ==========

NOTE 11.   Common Stock Options and Warrants

Common Stock Options.  At December 31, 1996 and 1995, the Company had a total of
769,587 and 644,587  common shares  reserved for issuance under its stock option
plans,  respectively.  Options under the  Company's  plans are granted at prices
determined by the Board of Directors, which are generally not less than the fair
market value in the case of incentive stock options (or 75% of face market value
in the case of non-qualified  options) of the Common Stock on the date of grant.
Options  generally vest and become  exercisable six months after the date of the
grant and expire ten years after the date of the grant.

                                      F-20

<PAGE>

During 1996,  stockholders  approved the 1996  Incentive  Stock Option Plan (the
"1996  Plan"),  under which up to 125,000  shares may be issued.  Under the 1996
Plan presently outstanding options to purchase 103,450 shares were granted at an
exercise price of $6.50 per share.  The options  became  exercisable on November
23, 1996.

During 1995,  stockholders  approved the 1995  Incentive  Stock Option Plan (the
"1995  Plan"),  under which up to 125,000  shares may be issued.  Under the 1995
Plan presently outstanding options to purchase 103,300 shares were granted at an
exercise price of $5.75 per share.  These options became exercisable on November
19, 1995.

During 1993,  stockholders  approved the 1993  Incentive  Stock Option Plan (the
"1993  Plan"),  under which up to 300,000  shares may be issued.  Under the 1993
Plan presently  outstanding  options to purchase  243,810 shares were granted at
exercise  prices  between  $5.00 and  $6.50  per  share.  These  options  became
exercisable beginning on March 8, 1994.
                                                                    Weighted-
                                                       Number        Average
                                                     of Shares     Option Price
                                                     ---------     ------------

     Outstanding at December 31, 1993                  220,600          5.13

     Granted during 1994                               115,000          5.75
     Exercised during 1994                             (18,400)         3.13
     Cancelled during 1994                                  --
     Outstanding at December 31, 1994                  317,200          5.47
     Exercisable at December 31, 1994                  282,050          5.41
     Available for grant at December 31, 1994          202,987

     Granted during 1995                               124,800          5.69
     Exercised during 1995                                (600)         3.13
     Canceled during 1995                               (4,190)         5.56
     Outstanding at December 31, 1995                  437,210          5.53
     Exercisable at December 31, 1995                  374,478          5.46
     Available for grant at December 31, 1995          207,377

     Granted during 1996                               130,450          6.21
     Exercised during 1996                                  --
     Canceled during 1996                              (15,900)         5.40
     Outstanding at December 31, 1996                  551,760          5.70
     Exercisable at December 31, 1996                  480,305          5.68
     Available for grant at December 31, 1996          217,827

                                      F-21

<PAGE>

The following table summarizes the stock options  outstanding and exercisable at
December 31, 1996:

<TABLE>
<CAPTION>

                                   Outstanding                       Exercisable
                     --------------------------------------    ----------------------
                                    Weighted-
                                     Average      Weighted-                  Weighted
                                    Remaining      Average                    Average
     Range of        Number of     Contractual    Exercise     Number of     Exercise
  Exercise Prices     Options         Life          Price       Options        Price
  ---------------    ---------     -----------    --------     ---------     --------

<S>                   <C>               <C>          <C>        <C>             <C>
    5.00 - 6.50       550,560           8            5.65       479,705         5.65
       26.50            1,200           3           26.50           600        26.50
</TABLE>

The Company has adopted the disclosure-only provisions of SFAS 123. During 1996,
1995 and 1994, no compensation  expense has been recognized for the stock option
plans. Had  compensation  costs for the stock option plans been determined based
on the  fair  value  at the  date of grant  for  awards  in 1996,  1995 and 1994
consistent  with the  provisions  of SFAS 123,  the  Company's  net  income  and
earnings per share would approximate the following pro forma amounts:

                                                  1996        1995        1994
                                                 ------      ------      ------
Net income - as reported (000's)                  7,383       4,546       4,734
Net income - pro forma (000's)                    7,148       4,300       4,397
Earnings per share - as reported                   1.51        0.89        0.79
Earnings per share - pro forma                     1.46        0.84        0.73

The fair  value of each  option  is  estimated  on the date of grant  using  the
Black-Scholes   option   pricing  model  with  the  following   weighted-average
assumptions:  No dividend yield;  expected volatility of 10%; risk free interest
rate 6.26%;  and expected lives of 7 years. The  weighted-average  fair value of
options granted during fiscal 1996, 1995 and 1994 are as follows:

<TABLE>
<CAPTION>
                                                                          Weighted     Weighted
                                                                           Average      Average
                                                             Number       Exercise       Fair
                                                           of Options      Prices       Values
                                                           ------------------------------------
Fiscal 1996:
<S>                                                         <C>             <C>          <C>
Exercise price = market price at date of grant              130,450         6.21         2.24

Fiscal 1995:
Exercise price = market price at date of grant              104,800         5.75         2.07
Exercise price > market price at date of grant               20,000         5.38         1.81
                                                            -------
                                                            124,800

Fiscal 1994:
Exercise price = market price at date of grant              115,000         5.75         2.06
</TABLE>

                                      F-22

<PAGE>


Warrants.  At December 31, 1996 and 1995, the Company had a total of 269,262 and
511,124 common shares reserved for issuance pursuant to warrants as follows:

In  connection  with the  acquisition  of Cues,  the  Company  issued a Series C
warrant to purchase  68,762 shares of the Company's  Common Stock.  This warrant
remained  unexercised at December 31, 1996, and originally had an exercise price
and  expiration  date of $4.36 per share and  January  31,  1997,  respectively.
During 1997, this warrant's  expiration date was extended until January 31, 1999
and the exercise price was increased to $5.23 per share.

In  connection  with the Stock and Note  Purchase  Agreement  (see NOTE 6),  the
Company issued warrants to acquire up to an aggregate of 1,204,000 shares of the
Company's Common Stock. On December 8, 1994, the Company  repurchased 761,638 of
these Series A Warrants from Airlie for  $1,635,000,  or $2.125 per warrant.  On
December  30,  1996,  the Company  repurchased  all of the Series B warrants for
convertible  preferred stock  (convertible  into 241,862 shares of Common Stock)
from BACC for $478,000,  or $1.975 per  underlying  common share.  The remaining
200,500  Series  A  Warrants  remain  unexercised  at  December  31,  1996,  and
originally had an exercise price and expiration date of $3.125 and September 25,
1996,  respectively.  During 1996, these warrant's expiration date were extended
until  September  30, 1998 and the  exercise  price was  increased  to $3.75 per
share.

Phantom Stock Option Plan. The phantom stock option plan was implemented in 1992
as a long-term incentive plan for four key executives of Bickford's  Restaurants
(the  "Group").  At the  inception  of the  plan,  the  Group  paid  an  initial
investment totalling  approximately  $116,000.  Each Group member is entitled to
receive, upon exercise, a cash payment equal to his individual vested percentage
of the appraised value of Bickford's  Restaurants,  as defined, less the balance
of his exercise  price payable upon exercise.  Full vesting  occurred on July 1,
1996,  at  which  time  the  Group,  as a whole,  was  entitled  to 13.9% of the
appraised  value of  Bickford's  Restaurants,  as defined.  Each Group  member's
phantom  stock  options may be exercised  at the  earliest of July 1, 2001,  the
termination of his employment, his death or the sale of the Restaurants.

The assumptions used in calculating the annual expense are set forth in the plan
agreement  and  include  the use of a  multiple  of the  Bickford's  Restaurants
operating income, less certain  Bickford's-related  liabilities, a non-liquidity
discount,  estimated taxes related to a gain on divestiture of the  Restaurants,
sale transaction  costs and the exercise price.  During 1996, 1995 and 1994, the
Company recorded  compensation  expense related to the phantom stock option plan
of $550,000,  $600,000 and $300,000,  respectively.  As of December 31, 1996 and
1995,  $1,946,000 and $1,396,000,  respectively is recorded in other non-current
liabilities,  which  represents  13.9%  of  the  estimated  appraised  value  of
Bickford's Restaurants , as defined, on those dates.

                                      F-23

<PAGE>


NOTE 12.   Segment Reporting

The Company  operates  in two  segments,  restaurant  management  and  equipment
manufacturing.  Summarized  financial  information  by business  segment for the
years ended December 31, 1996, 1995 and 1994 is as follows:

<TABLE>
<CAPTION>
                                               1996             1995             1994
                                           -------------    -------------    -------------
Net Sales:
<S>                                        <C>              <C>              <C>
     Restaurants                           $  61,283,000    $  54,270,000    $  43,391,000
     Equipment                                21,460,000       20,404,000       19,032,000
                                           -------------    -------------    -------------
                                           $  82,743,000    $  74,674,000    $  62,423,000
                                           =============    =============    =============
Operating Income:
     Restaurants                           $   6,019,000    $   7,088,000    $   6,404,000
     Equipment                                 1,334,000          988,000        1,346,000
     Corporate                                (1,350,000)      (1,439,000)      (1,191,000)
                                           -------------    -------------    -------------
                                           $   6,003,000    $   6,637,000    $   6,559,000
                                           =============    =============    =============
Total Assets:
     Restaurants                           $  29,780,000    $  30,008,000    $  25,989,000
     Equipment                                18,328,000       16,321,000       13,182,000
     Corporate                                11,370,000        1,370,000        1,345,000
                                           -------------    -------------    -------------
                                           $  59,478,000    $  47,699,000    $  40,516,000
                                           =============    =============    =============
Depreciation and Amortization:
     Restaurants                           $   2,318,000    $   1,833,000    $   1,460,000
     Equipment                                   457,000          373,000          334,000
                                           -------------    -------------    -------------
                                           $   2,775,000    $   2,206,000    $   1,794,000
                                           =============    =============    =============
Capital Expenditures:
     Restaurants                           $   2,891,000    $   1,967,000    $   2,015,000
     Equipment                                   217,000          390,000          348,000
                                           -------------    -------------    -------------
                                           $   3,108,000    $   2,357,000    $   2,363,000
                                           =============    =============    =============
</TABLE>

Capital   expenditures  exclude  amounts  in  connection  with  acquisition  and
divestitures.

There were no  inter-segment  sales or transfers  during 1996,  1995,  and 1994.
Operating income by business segment excludes interest income, interest expense,
and unallocated corporate expenses.  Corporate assets consist principally of the
related  party notes and  interest  receivable,  the  deferred tax asset and the
closing fee receivable due from the Azimuth Subsidiaries.

Foreign assets,  revenues, and export sales each represents less than 10% of the
Company's totals. No material amount of the Company's sales are dependent upon a
single customer.

                                      F-24

<PAGE>


NOTE  13.  Quarterly  Financial  Data -  (Unaudited)  The  following  summarizes
quarterly  financial  data for 1996 and 1995 (in  thousands,  except  per  share
data):
<TABLE>
<CAPTION>
                                                                1996
                                            -------------------------------------------
                                             Mar. 31,   June 30,    Sep. 30,   Dec. 31,
                                             --------   --------    --------   --------
<S>                                         <C>         <C>        <C>         <C>
     Net sales                              $ 19,820    $ 21,665   $ 21,242    $ 20,016
     Gross profit                              3,356       4,202      4,249       4,333
     Income before income taxes                  519       1,264      1,482       1,786
     Net income                             $    430    $  1,124   $  1,315    $  4,514
     Earnings per common share              $    .09    $    .21   $    .27    $    .94
</TABLE>

<TABLE>
<CAPTION>
                                                                1995
                                            -------------------------------------------
                                             Mar. 31,   June 30,    Sep. 30,   Dec. 31,
                                             --------   --------    --------   --------
<S>                                         <C>         <C>        <C>         <C>
     Net sales                              $ 15,614    $ 16,914   $ 22,048    $ 20,098
     Gross profit                              3,410       3,903      4,504       4,510
     Income before income taxes                  833       1,222      1,591       1,414
     Net income                             $    745    $  1,084   $  1,432    $  1,285
     Earnings per common share              $    .15    $    .21   $    .28    $    .25

</TABLE>

In the fourth  quarter of 1996,  the  Company  recorded a  $2,881,000  credit to
benefit  for  income  taxes as a  result  of the  release  of a  portion  of the
valuation allowance as discussed in NOTE 5.


                                      F-25

<PAGE>


         SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

                       ELXSI CORPORATION AND SUBSIDIARIES
                             (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                                          Additions
                                                              --------------------------------
                                             Balance at          Charged        Charged to                          Balance
                                              Beginning         Costs and         Other            Deductions       at End
                                              of Period         Expenses     Accounts-describe      Describe       of Period
                                            -------------     ------------   -----------------     -----------    -----------

Year ended December 31, 1996
  Account deducted from assets:
       Reserve for doubtful accounts
<S>                                            <C>                <C>             <C>               <C>              <C>
          receivable                           $   58             $   28          $    3 (C)           (35) (A)      $   54
                                               ======             ======          ======            ======           ======
       Inventory reserve                       $  150             $  400          $   --                --  (B)         550
                                               ======             ======          ======            ======           ======

Year ended December 31, 1995
  Account deducted from assets:
       Reserve for doubtful accounts
          receivable                           $   35             $   23          $   19 (C)           (19) (A)      $   58
                                               ======             ======          ======            ======           ======
       Inventory reserve                       $  100             $   54          $   --                (4) (B)         150
                                               ======             ======          ======            ======           ======

Year ended December 31, 1994
  Account deducted from assets:
       Reserve for doubtful accounts
          receivable                           $   77             $    3          $   --               (45) (A)      $   35
                                               ======             ======          ======            ======           ======
       Inventory reserve                       $  262             $   53          $   --              (215) (B)      $  100
                                               ======             ======          ======            ======           ======

(A)  Uncollectible  accounts written off during 1996, 1995 and 1994.
(B)  Obsolete inventory written off during 1996, 1995 and 1994.
(C)  Bad debt recoveries.
</TABLE>



                                       S-1


<PAGE>


                                ELXSI Corporation
                                 Exhibits Index
                                1996 - Form 10-K

Exhibit
Number    Description                                                   Page No.
------    -----------                                                   --------

2.1       Agreement and Plan of Merger by and among ELXSI Corporation,
          ELXSI, Cadmus Corporation and Holdingcues,  Inc. dated as of
          October  16,  1992,  including  form of  Series  C  Warrant.
          (Incorporated  herein by  reference  to  Exhibit  2.7 of the
          Company's  Current  Report on Form 8-K as filed November 13,
          1992 (File No 0-11877)).

2.2       Family  Restaurant  Sale  and  Purchase  Agreement,  between
          Marriott  Family  Restaurants,  Inc.  ("Marriott")  and  the
          Company  dated  February 28, 1991.  (Incorporated  herein by
          reference to Exhibit 2.1 of the Company's  Current Report on
          Form 8-K, dated July 16, 1991 (File No. 0-11877)).

2.3       Side  Letter  to the  Family  Restaurant  Sale and  Purchase
          Agreement  between  Marriott and the Company dated  February
          28, 1991.  (Incorporated  herein by reference to Exhibit 2.2
          of the Company's  Current Report on Form 8-K, dated July 16,
          1991 (File No. 0-11877)).

2.4       Assignment  and  Guaranty  of  Family  Restaurants  Sale and
          Purchase  Agreement  and Side  Letter,  between the Company,
          Marriott and ELXSI dated June 29, 1991. (Incorporated herein
          by reference to Exhibit 2.3 of the Company's  Current Report
          on Form 8-K, dated July 16, 1991 (File No. 0-11877)).

2.5       Closing Side Letter Agreement  Regarding Family  Restaurants
          Sale and Purchase Agreement between ELXSI and Marriott dated
          July 1, 1991.  (Incorporated  herein by reference to Exhibit
          2.4 of the Company's  Current Report on Form 8-K, dated July
          16, 1991 (File No. 0-11877)).

2.6       Real Estate Closing Side Letter  Agreement  Regarding Family
          Restaurants  Sale and Purchase  Agreement  between ELXSI and
          Marriott  dated  July  1,  1991.   (Incorporated  herein  by
          reference to Exhibit 2.5 of the Company's  Current Report on
          Form 8-K, dated July 16, 1991 (File No. 0-11877)).

2.7       Agreement  Concerning  Massachusetts and Connecticut  Liquor
          Licenses  between  ELXSI and  Marriott  dated  July 1, 1991.
          (Incorporated  herein by  reference  to  Exhibit  2.6 of the
          Company's  Current  Report on Form 8-K,  dated July 16, 1991
          (File No. 0-11877)).

3.1       Restated  Certificate of  Incorporation  of the Company,  as
          amended. (Incorporated herein by reference to Exhibit 3.1 of
          the Company's Annual Report on Form 10-K for the fiscal year
          ended December 31, 1989 (file No. 0-11877)).

3.2       Certificate   of  Amendment  of  Restated   Certificate   of
          Incorporation   of  the   Company   dated   May  27,   1992.
          (Incorporated  herein by  reference  to  Exhibit  3.2 of the
          Company's  Annual  Report on Form 10-K for the  fiscal  year
          ended December 31, 1994 (file No. 0-11877)).


<PAGE>

3.3       Bylaws of the Company.  (Incorporated herein by reference to
          Exhibit 3.1 of the Company's  Registration Statement on Form
          S-4, as amended. (file No. 0-11877)).

4.1       Series A Warrant No. A-7 to purchase 50,000 shares of Common
          Stock issued to Eliot Kirkland L.L.C. ("EKLLC").

4.2       Form of Allonge and  Amendment to Series A Warrants of ELXSI
          Corporation, with respect to the foregoing Warrant.

4.3       Series A  Warrant  No.  A-6 to  purchase  150,500  shares of
          Common Stock issued to the  Alexander M. Milley  Irrevocable
          Trust I U/A  dated  May 9,  1994.  (Incorporated  herein  by
          reference to Exhibit 4.2 of the  Company's  Annual Report on
          Form 10-K for the fiscal year ended  December 31, 1994 (file
          No. 0-11877)).

4.4       Form of Allonge and  Amendment to Series A Warrants of ELXSI
          Corporation, with respect to the foregoing Warrant.

4.5       Series B  Warrant  No.  B-1 to  purchase  604,656  shares of
          Series A Non-Voting  Convertible  Preferred  Stock issued to
          Continental  Illinois Equity Corporation ("CIEC") (now named
          BankAmerica  Capital  Corporation  ("BACC")).  (Incorporated
          herein by reference to Exhibit 4.6 of the  Company's  Annual
          Report on Form 10-K for the fiscal year ended  December  31,
          1989 (file No. 0-11877)).

4.6       Series C Warrant No. C-3 to purchase 68,762 shares of Common
          Stock issued to EKLLC.

4.7       Form of Allonge and  Amendment to Series C Warrants of ELXSI
          Corporation, with respect to the foregoing Warrant.

4.8       Amended and Restated  Registration Rights Agreement dated as
          of  January  23,  1990 among the  Company,  Milley & Company
          ("M&C")  and  CIEC.  (Incorporated  herein by  reference  to
          Exhibit 4.7 of the Company's  Annual Report on Form 10-K for
          the fiscal year ended December 31, 1989 (file No. 0-11877)).

4.9       Exercise of Option and  Assignment  of  Registration  Rights
          executed by ELX Limited  partnership  ("ELX") and The Airlie
          Group,   L.P.    ("Airlie")   dated   November   30,   1994.
          (Incorporated  herein by  reference  to  Exhibit  4.6 of the
          Company's  Annual  Report on Form 10-K for the  fiscal  year
          ended December 31, 1994 (file No. 0-11877)).

4.10      15% Senior  Subordinated  Note issued by the Company to CIEC
          in  the  amount  of  $401,765.00.  (Incorporated  herein  by
          reference to Exhibit 10.18 of the Company's Annual Report on
          Form 10-K for the fiscal year ended  December 31, 1989 (file
          No. 0-11877)).

4.11      14.5% Senior Subordinated Note issued by the Company to CIEC
          in  the  amount  of   $502,206.25   dated  June  27,   1991.
          (Incorporated  herein by  reference  to  Exhibit  4.8 of the
          Company's  Annual  Report on Form 10-K for the  fiscal  year
          ended December 31, 1994 (file No. 0-11877)).

4.12      Amended and Restated Loan and Security  Agreement,  dated as
          of  December  30,  1996,  between  ELXSI and Bank of America
          Illinois ("BAI").

<PAGE>

4.13      Warrant  Purchase and Senior  Subordinated  Note termination
          Agreement,  dated as of December  30,1996,  between BACC and
          the Company.

4.14      14.5% Senior  Subordinated Note issued by the Company to Pan
          Fixed  Income Fund,  Ltd.,  dated as of November 16, 1993 in
          the amount of $250,000. (Incorporated herein by reference to
          Exhibit 4.12 of the Company's Annual Report on Form 10-K for
          the fiscal year ended December 31, 1994 (file No. 0-11877)).

4.15      14.5% Senior Subordinated Note issued by the Company to Rona
          Jaffe,  dated  as of  November  16,  1993 in the  amount  of
          $100,000.  (Incorporated herein by reference to Exhibit 4.13
          of the  Company's  Annual Report on Form 10-K for the fiscal
          year ended December 31, 1994 (file No. 0-11877)).

4.16      14.5% Senior Subordinated Note issued by the Company to Anne
          Strassler  A.C.S.W.  P.C.,  dated as of November 16, 1993 in
          the amount of $25,000.  (Incorporated herein by reference to
          Exhibit 4.14 of the Company's Annual Report on Form 10-K for
          the fiscal year ended December 31, 1994 (file No. 0-11877)).

10.1      The Company's 1987  Incentive  Stock Option Plan as amended.
          (Incorporated  by reference to Exhibit 10.1 of the Company's
          Annual  Report  on Form  10-K  for  the  fiscal  year  ended
          December 31, 1987 (file No. 0-11877)).

10.2      The  Company's  1987  Supplemental   Stock  Option  Plan  as
          amended.  (Incorporated  by reference to Exhibit 10.2 of the
          Company's  Annual  Report on Form 10-K for the  fiscal  year
          ended December 31, 1987 (file No. 0-11877)).

10.3      The   Company's   1993   Incentive    Stock   Option   Plan.
          (Incorporated  herein by  reference  to Exhibit  10.3 of the
          Company's  Annual  Report on Form 10-K for the  fiscal  year
          ended December 31, 1994 (file No. 0-11877)).

10.4      The Company's 1995 Incentive Stock Option Plan (Incorporated
          herein by reference to Exhibit 4.1 to the Company's Form S-8
          Registration Statement filed November 14, 1995 (Registration
          No. 033-64205)).

10.5      The Company's 1996 Incentive Stock Option Plan (Incorporated
          herein by reference to Exhibit 4.1 to the Company's Form S-8
          Registration  Statement filed December 2, 1996 (Registration
          No. 333-17131)).

10.6      The ELXSI 1991 Phantom Stock Option Plan for the  management
          of  the  Bickford's   Division.   (Incorporated   herein  by
          reference to Exhibit 10.4 of the Company's  Annual Report on
          Form 10-K for the fiscal year ended  December 31, 1994 (file
          No. 0-11877)).

10.7      Amendment  No. 1 to the ELXSI 1991 Phantom Stock Option Plan
          for the management of the Bickford's Division. (Incorporated
          herein by reference to Exhibit 10.5 of the Company's  Annual
          Report on Form 10-K for the fiscal year ended  December  31,
          1994 (file No. 0-11877)).

10.8      Non-Qualified  Stock  Option  Agreement  issued to Robert C.
          Shaw for the  purchase  of 12,500  shares  of Common  Stock,
          dated October 30, 1992. (Incorporated herein by reference to
          Exhibit 10.7 of the Company's Annual Report on Form 10-K for
          the fiscal year ended December 31, 1994 (file No. 0-11877)).

<PAGE>

10.9      Non-Qualified  Stock  Option  Agreement  issued  to  John C.
          Savage for the  purchase of 10,000  shares of Common  Stock,
          dated October 30, 1992. (Incorporated herein by reference to
          Exhibit 10.8 of the Company's Annual Report on Form 10-K for
          the fiscal year ended December 31, 1994 (file No. 0-11877)).

10.10     Non-Qualified  Stock Option  Agreement  issued to Farrokh K.
          Kavarana for the purchase of 10,000  shares of Common Stock,
          dated October 30, 1992. (Incorporated herein by reference to
          Exhibit 10.9 of the Company's Annual Report on Form 10-K for
          the fiscal year ended December 31, 1994 (file No. 0-11877)).

10.11     Non-Qualified  Stock  Option  Agreement  issued  to Kevin P.
          Lynch for the  purchase  of 20,000  shares of Common  Stock,
          dated October 30, 1992. (Incorporated herein by reference to
          Exhibit  10.10 of the  Company's  Annual Report on Form 10-K
          for the  fiscal  year  ended  December  31,  1994  (file No.
          0-11877)).

10.12     Non-Qualified  Stock Option Agreement issued to Alexander M.
          Milley for the  purchase of 30,000  shares of Common  Stock,
          dated October 30, 1992. (Incorporated herein by reference to
          Exhibit  10.11 of the  Company's  Annual Report on Form 10-K
          for the  fiscal  year  ended  December  31,  1994  (file No.
          0-11877)).

10.13     Non-Qualified  Stock  Option  Agreement  issued to Thomas R.
          Druggish for the purchase of 12,500  shares of Common Stock,
          dated October 30, 1992. (Incorporated herein by reference to
          Exhibit  10.12 of the  Company's  Annual Report on Form 10-K
          for the  fiscal  year  ended  December  31,  1994  (file No.
          0-11877)).

10.14     Stock and Note  Purchase  Agreement  dated as of August  31,
          1989 by and among the Company, Airlie and M&C. (Incorporated
          herein by reference to Exhibit 2.1 of the Company's  Current
          Report  on Form  8-K as  filed  October  3,  1989  (File  No
          0-11877)).

10.15     Stock and Note  Purchase  Agreement  dated as of January 23,
          1990 among  Airlie,  CIEC and M&C.  (Incorporated  herein by
          reference to Exhibit 10.14 of the Company's Annual Report on
          Form 10-K for the fiscal year ended  December 31, 1994 (file
          No. 0-11877)).

10.16     Management   Agreement   ("Management   Agreement")  between
          Winchester  National,  Inc.  (d/b/a as M&C) and the  Company
          dated September 25, 1989.  (Incorporated herein by reference
          to Exhibit 10.21 of the Company's Annual Report on Form 10-K
          for the  fiscal  year  ended  December  31,  1991  (file No.
          0-11877)).

10.17     Assignment of Management Agreement dated June 28, 1991 among
          the  Company,  Winchester  National,  Inc.,  ELXSI  and MMI.
          (Incorporated  herein by reference  to Exhibit  10.16 of the
          Company's  Annual  Report on Form 10-K for the  fiscal  year
          ended December 31, 1994 (file No. 0-11877)).

<PAGE>

10.18     Management  Agreement  Extension  dated  September  25, 1992
          between ELXSI and MMI.  (Incorporated herein by reference to
          Exhibit  10.17 of the  Company's  Annual Report on Form 10-K
          for the  fiscal  year  ended  December  31,  1994  (file No.
          0-11877)).

10.19     Assignment to Cadmus Corporation  ("Cadmus"),  dated January
          1,  1994 of  MMI's  rights  under  the  extended  Management
          Agreement dated September 25, 1992, as amended between ELXSI
          and MMI.  (Incorporated herein by reference to Exhibit 10.18
          of the  Company's  Annual Report on Form 10-K for the fiscal
          year ended December 31, 1994 (file No. 0-11877)).

10.20     Promissory Note of ELX payable to the Company dated December
          8, 1994 in the amount of $1,155,625.00 due December 8, 1997.
          (Incorporated  herein by  reference  to Exhibit  10.6 of the
          Company's  Annual  Report on Form 10-K for the  fiscal  year
          ended December 31, 1994 (file No. 0-11877)).

10.21     Form of Stock Purchase and Option Exercise Agreement,  dated
          as of December 30, 1996,  between BACC and ELX (Incorporated
          herein by reference to Exhibit D to the  Amendment No. 10 to
          the Schedule 13D of Alexander M. Milley,  MMI,  ELX,  Cadmus
          and EKLLC,  dated  January 7, 1997,  filed in respect of the
          Company's Common Stock).

10.22     Form of Promissory Note of ELX payable to the Company, dated
          December 30, 1996, in the amount of $909,150 due on December
          30, 1999  (Incorporated  herein by reference to Exhibit E to
          the  Amendment  No. 10 to the  Schedule  13D of Alexander M.
          Milley,  MMI, ELX, Cadmus and EKLLC,  dated January 7, 1997,
          filed in respect of the Company's Common Stock).

10.23     Form of Recapitalization Agreement, dated as of December 30,
          1996,  among  Azimuth  Corporation   ("Azimuth"),   Delaware
          Electro  Industries,  Inc.  ("DEI"),  Contempo Design,  Inc.
          ("CDI"),  Contempo Design West, Inc. ("CDW"),  ELXSI and BAI
          (Incorporated  herein  by  reference  to  Exhibit  F to  the
          Amendment No. 10 to the Schedule 13D of Alexander M. Milley,
          MMI, ELX, Cadmus and EKLLC,  dated January 7, 1997, filed in
          respect of the Company's Common Stock).

10.24     Second  Amended and Restated  Loan and  Security  Agreement,
          dated as of October 9, 1995, between Azimuth and BAI.

10.25     Loan and  Security  Agreement,  dated as of October 9, 1995,
          between DEI and BAI.

10.26     Loan and  Security  Agreement,  dated as of October 9, 1995,
          between CDI and BAI.

10.27     Loan and  Security  Agreement,  dated as of October 9, 1995,
          between CDW and BAI.

10.28     First Omnibus  Amendment,  dated as of August 9, 1996, among
          Azimuth, DEI, CDI, CDW and BAI.

10.29     Second  Omnibus  Amendment,  dated as of September 23, 1996,
          among Azimuth, DEI, CDI, CDW and BAI.

<PAGE>

10.30     Third  Omnibus  Amendment,  dated as of November  27,  1996,
          among Azimuth, DEI, CDI, CDW and BAI.

10.31     Second Amended and Restated Guaranty, dated as of October 9,
          1995, made by DEI, CDI and CDW in favor of BAI.

10.32     Second Amended and Restated  Pledge  Agreement,  dated as of
          October 9, 1995, among Azimuth, DEI, CDI, CDW and BAI.

21.1      Subsidiaries of the Company.  (Incorporated  by reference to
          Exhibit 22.1 to the Company's Annual Report on Form 10-K for
          the fiscal year ended December 31, 1990 (file No. 0-11877)).

23.1      Consent of Price Waterhouse LLP

27        Financial Data Schedule

<PAGE>